Punjab-Haryana High Court
Nuchem Ltd. (Formerly Known As Nuchem ... vs Deputy Commissioner Of Income-Tax And ... on 3 July, 1995
JUDGMENT V.K. Bali, J.
1. By this order, petitions bearing Criminal Miscellaneous Nos. 5476-M and 3540-M of 1994 are proposed to be disposed of as the points pressed into service praying for quashing of the complaint filed by the Deputy Commissioner of Income-tax, under Sections 276C(1), 277 read with Section 278B of the Income-tax Act, 1961, are the same. Before the matter proceeds any further, it shall be useful to extract the facts of the cases noted above, in so far as the same are relevant for determining the controversy in issue.
2. Whereas, Nuchem Limited, in Criminal Miscellaneous No. 5476-M of 1994 filed by it under Section 482 of the Code of Criminal Procedure, seeks quashing of complaint, annexure P-9, under the various sections of the Income-tax Act noted above, the same very company in Criminal Miscellaneous No. 3540-M of 1994 again filed under Section 482 of the Code of Criminal Procedure, seeks quashing of a complaint, annexure P-12, under the same very sections of the Income-tax Act.
3. The facts of Criminal Miscellaneous No. 5476-M of 1994, reveal that the petitioner filed its income-tax return for the assessment year 1987-88, declaring a net loss of Rs. 1,35,08,064. However, after some time, i.e., on June 8, 1989, it suo moto filed a revised return declaring a net loss to'the tune of Rs. 50,20,671. This revision was made before the finalisation of assessment. On July 31, 1989, respondent No. 1, Deputy Commissioner of Income-tax, finalised the assessment under Section 143(3) of the Income-tax Act, vide orders, annexure P-1. It is the case of petitioner that large scale disallowances of expenses claimed by the petitioner company were made as a result of which, upon finalisation of assessment, the loss return of the petitioner became a return of profit showing net income of Rs. 73,61,040. On the same very day, i.e., July 3, 1989, respondent No. 1 issued notice to the petitioner under Section 273(2) of the Act calling upon it to show cause as to why action for non-payment of advance tax should -not be taken. No notice under Section 271(1)(c) of the Act proposing imposition of penalty was, however, issued. Aggrieved by the order aforesaid, the petitioner preferred an appeal to the Commissioner of Income-tax (Appeals) on October 19, 1989, and vide orders dated July 11, 1990, the appellate authority allowed the expenses claimed by the petitioner to the tune of Rs. 19,62,577 and set aside the findings recorded by the assessing authority on various issues and remanded the case for de novo adjudication. On February 13, 1991, the assessing authority re-adjudicated the remanded issues and upon the decision thereon, the income of the petitioner was assessed at Rs. 30,91,501 plus capital gain of Rs. 1,63,400. The total income of the petitioner on reassessment was thus reduced from Rs. 73,61,040 to Rs. 30,91,301. This order was once again appealed against by the petitioner on October 23, 1991. The appellate authority, vide orders, annexure P-3, granted further relief to the petitioner to the tune of Rs. 21,23,958 and on December 9, 1991, the assessing authority gave effect to the orders passed by the appellate authority and recomputed and assessed the income of the petitioner in accordance therewith. The income of the petitioner was recomputed at Rs. 9,67,340 plus capital gains of Rs. 1,63,400. It thus, transpires that the income of the petitioner stood drastically reduced from the original assessed income of Rs. 73,61,040 to Rs, 9,67,340 and if the capital gain is also included therein, the income comes to Rs. 11,30,740. Meanwhile, the petitioner had filed appeals against the two orders of the appellate authority dated July 11, 1990, and October 23, 1991, before the Income-tax Appellate Tribunal. The respondent-Department also filed two appeals against the same very orders before the same Tribunal. During the pendency of the appeals aforesaid, the petitioner received notice as to why prosecution should not be launched against it. The grounds mentioned in the notice as basis for launching the prosecution were (i) disallowance on account of Section 40A(3)--Rs. 49,270 ; (ii) disallowance of deduction on account of depreciation of energy saving devices--Rs. 31,88,375 ; (iii) disallowance of R and D expenditure claim for deduction under Section 35(1)(iv) read with Section 35(2)(ia)--Rs. 3,05,673 and (iv) disallowance of earlier years' expenses--Rs. 3,19,083. On March 4, 1992, the petitioner filed reply to the notice aforesaid.1 On December 11, 1992, the Commissioner of Income-tax granted sanction for prosecution of the petitioner on eleven additional grounds and on December 21, 1992, a complaint was actually filed in the court of the Chief Judicial Magistrate, Faridabad, under Sections 276C(1), 277 read with Section 278B of the Income-tax Act. Notice of the complaint was issued to the petitioner as also eleven other persons, comprising the board of directors of the company. It requires to be mentioned here that on reassessment in pursuance of the orders passed by the appellate authority, the income of the petitioner stood reduced to Rs. 9,07,340 plus capital gains of Rs. 1,67,400. On March 18, 1993, the petitioner filed an application under Section 154 of the Act for rectification of the mistake before respondent No. 1 and vide orders dated May 17, 1993, the said respondent dismissed the application. Meanwhile, the petitioner's appeals came up for hearing and vide orders dated November 16, 1993, further relief was given to it in respect of its claim of depreciation and ESA on 500 KVA diesel generating set and quantum effect of this relief was to the tune of Rs. 28,55,865. In consequence of the orders, referred to above, respondent No. 1, vide orders dated February 24, 1994, gave effect to the said orders and the income of the petitioner was reassessed at a loss of Rs. 18,58,855. The four appeals, two preferred by the petitioner and two by the Department, came up for final disposal before the Tribunal on February 22, 1994. The Tribunal dismissed the appeals preferred by the Department whereas the appeals filed by the petitioner were partly allowed. As a consequence thereof, the petitioner was further granted relief of Rs. 6,96,325 while certain other matters were remanded to the assessing authority for re-adjudication. The income of the petitioner, after the decision of the Tribunal on the appeals filed by it, is a loss of Rs. 25,55,180 and further issues involving an amount of Rs. 16,97,805 stand remanded to the assessing authority for decision afresh.
4. On the foregoing facts, it is so pleaded and argued by learned counsel appearing for the petitioner that, as on the date of filing of this petition under Section 482 of the Criminal Procedure Code, as also on the date when the petitioner filed its income-tax return for the year 1987-88, there was a loss of Rs. 25,55,180. The Department concededly did not initiate any proceedings under Section 271(1)(c) of the Act for imposition of penalty and that being so, no prosecution, in consequence whereof no conviction could possibly be sustained, at least at present when it is ultimately a case of loss on which no tax is leviable, whatever be the quantum of loss.
5. The facts giving rise to Criminal Miscellaneous No. 3540-M of 1994, as per the case of the petitioner, reveal that it had filed a return declaring a net loss of Rs. 54,97,370. Before finalisation of the assessment, the petitioner suo motu filed a revised return whereby the net loss was of Rs. 45,40,850. On March 13, 1985, the respondent framed the assessment under Section 143(3) of the Income-tax Act. Vide assessment order, annexure P-1, the loss return filed by the petitioner was converted into a net income of Rs. 1,00,64,950. Simultaneously, along with the finalisation of the assessment, the respondent issued a notice, annexure P-2, calling upon the petitioner to show cause as to why penalty under Section 271(1)(c) of the Act should not be imposed. On April 19, 1985, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals), Chandigarh, assailing the assessment order and vide annexure P-3, dated March 14, 1985, the petitioner replied to the show-cause notice issued by the respondent proposing to impose penalty. On July 16, 1985, vide order, annexure P-4, the Commissioner of Income-tax (Appeals) substantially allowed the appeal filed by the petitioner. The assessing authority, vide annexure P-5, gave effect to the order in appeal passed by the Commissioner of Income-tax (Appeals). As a result thereof, the income of the petitioner was computed at a loss of Rs. 32,97,100. Vide orders dated August .21, 1985, the Department rectified the mistake in the order in appeal under Section 154 and on July 31, 1989, vide annexure P-6, the respondent gave effect to the order of the Commissioner of Income-tax (Appeals) dated August 21, 1985, whereby the net loss was enhanced as a consequence of the order of the Commissioner of Income-tax (Appeals) from Rs. 32,97,100 to Rs. 37,99,830. The Department, being aggrieved with the orders passed by the Commissioner of Income-tax (Appeals), preferred an appeal before the Income-tax Appellate Tribunal. After the matter was decided by the Tribunal, the respondent, vide annexure P-8, dated February 15, 1990, gave effect to the said order and recomputed the income of the petitioner in accordance with the directions of the Tribunal. On recomputation, the income of the petitioner was a loss of Rs. 13,20,700. On August 27, 1990, vide annexure P-10, the respondent, after the decision in appeal, passed an order under Section 271(1)(c), imposing a penalty of Rs. 47,34,092. Aggrieved against the imposition of penalty, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals), who, vide his orders, annexure P-11, confirmed the penalty imposed upon the petitioner. In March, 1992, the respondent filed a complaint under Section 276C(1), 277 read with Section 278(b). During the pendency of the complaint aforesaid, on February 10, 1993, vide annexure P-14, the appeal filed by the petitioner before the Tribunal challenging the imposition of penalty was decided. The Tribunal quashed the penalty imposed by the respondent and confirmed by the Commissioner of Income-tax (Appeals) on the grounds (i) that the penalty proceedings which culminated in the passing of order dated August 27, 1990, by the respondent (annexure P-10) was barred by time, since the statutory period of six months had already expired on July 31, 1990 ; (ii) that after the passing of the order by the Tribunal in the appeal filed by the Department on the merits, the income finally computed by the respondent, vide annexure P-8, was a net loss of Rs. 13,20,700 and in view of the order passed by this court in the case of CIT v. Prithipal Singh and Co. [1990] 183 ITR 69, no penalty could be imposed in the absence of any positive income and that the case of the petitioner was squarely covered by the judgment aforesaid ; and (iii) that the Tribunal opined that no penalty could be imposed on the petitioner since the petitioner had disclosed all the particulars relating to the computation of income fully before the Revenue authorities and the same were not found to be false by any authority and, therefore, there could not be alleged any concealment of particulars of income by the petitioner. In pursuance of the order aforesaid, on February 23, 1993, the amount of penalty paid by the petitioner amounting to Rs. 47,34,092 was refunded together with the interest of Rs. 4,97,070 plus a sum of Rs. 4,35,965 being interest under Section 244 on account of the delay in refunding the amount to the petitioner. On August 16, 1993, an application filed by the Department before the Tribunal under Section 256(1) requesting the Tribunal to refer the matter to this court, since it involved a question of law, was declined. Aggrieved with the Tribunal's order dismissing the application under Section 256(1), the Department moved this court under Section 256(2) seeking directions to the Tribunal to refer the matter to this court. Notice of motion was issued by this court and the matter is stated to be still at the admission stage.
6. In this petition as well, the contention of learned counsel asking for the quashing of the complaint is the same as has been noted above, with regard to the first petition.
7. The petition came up before this court for motion hearing on April 18, 1994, when notice was issued for May 24, 1994, and further proceedings were stayed till further orders! On the adjourned date, Mr. Sawhney, learned counsel for the Department, stated that he had been supplied only the copy of the petition and the annexures attached thereto were not made available to him. That being the position, the matter was adjourned to July 29, 1994, for reply. Counsel for the petitioner was directed to furnish the annexures to counsel for the respondent much in advance of the adjourned date. On July 29, 1994, the matter was simply adjourned to October 27, 1994, on which date as well, no reply was filed and Mr. Sawhney sought for another adjournment. The request was allowed and the case was adjourned to January 17, 1995, for reply and arguments. On the adjourned date, once again, the request for adjournment was repeated by learned counsel for the Department which was once again allowed and the matter was adjourned to April 18, 1995, on which date the following order was passed :
" No one has chosen to appear on behalf of the respondents. On the last date of hearing, learned counsel for the respondents sought for more time to file reply which was allowed.
Mr. Goel, learned counsel for the petitioner, informs this court that identical matters where the difference is only of year, are pending disposal in this court and are now fixed for April 25, 1995.
Adjourned to April 25, 1995.
To be taken up along with Criminal Miscellaneous No. 3540-M of 1994.
It is made clear that if the respondents do not file reply in this matter even by the adjourned date, no further adjournment shall be granted for the said purpose."
8. On the adjourned date, i.e., April 25, 1995, the request for adjournment has once again been repeated. In the adjournment slip, all that has been mentioned is that the instructions of counsel are not complete. In view of the order dated April 18, 1995, the court obviously was not inclined to grant any further adjournment particularly when the ground on which adjournment was sought appeared to be totally a made-up affair. Being confronted, Mr. Sawhney had to admit that non-completion of instructions meant only that the written statement was not ready. Inasmuch as the facts pleaded in the petition were all through supported by the documents and there could not be any question of controverting the same and the matter had to be decided only on the position of law, Mr. Sawhney was asked to give some basic facts which were required to be controverted by filing the written statement. However, counsel candidly admitted that the matter had to be decided only on the position of law and, therefore, the facts possibly could not be disputed. Inasmuch as he was ready on the question of law involved in the matter, it was not thought appropriate to adjourn the matter any further.
9. Mr. Sawhney, learned counsel appearing for the respondent-Department, contends that the result of a proceeding under the Act cannot be binding on the criminal court, which has, therefore, to adjudge the case on the basis of evidence placed before it. An alternative argument of learned counsel is that mere expectation of success in the proceedings before the higher authorities constituted under the Act can hardly be a good ground to quash criminal proceedings. Mr. Sawhney, for his contentions aforesaid, has relied upon a judgment of this court in Sant Parkash v. CIT [1991] 188 ITR 732 as also another judgment of this court in Surjit Engg. Works v. ITO [1994] 210 ITR 547.
10. After giving anxious thought to the contentions of learned counsel for the Department, this court, however, finds that there is absolutely no substance therein. In Sant Prakash's case [1991] 188 ITR 732, this court no doubt held that the result of a proceeding under the Act would not be binding on the criminal court but at the same time it was also held that the criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and, in an appropriate case, it may drop the proceedings in the light of an order passed under the Act. In Surjit Engg.'s case [1994] 210 ITR 547 (P & H), by the time the matter had come to the High Court in a writ petition, there was a finding of wilful attempt to evade tax as also there was a false statement in the verification. The argument of the petitioner in the said case that he was likely to succeed in the writ petition was rejected by observing that mere expectation of success in the writ petition could not be a ground to quash the criminal proceedings. This judgment has, thus, absolutely no parity with the facts of the case on hand, as admittedly in this case the original orders passed by the assessing authority have since been set aside substantially or partly with the result that the petitioner is found to have no income and in fact it is proved to have only loss on the relevant date.
11. What the petitioner has been basically charged with is evasion of tax and, in the view of this court, income refers to positive income only. A Division Bench of this court in CIT v. Prithipal Singh and Co. [1990] 183 ITR 69, while dealing with the question for the opinion of the High Court as to whether the word "income" occurring in Clause (c) and (iii) of Section 271(1) refers to a positive income only and not to a loss, opined that (at page 71) "evasion of tax is the sine qua non for imposition of penalty. Clause (iii) deals with cases referred to in Clause (c) under Sub-section (1) of Section 271 of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty does not arise. As is obvious from annexure "B", the assessee was assessed finally at a loss figure amounting to Rs. 34,164 as pointed out at page 33 of the records. Thus, there was no income and so the motive to avoid tax during the year in question is completely missing. May be, it may give a benefit to the assessee in the coming year as the loss could be carried forward but, by no stretch of imagination, can it be said that, during the assessment year in question, the assessee had concealed its income.
12. 'Income' has been defined in Section 2(24) of the Act which clearly includes profits, gains, dividends or other benefits derived only. Loss cannot possibly be termed as income. Under Section 139(1) of the Act, a person is required to furnish a return only if his total income during the previous year exceeded the maximum amount which is not chargeable to income-tax. If the same falls short of the maximum amount which is not chargeable, which has been the case here as per final assessment, he need not file a return. A person, who sustains a loss, however, may file a return in view of Sub-section (3) of Section 139 of the Act if he wants to claim that the loss or any part thereof should be carried forward. The penal provisions of Section 271(1)(c), therefore, are attracted only in the case of an assessee having positive income and not loss, as the question of concealment of income to avoid payment of tax would arise only in the former case."
13. A single Bench of this court in D. N. Bhasin v. Union of India [1988] 171 ITR 7, held that "if the findings of the income-tax authority in assessment proceeding's are relevant, the criminal court would be required to act upon them". The facts of the case aforesaid reveal that the assessees filed their returns for the assessment years 1979-80, 1980-81 and 1981-82. In April, 1982, the Income-tax Department searched the business and residential premises of the assessees and seized certain papers. In December, 1982, reassessment proceedings were started against the assessees. Criminal complaints were also filed against them under Sections 276C and 277 of the Income-tax Act, 1961. The Income-tax Officer made additions to the incomes of the assessees for the abovementioned assessment years. The appeals filed by the assessees were accepted and the orders of the Income-tax Officer adding certain amounts to the incomes returned by the assessees in their returns of income were held to be not justified and not in accordance with law. The Commissioner (Appeals) ordered that these additions had to be deleted from the income of the assessees relating to the assessment years 1979-80, 1980-81 and 1981-82. The result was that the incomes returned initially by the assessees were accepted as correct. It was held by this court while dealing with the matter on the aforesaid facts that the "criminal complaints against the petitioners in the said case were liable to be quashed". This has been the consistent view of this court. Reference may be made to the judgments of this court in Parkash Chand v. ITO [1982] 134 ITR 8 ; ITO v. B. B. Mittal [1993] 199 ITR 805 and Kanshi Ram Wadhwa v. ITO [1984] 145 ITR 109 (Criminal Miscellaneous No. 388-M of 1983-decided on March 7, 1983).
14. Inasmuch as the findings recorded by the authorities constituted under the Income-tax Act itself, as on today, are that the petitioners have sustained loss, in the considered view of this court, criminal proceedings pending against them under Sections 276C(1), 277 and 278B of the Act would be nothing but an abuse of the process of the court. It would practically be a mock trial resulting in the acquittal of the petitioner. It would also amount to tremendous loss of time of the parties as also the court as, in the very nature of things, such matters are dragged for years. Thus, the complaint giving rise to Criminal Miscellaneous No. 5476-M of 1994 is quashed as in this case the matter has assumed finality and the petitioners ultimately had only loss for the assessment year in question. The proceedings against the petitioners in so far as complaints against them under various sections of the Income-tax Act giving rise to Criminal Miscellaneous No. 3540-M of 1994 is concerned, it is the Department who is in the court asking for reference against the order of the Tribunal. These proceedings would revive only if the mailer in writ filed by the Department turns in its favour and ultimately the petitioner is shown to have income for the assessment year in question. For the time being, these proceedings are dropped.