Madras High Court
K.P. Srinivasan, Income-Tax Officer vs A. Rajagopal on 3 July, 1998
Equivalent citations: [2000]242ITR391(MAD)
JUDGMENT K. Natarajan, J.
1. This criminal appeal has been directed against the order of acquittal dated December 23, 1988, made in C. C. No. 237 of 1986 on the file of the Judicial Magistrate-I, Vellore, North Arcot District.
2. The circumstances which gave rise to the filing of the appeal may be stated as follows :
The Income-tax Officer, Circle (1), Vellore, at the instance of the Commissioner of Income-tax Tamil Nadu-V, within the meaning of Section 279 of the Income-tax Act, 1961, and on his authorisation filed a complaint against the respondent, alleging that the respondent is a dealer in oil and also a partner in a firm of financiers and is running his business at No. 169, Chinnakadai Street, Tiruppattur, North Arcot District. He is liable to be assessed to income-tax within the jurisdiction of the complainant/ appellant. The respondent filed his return of income for the assessment year 1983-84 on or about February 25, 1984. The return was accompanied by a statement of income, item-wise trading account, profit and loss account and balance-sheet. The accused/respondent in that return had shown his income as Rs. 621 from house property, about Rs. 10,610 as share income from the partnership firm, about Rs. 7,300 from his own business in oil and about Rs. 6,019 under the head "Other sources". He had shown the taxable total income as Rs. 17,000 after the deduction. The respondent/accused, had signed the verification column in the return and the statements. The books of account of the respondent were called for and examined. It was found that the respondent had made an entry in his books of having effected "credit" purchase from Sarathi Oil Mills, Vellore, on February 21, 1983, for Rs. 28,000. This amount was shown as due to Sarathi Oil Mills by the respondent as on March 31, 1983, i.e., the end of the financial year. Enquiries made with M. Panneerselvam, the proprietor of Sarathi Oil Mills revealed that the respondent had paid cash amount of Rs. 28,000 on the day of purchase and there was no amount due from the respondent to Sarathi Oil Mills. The respondent had omitted to record this payment in his books of account, and this amount ought to have come from sources undisclosed by the respondent to the Department. On a scrutiny of the books of account of the respondent/accused, it was noticed that the respondent had made purchase of oil for Rs. 13,285.50 from Sivan Trading Company, Thiruppur, and another purchase of Rs. 14,702, on October 18, 1982, from Sivan Trading Company, Tiruppur. Enquiries made by the Income-tax Officer, Tiruppur, revealed that the respondent had made cash payments for the purchases on March 31, 1983, and November 8, 1982, respectively. These payments, however, do not find place in the books of the respondent on those dates. The payment made by the respondent on November 8, 1982, has been recorded only on February 14, 1984, by the respondent during the subsequent year. Besides, the respondent had made purchases of oil from Sivan Trading Company on November 2, 1982, for Rs. 18,396 and on November 4, 1982, for Rs. 13,387 and made payments for the same, but these transactions have not been recorded in the books of account of the respondent produced before the Income-tax Officer. The Income-tax Officer had also found that on an inspection made by the Commercial Tax Department discrepancies in sales and stock figures were found by them in respect of which the addition of Rs. 29,970 made by the Commercial Tax Department, had been confirmed, by the Appellate Assistant Commissioner of Commercial Taxes. In the books of account of the respondent in the ledger, there was a credit for Rs. 1,541 in the name of one Ethiraj, which had not been entered in the day book. The examination of books of account and statements produced by the respondent showed that he had made unaccounted purchases of about Rs. 31,784 and made payments for them which were not recorded. The respondent had also made payments for purchases to the tune of Rs. 55,987 and though the purchases are entered in the books, the payments had not been recorded. The respondent had also made a ledger entry of Rs. 1,541 in the name of one Ethiraj, obviously to balance his accounts since the credit has not been recorded in the day book. The above discrepancies were put to the respondent by the Income-tax Officer. In response to the queries, the respondent filed a revised memo of total income and statement. The respondent was unable to explain the discrepancies and offered for assessment about Rs. 59,300 from his oil business as against the amount of Rs. 7,300 originally returned. The total income as per the revised return was Rs. 67,010 as against Rs. 17,000 returned in the original returns. The assessment was completed on or about November 14, 1985, by the Income-tax Officer determining the income at Rs. 77,430. The respondent fabricated his account books for the accounting period April 1, 1982, to March 31, 1983, relevant for the assessment year 1983-84 omitting to record payments made and by understating his real income and thereby committed the offence of fabricating false evidence punishable under Section 193 of the Indian Penal Code, 1860. The respondent by furnishing the original return of income and statements referred to above based upon the fabricated books of account, mentioned above and corruptly and knowingly using them as true and genuine evidence in the course of the income-tax proceedings, which are judicial proceedings within the meaning of Section 136 of the Income-tax Act has committed the offence punishable under Section 196 of the Indian Penal Code, 1860. The respondent by furnishing the original false return of income and statements referred to above and attempting to obtain an income-tax assessment order based thereon, has attempted to cheat and thereby dishonestly induced the Income-tax Officer to deliver to him a valuable security in the form of assessment order on lesser income than the one on which he is rightly assessable and thereby committed the offence punishable under Section 420 of the Indian Penal Code, 1860, read with Section 511. In the course of the same transaction, the respondent has wilfully attempted to evade tax, penalty and interest, chargeable under the Income-tax Act, 1961, by, inter alia, wrongfully omitting or causing to omit, the relevant entries regarding the true and correct income for the previous year ended March 31, 1983, relevant to the assessment year 1983-84 and having in his possession or control the said false cash book and ledger containing false entries and statements and causing circumstances to exist which will have the effect of enabling him to evade income-tax, interest and penalty and thereby committed offences punishable under Section 276C(1) of the Income-tax Act, 1961. In the course of the same transaction, the respondent made a statement in a verification column in the original return of income and delivered the same to the Income-tax Officer on or about the date mentioned above which he knew or believed to be false and did not believe to be true and thereby committed offences punishable under Section 277 of the Income-tax Act, 1961. In the course of the same transaction along with the original return of income, the respondent made and delivered an account or statement which is false and which he knew or believed to be false and did not believe to be true and thereby committed the offence punishable under Section 277 of the Income-tax Act, 1961.
3. The Judicial Magistrate No. 1, Vellore, North Arcot District, took the case on his file as C. C. No. 237 of 1986, and issued process to the accused. On his appearance, he furnished the copy of the complaint and other relevant documents relied on by the complainant/appellant, free of cost. After observing private complaint warrant procedure, the trial magistrate examined seven witnesses on the side of the complainant. On their evidence, he was satisfied that there was sufficient ground prima facie to proceed against the respondent/accused and therefore he framed charges under Sections 193, 196, 420 read with Section 511 of the Indian Penal Code, and under, Sections 276C(1) and 277 of the Income-tax Act. When the charges were explained to the respondent, he denied the same and wanted to cross examine the seven witnesses examined in chief. Accordingly, an opportunity was given to the respondent/accused to cross-examine the witnesses. 23 documents were marked on the side of the complainant. No material object was marked. No witness or material Object was marked on the side of the respondent/accused.
4. The trial magistrate on an appreciation of the evidence placed before him and for the reasons assigned by him in the judgments reached the conclusion that the complainant/appellant, viz., the Income-tax Officer, Circle-I (1), Vellore, had not proved the charges framed against the respondent/accused beyond reasonable doubt and acquitted him under Section 248(1) of the Criminal Procedure Code.
5. Aggrieved by the judgment of acquittal, the complainant has come forward with this appeal through the senior Special Public Prosecutor for income-tax cases, Madras.
6. The learned trial magistrate concluded that the complainant/appellant has not proved the guilt of the respondent/accused for three reasons, viz. :
1. There is no acceptable evidence to prove, the respondent paid cash to PWs-4, 5 and 7 and purchased oil apart from the interested testimony of the above witnesses. It may be possible the account books of the above witnesses may not reflect the true state of affairs.
2. No opportunity was given to the respondent accused to controvert the statement given by P.Ws. 4, 5 and 7 that cash was paid by the respondent and the goods were not supplied to him on credit.
3. It is natural for any human being to commit mistakes in the accounts and the respondent/accused immediately after coming to know there are discrepancies in the return submitted by him, had submitted the correct return and the action of the respondent/accused is bona fide and not intentional.
7. Learned counsel for the appellant-complainant strenuously contended that the above reasoning of the learned trial judge is not only incorrect but also perverse. On a personal investigation by the Income-tax Officer, Tiruppur, and by the complainant at Vellore and on the verification of the accounts of all the three concerns it was ascertained that the respondent had paid cash for the oil purchased by him and it was not supplied to him on credit, which is clearly written in the account books. There is no reason for P.Ws. 4, 5 and 7 to state falsely that cash was paid by the respondent/ accused when the goods were supplied on credit and also write in their accounts that cash was paid. The submission made by learned counsel for the respondent/accused that to escape liability under the Income-tax Act, P.Ws. 4, 5 and 7 have cooked up their accounts to show that goods were supplied on cash payment is highly preposterous and unacceptable.
8. It was also pointed out that, the submission on behalf of the respondent immediately after coming to know there was discrepancy and mistake in the return already submitted by him, he submitted the revised return is unacceptable considering the sequence of facts. Only after the personal verification has been made and the accounts have been verified from the concerns of P.Ws 4, 5 and 7 and it was found out that, the respondent paid cash and when he was interrogated, realising that he was driven to a corner, the respondent came forward with a revised return accepting that the original return submitted by him for Rs. 7,300 was incorrect and offering to be assessed to the extent of Rs. 59,300 from his oil business. It is no doubt true that the Income-tax Act enables a bona fide assessee to submit revised returns, if it was found out by him voluntarily that a mistake has occurred and due allowance has to be given by the income-tax authorities. But that is not the case on hand. Learned counsel for the appellant argued that the reasoning of the learned trial judge in paragraph 10 of the judgment that the respondent/accused was not questioned about the discrepancy found out in the return submitted by him is thoroughly wrong and the evidence of the witnesses examined on the side of the complainant would put things beyond doubt, that the respondent was specifically questioned on those aspects and he was unable to give any convincing reply and realising that he cannot misrepresent any more, he had submitted a revised return.
9. Learned counsel for the respondent/accused drew the attention of this court to the ruling in CIT v. Anwar Ali , wherein it had been held (headnote of AIR 1970) :
"Proceedings under Section 28 are of penal nature and the burden is on the Department to prove that the receipt of the amount in dispute constitutes the income of the assessee. The mere fact that the explanation given by the assessee in respect of such amount is false does not necessarily give rise to the inference that the disputed amount represents his income. The finding given in the assessment proceedings that the particular receipt was income is not conclusive but is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars or had deliberately furnished inaccurate particulars."
10. The Punjab and Haryana High Court in Jog Raj v. State of Punjab [1987] 164 ITR 763, has held (headnote) :
"that the main consideration which prevailed with the appellate court for convicting and sentencing the assessee was that the assessee had offered the peak credit for the purpose of securing peace with the Department. The appellate court construed the surrender as an admission of concealment of income on the part of the assessee. The statement of the assessee did not amount to a confession that he had actually concealed income but the assessee had merely offered the peak credit to purchase peace with the Department. Apart from the so-called admission of the assessee, the prosecution failed to bring on record any evidence to show that the petitioner had concealed his income in the return and had wrongly verified the same. The prosecution only proved on record the assessment order, the notice issued to the petitioner and the replies sent by him. No evidence was led by the prosecution to show what was the actual income of the petitioner for the year in dispute. The evidence of the Income-tax Officer that the petitioner had concealed his actual income was only an opinion of the Income-tax Officer while in a criminal case, a heavy onus is cast on the prosecution to prove its case against the accused beyond all reasonable doubt."
11. Learned counsel for the appellant/complainant had no dispute about the principles of law laid down in the above rulings. In the present case it has been pointed out that, sufficient and acceptable evidence had been adduced on behalf of the appellant to prove that the respondent/accused had wilfully and intentionally concealed his income and had submitted a return as if he purchased oil for credit whereas on personal enquiry it was found that cash has been paid by the respondent. It was also insisted that the accounts of P.Ws 4, 5 and 7 show that the respondent had paid cash.
12. On a consideration of the submissions of learned counsel for both parties, I find there is substantial force in the submissions of learned counsel for the appellant. I am inclined to hold that the contention of learned counsel for the respondent that the accounts of P.Ws 4, 5 and 7 are false and only to escape liability and penalty from the income-tax officials, they wrote in their accounts that cash has been received, appears to be most artificial and unacceptable. I am also inclined to hold that imme-diately after finding out certain discrepancies, the respondent/accused had not filed the revised return. After every fact was ascertained and personally verified from P.Ws. 4, 5 and 7 and the respondent was interrogated about the same, he came forward with a revised return and not before. Therefore, it cannot be said some bona fide mistake had occurred in writing the accounts and immediately after finding out the same, the respondent had come forward with the revised return.
13. On an analysis of the evidence carefully, I find it difficult to accept the submission made on behalf of the respondent/accused that a bona fide mistake had occurred and in good faith he had filed the earlier return and voluntarily came forward with the revised return to rectify the same. I am convinced that only after thorough enquiry was made by the complainant and every fact was ascertained and finding out there is no alternative except to file a revised return, the respondent has submitted the same and, therefore, there is no room to hold that the respondent acted with the best of intentions. Therefore, the submission in this regard is rejected. As already pointed out, the documents and evidence on the side of the complainant are cogent, convincing and thoroughly acceptable and the conclusion of the learned trial magistrate is not a reasonable view. On the other hand, the reasoning given by the learned trial magistrate for acquitting the accused on the three reasons mentioned by him in the judgment, in my view are totally and palpably wrong and perverse and the learned magistrate has not exercised due caution in appreciating the evidence which has resulted in miscarriage of justice. By submitting the earlier return, the respondent/accused has intentionally and deliberately fabricated his books of account and made use of them to prepare a false return as if it is genuine and induced the Income-tax Officer to accept the return submitted by him as the correct statement of his accounts and evaded income-tax, even though he did not believe his account to be true and genuine. Therefore, he is liable to be convicted under Sections 193, 196, 420 read with Section 511 of the Indian Penal Code, and also under Sections 276C(1) and 277(2) counts of the Income-tax Act.
14. In the result, the appeal is allowed and the judgment of the learned trial magistrate acquitting the respondent/accused is set aside and the respondent is convicted under Sections 193, 196, 420 read with Section 511 of the Indian Penal Code, and also under Sections 276C(1) and 277(2) counts of the Income-tax Act.
15. The respondent/accused has been convicted for the first time. The maximum punishment prescribed under Section 420 of the Indian Penal Code, is seven years rigorous imprisonment. Hence, the respondent has to be questioned on the sentence that will be imposed on him. The respondent/accused shall be present in court on June 13, 1998, failing which a non-bailable warrant will be issued against him.
16. The respondent-accused was questioned about the sentence to be imposed on him on June 18, 1998. The respondent represented that he had become old and he was co-operating with the Government and was paying income-tax regularly. Mercy may be shown to him and he may be excused.
17. Learned counsel for the respondent-accused submitted that the proceedings were started in the year 1983-84 and many years have elapsed. The respondent was undergoing mental agony for all these years. Further, he was affected with jaundice twice and he is taking treatment continuously. He is also suffering from stone liver. It is also stated that in adjudication proceedings which are parallel proceedings, the Income-tax Tribunal had allowed his appeal in respect of the same matter. However by mistake the said orders have not been filed earlier in this court. Learned counsel submitted that he is producing the orders of the Tribunal for the perusal of this court for the purpose of appreciating the sentence that may be imposed on the respondent. Learned counsel pleaded that the minimum sentence prescribed under Sections 276C(1) and 277 of the Income-tax Act, 1961, may not be imposed on the respondent-accused considering that he has become very old and he underwent mental agony due to disease and also the proceedings which were started in the year 1983-84. My attention was drawn to a ruling of R. Balasubramanian J. in Criminal Revision Cases Nos. 557 of 1996, 568 of 1996 and 570 of 1996, dated March 5, 1998 (R. Rajendran v. ITO [2000] 242 ITR 368 (Mad)). In those revision cases the learned judge has modified the sentence of imprisonment imposed by the lower court to one till the rising of the court. However, he has confirmed the sentence of fine imposed. Taking into account that the proceedings were started in the year 1983-84 and the respondent-accused is a patient and underwent mental agony and considering the ruling of R. Balasubramanian J. I am of the view that the ends of justice will be met if adequate fine is imposed on the respondent-accused and he is sentenced to imprisonment till the rising of the court on all the counts. The respondent is also sentenced to pay a fine of Rs. 2,500 under each of the offences under Sections 193, 196, 420 read with Section 511 of the Indian Penal Code, and in default to undergo rigorous imprisonment for a period of six months each.
18. For the offence under Sections 276C(1) and 277(2) counts under the Income-tax Act, 1961, the respondent-accused is sentenced to pay a fine of Rs. 2,000 under Section 276C(1) of the Income-tax Act, 1961, and Rs. 2,000 on each of the two counts under Section 277 of the Income-tax Act, 1961, and in default to undergo rigorous imprisonment for a period of four months each. The total fine is Rs. 13,500. The respondent-accused shall pay the fine amount in the lower court, Judicial Magistrate No. 1, Vellore, Vellore District, within a period of six weeks from the date of receipt of the judgment without fail.