Andhra HC (Pre-Telangana)
Income-Tax Officer, Circle I, B-Ward, ... vs Shivlal Dhulichand Agarwal And Ors. on 10 August, 1989
Equivalent citations: [1990]184ITR414(AP)
JUDGMENT Bhaskara Rao, J.
1. This is an appeal filed by the Income-tax Department against the acquittal of respondent Nos. 1 to 3 who were charges under section 276(1) and 277 of the Income-tax Act and under section 193 and 196 of the Indian Penal Code.
2. The facts of the case are that A-1 is the firm and A-2 and A-3 are partners. A-1 firm filed a return, exhibit P-3, dated June 25, 1985 before P-W-1, Income-tax Officer, D-Ward, Circle-1, Hyderabad, for the assessment year 1984-85 declaring an income of Rs. 99,980. It was A-3 that signed in exhibit P-3 (a), the verification on behalf of A-1 firm. Along with the return, exhibits P-4 to P-6, adjusted profit and loss account and the trial balance were also filed. In exhibit P-6, under the head "List of sundry creditors". The names of Sri Ramavatar Sharma and Smt. Bhagirathi Sharma were shown. They are supposed to have lent sums of Rs. 62,457 and Rs. 55,406, respectively, to A-1 firm. During the assessment proceeding, P.W-1 (Income-tax Officer) took up the inquiry of A-1 firm. During the inquiry, the accountant of the first filed before him exhibit P-8 and P-9, confirmatory letters given by the creditors, Mr. and Mrs. Sharma confirming the lending of aforesaid amounts. P. W-1 directed the authorised representative to produce the two creditors before him on March 12, 1985. On March 13, 1985, the authorised representative produce Ramavatar Sharma. P.W-1 then recorded his statement, exhibit P-10, during the course of examination, initially, Ramavatar Sharma maintained that the loans were advanced from his saving from his salary and performing and by tuitions, etc., but after persistent examination, Ramavatar Sharma is said to have broken down and admitted before him that it was A-1 itself that deposited the amounts of Rs. 62,000 and 55,000 in the names in the State Bank of Hyderabad and withdrew the amounts of cheques issued by him and his wife. Thereafter, P.W-1 examined A-2 of March 27, 1985, and recorded his statement, exhibit P-11, wherein he admitted that the amounts were actually monies of A-1 firm and that the monies are not of Mr. and Mrs. Sharma. The borrowals, exhibit P-12 and Exhibit P-12(b) were recorded at pages 32 and 33 of the ledger and exhibit P-12 P.W-1 considered the said amounts as the income of the first and by exhibit P-13 assessment order dated March 28, 1985, he computing the income at Rs. 2,30,600 and initiated penalty proceeding. Thereafter he launched prosecution against the accused on the basis of the exhibit P-1 directed issued by the commissioner of Income-tax.
3. PW-2, who succeeded PW-1, imposed a penalty of Rs. 3,000 as per exhibit P-14 order dated March 26, 1987, under section 273. He also passed an order, exhibit P-15 under section 271(1)(c) and imposed a penalty of Rs. 85,000 for concealment of income of Rs. 1,25,619 Thus, the complaint is filed by the Income-tax Department as stated supra.
4. Prosecution examined P.W-1 and 2 and marked exhibit P-1 to P-38. The defence also marked exhibit D-1 to D-8.
5. The accused were examined under section 313, Criminal procedure Code. They stated that there are three partners, another partner is one Hazarilal. They admitted that they filed exhibit P-3 returns together with the enclosures. But they contended that the loans were advanced by Mr. and Mrs. Sharma by way of cheques and thus those amounts did not belong to the firm. Regarding the statement, Exhibit P-11, given by A-2, the stand of the accused is that they were not confronted with exhibit P-10 statement of Ramavatar Sharma and A-2's statement was obtained under inducement and threat. The court below, after considering the entire material evidence on record, acquitted the accused. Against that order, the present appeal has been filed.
6. In this appeal, the only point to be considered is whether the accused are guilty of the offence or not.
7. As per the facts stated by the prosecution witnesses, P-Ws-1 and 2, A-1 firm has concealed its income of Rs. 1,25,690 by wrongly showing that they have borrowed Rs. 62,000 and Rs. 55,000 from Ramavatar Sharma and his Wife, Bhagirathi Sharma, and further A-2 in his statement, Exhibit P-11, admitted that they have not borrowed the said amount and the amounts were actually monies of A-1 firm which were deposited in the names of the above said person and cheques were taken. On the basis of the said statement, the said amounts were included in the account of the firm and taxed and, thereafter, penalty proceedings were also started. The present prosecution was also filed.
8. Learned counsel appearing for the Income-tax Department contended that the statement of Ramavatar Sharma, exhibit P-10 and the statement of a - 2, i.e., exhibit P-11, and the letters, exhibit P-8 and P-9, written by Ramavatar Sharma and his wife, Bhagirathi Sharma, addressed to the Income-tax Officer stating that they advanced the loan of Rs. 62,000 and Rs. 55,000 clinchingly proved that A-1 firm has concealed its income shown as if the said amount is borrowed from Ramavatar Sharma and his wife, Bhagirathi Sharma, by fabricating the records falsely, therefore, on the above documents themselves, the respondent can be convinced for the offence for which they are charged.
9. Learned counsel for the respondent Sri Ratnakar, contended that the letters, exhibit P-8 and P-9 and the statement of Ramavatar Sharma, exhibit P-10, are not admisible as the said Ramavatar Sharma,
10. though cited was not examined to prove the same. The alleged statement of A-2 i.e., exhibit P-11 was made under inducement and threat and he has gone back on the statement and wrote a letter, exhibit P-2, to the Income-tax Department immediately. Therefore, relying solely on the statement of A-2, i.e., exhibit P-11, the repondents cannot be convicted unless there is independent evidence to established the guilt of the accused, it is further submitted that the said statement is in the nature of a confession made before an Income-tax Officer and, therefore, the same is inadmissible in law and the same cannot be taken into consideration.
11. It is a fact that Ramavatar Sharma, though cited, was not examined. Thus, exhibit P-8 and P-9 and the statement of the Ramavatar Sharma, i.e., exhibit P-10 are not proved. Therefore, the same are not admissible in evidence and the court cannot consider the same. Therefore, the same cannot be taken into consideration.
12. Then, there remains the statement of A-2, i.e., exhibit P-11. The said statement is put to A-2 in his examination under section 313, criminal Procedure Code, in the court below, and he stated that the statement of Ramavatar Sharma, exhibit P-10, was not put to him and because of inducement and threat, he has made that statement. But A-2 retracted from this statement and further stated that they borrowed the amount from Ramavatar Sharma and his wife, Bhagirathi Sharma, and the said person also lent money to different person. In view of the above retracted statement of A-2 in the court below, now it has to be decided whether the prosecution established the guilt of the accused.
13. It is a settled principle of law that the prosecution must prove beyond all reasonable doubt, therefore, what is the proof required to established the guilt of the accused in such cases.
14. In CIT v. Smt. Chitra Mukherjee [1981] 127 ITR 252, a division Bench of the Calcutta High Court comprising their Lordship Justice Sabyasachi Mukharji (as he then was) and Sudhindra Mohan Guha ruled that penalty proceeding under section 271(1)(a) of the Income-tax Act, are not only quasi-judicial but also quasi-criminal. In order to impose penalty, the revenue has to discharge its onus and there should compliance with the law. Section 274 of the Act Specifically enjoins that reasonable opportunity to be heard should be given to the assessee.
15. In CIT v. anwar Ali [1970] 76 ITR 969, their Lordships of the Supreme Court had occasion to consider the question whether the proceedings under section 28 of the Indian Income-tax Act, 1922, imposing a penalty which is akin to section 27(1) of the present Act, is penal in character. Their Lordships considered the views of the High Courts of Bombay, Gujarat and Patna which took view that the proceedings under section 28(1)(c) of the Indian Income-tax Act are penal in nature and it was. Therefore, for the Department to establish that the assessee is guilty of concealment and found that the order imposing penalty is a quasi-criminal proceeding. Their Lordships further considered the question as to what should be the nature of the burden upon the Department for establishing that the assessee is liable to payment of penalty. Their Lordships, in unambiguous terms, held that the Department must establish that the receipt of the amount in dispute constitutes income of the assessee. Their Lordships went on to add, that if there is no evidence on the record except the explanation given by the assessee, which explanation was false, it does not follow that the receipt constitutes this taxable income. Their lordships also considered the question whether the finding given in the assessment proceedings for determining the tax is conclusive and answered it by saying that it was not conclusive, though it is good evidence.
16. The above said principle is also followed by the Orissa High court in Bhajuram Ganpatram v. CIT .
17 The principle laid down by the above judgments makes it clear that penalty proceedings are quasi-criminal in nature and the finding given in assessment proceedings is not conclusive proof, but it is only a good piece of evidence. When there is only the explanation of the assessee and there is no other evidence and the said explanation is false, it does not follow that the receipt constitutes his taxable income. When the Department has to prove their case even in penalty proceedings treating them as quasi-criminal in nature by adducing cogent evidence, it is a much more onerous burden on the Department to prove their case of concealment of income and other charges in the criminal proceedings.
18 Therefore, now it has to be examined whether the prosecution has proved its case.
19. It is a fact that exhibit P-11 is a statement given by A-2. But A-2 has retracted the same. Therefore, I have to see the evidence of P.W-1. P.W-1 in his evidence, stated that according to Ramavatar Sharma, the amount of Rs. 62,000 was deposited in his name in the bank and it belongs to A-1 firm and he issued a cheque for that amount to A-1. Similarly, Ramavatar Sharma stated that a sum of Rs. 55,000 was advanced by his wife and the said amount was also deposited by A-1 firm. In the cross - examination, he stated that Rs. 62,000 was deposited in the bank on March 23, 1983. But he is not certain about the other deposit of Rs. 55,000 standing in the name of Mrs. Bhagirathi Sharma. P.W-1 was asked, whether he was aware if the sums of Rs. 47,000 and Rs. 35,000 were deposited by Ramesh Oils Mills and K.O.P Industries, respectively, to the accounts of Mr. and Mrs. Sharma. He stated that he does not think that these sums were deposited by those two. To a further question,
20. he stated that he did not verify whether Ramesh Oil Mills and K.O.P. Industries deposited the said amounts Exhibit P-6 is the trial balance-sheet appended to exhibit P-3 return submitted by A-1. It shows a list of sundry creditors of A-1 firm. The total amount borrowed by A-1 firm from the creditors is Rs. 11, 17,387.95. In the list of creditors, the names of Ramavatar Sharma and Bhagirathi Sharma also occur showing the amounts lent by them as Rs. 62,457 and Rs. 55,406. The above fact clearly shows that A-1 firm was contracting heavy loans for conducting its business. There is no dispute regarding the other loans advanced by Ramavatar Sharma and Bhagirathi Sharma. P. W-1 admitted that he was aware of the fact that Ramavatar Sharma was an income-tax assessee. He also stated that he did not examine anybody to find out whether Ramavatar Sharma was giving loans to others. He further stated that excepting exhibit P-10 statement made by A-2, he has not examined any person on record about the loans advanced by Ramavatar Sharma and his wife, Bhagirathi Sharma. He further stated that he is not aware of Mr. and Mrs. Sharma were being assessed from 1978-80 till 1984-85. P.W-3 also confirms that he did not inquire from the Department if Mr. and Mrs. Sharma were submitting their returns from 1979-80 to 1984-85. Therefore, the above statements clearly show that except the statement of Ramavatar Sharma, which is inadmissible in evidence, and the statement of A-2, i.e., exhibit P-11, there is nothing on record to show that this advancement of loans by Ramavatar Sharma and Bhagirathi Sharma was bogus or false. Exhibits P-19 and P-20 are the returns of income of Ramavatar Sharma for the assessment years 1983-84 and 1984-85, respectively Exhibit P-20 shows the receipt of Rs. 4,161 as interest from Ramesh Oil Mills. The balance-sheet appended to exhibit P-20 would show an amount of Rs. 44,518.50 being due to him from Ramesh Oil Mills, Hyderabad, and an amount of Rs. 20,988 is also shown as due from other sundry debtors. Then, the total amount comes to Rs. 85,539. Thus, the above document makes it clear that not only Ramavatar Sharma had advanced Rs. 44,000 and odd to Ramesh Oil Mills, but also in addition advanced debts to several others amounting to roughly Rs. 21,000. In exhibits P-22 and P-23, he has not only shown Mr. Shivlal Dhulichand Agarwal. Viz., A-1, as his debtor for an amount of Rs. 62,000 but also showed a sum of Rs. 19,500 as the amount due to him from sundry debtors.
21. In the case of the wife of Ramavatar Sharma, i.e., Smt. Bhagirathi Sharma, exhibit P-28 is the return for the year 1983-84. Exhibit P-27 is the profit and loss account statement. In the above statement, a sum of Rs. 34,290 is shown against K.O.P. Industries. A sum of Rs. 11,396 is shown against other sundry debtors, exhibit P-28 is the certificate showing deduction of tax of Rs. 390 from the interest paid to her by K.O.P Industries. The interest earned by her is shown as Rs. 3,989.70. The amount of Rs. 390 was remitted in the syndicate Bank on November 22, 1983, as tax. Exhibit P-29 is an account copy of Bhagirathi Sharma's returns accepting the income, exhibit P-32 is another return for the year 1984-85. Exhibit P-33 is profit and loss account and balance sheet and it shows the advancement of Rs. 55,000 to A-1 and other debtors are also shown. Exhibit P-34 is the account copy of Bhagirathi Sharma with K.O.P. Industries and it shows that an amount of Rs. 35,000 was paid back to her on March 25, 1983, and similarly the payment of the interest was also shown. Exhibit P-35 is the certificate issued by K.O.P. Industries for deducting Rs. 148 as tax, earned by her from the interest accrued to her on the sum of Rs. 34,289.70. Exhibit P-36 also is similar certificate given by A-1 firm. Exhibit P-37 is the assessment order accepting her income for the assessment year 1984-85.
22. The above evidence clearly shows that Ramavatar Sharma and his wife, Bhagirathi Sharma, were giving loans and earning interest and they were Income-tax assessee and they filed returns and their cases were decided by the income-tax authority. Therefore, it cannot be said that Ramavatar Sharma and Bhagirathi Sharma have no capacity to lend loans, except exhibit P-11 statement which is retracted by A-2 in the present case, there is no evidence on the record to show that Ramavatar Sharma and Bhagirathi Sharma have not advanced any amount to A-1 firm.
23. Next coming to exhibit P-11 statement which is given by A-2 before the Income-tax officer, A-2 retracted it in the court and stated that he had given that statement under inducement for peace and good relation with the Income-tax Department so that the matter may be settled without any further complication. Exhibit P-11 statement was recorded on March 27, 1985 immediately on April 4, 1985, a letter was addressed to the commissioner of Income-tax stating that an application was filed under section 273(a) of the Act by the A-1 firm. It was delivered on April 6, 1986. So, it is clear that the waiver petition is filed within days of the assessment order, exhibit P.13, which treated the credit as bogus and computed the same as the Income of A-1 firm. In the said petition, a reference was made to the statement of Ramavatar Sharma recorded on March 13, 1986. At page 2 of that petition the circumstances, which prompted A-2 to make exhibit P-11 statement admitting the credits as bogus is explained thus :
"The partners also accepted in the statement recorded that the money belonged to the partnership firm, as it was not the intention to prolong this matter and get into needless legal problems. Even the Income-tax Officer assured that the Department will view the case sympathetically if the assessee co-operates and agree to the assessment of the amount. Therefore, with a view to purchasing peace and sparing ourselves any possible future problems, we have ourselves agreed that this amount belongs to the partnership to facilitate the Income-tax Officer to add these amounts.
We beg to submit that though we agreed that the money belongs to the gave those monies. Perhaps Mr. Sharma though there may be tax problems and he conveniently stated that he has not given the loan and that the monies belong to the partnership.
Actually, if the income-tax files of Mr. Sharma are verified we understand that he even explained the sources from where the monies are given to us the Income-tax Department."
24. Thus, immediately within a few days, the firm came forward with the version of what forced A-2 to make such statement and that such statement was not a voluntary one. Thus, the version now put forth by A - 2 before this court is the version that was put forth before the Income-tax Department. The plea of A-1 firm even by April 6, 1986, was that, on the assurance of the Income-tax Officer that his case will be sympathetically viewed if the assessee co-operates with it, and therefore, with a view to purchase peace and saving themself from future problems, they had agreed to treat the amount as belonging to the partnership firm, they take care to assert in exhibit D-2 that Ramavatar Sharma and his wife have advanced loans. Thus, A-1 firm has put forth its case even before the prosecution was launched. A-2 in his statement, exhibit P-11, has repiled to the question as follows :
25. Question : Shri Omprakashji, I draw your attention to page-3 of the above referred sworn statement of Sri Ramavatar Sharma, wherein he made a confession that you have given a credit in his account on March 23, 1983, for Rs. 62,000 by depositing your money in his bank account and obtaining a cheque from him issued in the name of Messrs. Shivlal Dhoolchand Agrawal, do you admit that it is true ?
26. Answer : Yes. It is true that we have given credit to him for Rs. 62,000 by depositinrg our money in the bank on March 23, 1983. We are very apologetic for this mistake. We are going to the settlement commission to settle our case, by pardoning the mistake which have crept into our case.
27. Question : An amount of Rs. 4,567.33 was credited to Shri Ramavatar Sharma's account towards interest. Of this, how much is the amount payable to him and what is the share of the firm in this ?
28. Answer : I do not remember the correct percentage but it must be either 50% or 60% to him and the balance is to firm.
29. Question : There is a credit in the account of Smt. Bhagirathi Sharma, W/o Ramavatar Sharma for Rs. 55,000 on March 23, 1983. As admitted by Shri Ramavatar Sharma, this amount belongs to you and you have given credit to her for this amount in your books. What do you say to this ?
30. Answer : In this case like in the case of Shri Ramavatar Sharma, we have deposited our money in her account and given credit to her for this amount. Similarly, out of the interest credited to her account at 12% per annum about 50% or 60% was for the creditor and the balance to the firm. We request pardon from the Department for this thing that has happened in our case. I request the Income-tax Officer also to consider our case sympathetically and condone our default.
31. Question : As above referred credits are out of your moneys only and not to the said creditors, I propose to treat the same as unexplained cash credits and assess them as the income of the firm for the asessment year 1984-85 as the firm's income from undisclosed sources ? Do you have any objection ?
32. Answer : We have no objection for this, but we request that no other severe action may be taken against us."
33. The above statement of A-2 shows that he was pleading not to take any further severe action. Thus, though there was no direct coercion or threat, the fear in the person of A-2 about the trouble with the Income-tax Department may have made him give this statement to purchase peace and good relations.
34. Therefore, in view of the fact that Ramavatar Sharma and his wife, Bhagirathi Sharma, are income-tax assessee and have got the capacity to lend loans and in their accounts also, it is shown that the amounts are lent, it cannot be said that A-2 statement is voluntary and further A-1 firm has filed a waiver petition along with D-2 immediately after the assessment order in which they have clearly mentioned that for purchasing peace and good relation. The said statement was made. Therefore, in view of the above cited circumstance, even taking that A - 2's statement is admissible, on the sole statement, when the fact of that statement are not proved to be correct conviction cannot be based. It is a well settled principle of law that, on an admission made by a party, if it is proved to be correct and trustworthy, the court can base the same for conviction. But when the same is not put forth, the true version and other evidence on record disproves the version of such admission. And the court cannot base the convict the accused where the prosecution has to prove the guilt of the accused all reasonable doubt.
35. In similar circumstances, the Allahabad High Court in CIT v. Mansa Ram and Sons , held that the subsequent abmission of assessee that the credits were his income was not considered as voluntarily and freely made and, therefore, the so-called admission of confession was rejected and the amounts were not treated as those of the assessee in course of penalty proceedings.
36. The same view was taken in CIT v. punjab Tyres and CIT v. Bombay Automobiles .
37. Therefore, in view of the abovesaid circumstance, I hold that the prosecution has not proved the guilt of the accused beyond all reasonable doubt. Therefore, I see no grounds in this appeal against acquittal.
38 .Accordingly, the appeal is dismissed.