Deepak Engineering Works and Others Vs CIT and Others
High Court of Patna
Criminal Miscellaneous No. 22099 of 1998
Rakesh Kumar, J
Decided on: 19 February 2011
The present petition has been filed under section 482 of the Code of Criminal Procedure on behalf of petitioner no. 1 i.e. an unregistered firm (U.R.F.) and petitioner nos. 2 to 4 in the capacity of the partner of petitioner no. 1 with a prayer to quash entire criminal proceeding vide Complaint Case No. 47(C) of 1992/569 of 1993 pending before the Special Court of Economic Offences at Patna Civil Court, Patna which was transferred from the Special Court of Economic Offences at Muzaffarpur. Since it was an official complaint, the learned Special Judge, Economic Offences, Muzaffarpur had taken cognizance of offences under sections 276C, 276D & 277 of the Income Tax Act, 1961 (hereinafter referred to as the I.T. Act) and directed for summoning the petitioners. At the very outset, it is pertinent to mention that the petitioners have not bothered to mention in the present petition as to when the case was transferred to the court of Special Judge, Economic Offences, Patna and as to whether petitioners had ever appeared before the court below in the said proceeding.
2. Short fact of the case is that after obtaining sanction from the Commissioner of Income Tax under section 279(1) of the Income Tax Act, 1961 (hereinafter referred to as the I.T. Act) the Income Tax Officer, Bhagalpur had filed a complaint vide Complaint Case No. 47 of 1992 in the Special Court of Economic Offences, Muzaffarpur against petitioners and one another namely Smt. Rajmani Devi on allegation of commission of offences under sections 276C, 276D & 277 of the Income Tax Act. It was disclosed in the complaint petition that petitioner no. 1 was an unregistered firm (U.R.F.) and petitioner nos. 2 to 4 and one another were partners of accused no. 1 and equally responsible for every act of omission and commission of the said firm. The said firm had derived income from manufacturing steel furnitures as well as contract works and income tax return was filed on 1.9.1989 showing total income of Rs. 49,470/- for the assessment year 1989-90 including the income of M/s Deepak Electricals. Subsequently, on 8.2.1990, a revised return was filed excluding the income of M/s Deepak Electricals and plea was taken that M/s Deepak Electricals was a proprietary concern of petitioner no. 2 who was also a partner of petitioner no. 1 i.e. M/s Deepak Engineering Works. Despite granting several indulgence, the accused persons did not produce the books of accounts, and on the contrary, the accused asked for the certified copies of trading and profit & loss account filed alongwith the original return on the ground that the original copy was misplaced. The Assessing Officer was of the view that since no books of accounts were maintained, the accused tried to avoid production of the same in spite of several opportunities and accordingly, the income was determined under the provisions of section 145(2) of the Income Tax Act, 1961 (hereinafter referred to as the I.T. Act). It was further alleged that accused firm had advanced loans to two ladies namely Smt. Ranjana Agrawal, W/o petitioner no. 3 and one Smt. Nisha Agrawal, W/o petitioner no. 2. On the strength of the said loan the two ladies had constructed a house and then let it out to the firm. During assessment, statements on oath of both the ladies were not found convincing and as such, the Assessing Authority was of the view that both the ladies were having no source of income of their own and only with a view to divert the income of the firm and their husbands who were partners of accused no. 1 income from the house property was shown in their names. The income from the house property was treated as income of the firm and assessment was completed on the total income of Rs. 4,69,090/- as against declared income of Rs. 49,470/- and penalty proceedings under section 271(1)(C) were also initiated. The computation of income was also described in the complaint petition which is as follows:
(i) Receipt from business of steel manufacturing: Rs.3,94,610/-
(ii) Receipt from contract work of M/s Deepak Engineering Works: Rs. 24,88,879/-
(iii)Receipt of M/s DeepakElectricals:Rs.16,87,435/-
(A) 10 % of above receipt taken as income: Rs. 4,57,094/-
(B) Income from house property as shown by two ladies Smt. Ranjana Agrawal and Smt. Nisha Agrawal : Rs.12,000/-Rs. 4,61,090/-
3. It was further observed that assessee’s turn over including the turn over of M/s Deepak Electricals exceeded Rs. 40 lakhs and the accused failed to get the accounts audited under section 44AB. Since the original return was not filed under section 139(1) of the Income Tax Act, the revised return was not applicable under section 139(5) of the Income Tax Act. In view of the facts it was alleged by the complainant that the accused wilfully attempted to evade tax, interest or penalty chargeable or imposable under the Act by concealing the true particulars of income and accused signed the return and made statement in verification of return or delivered an account or statement which they either knew or believed to be false or did not believe to be true and the accused also wilfully failed to produce such accounts and documents despite service of notices and as such, accused had committed offences punishable under sections 276C, 276D & 277D of the Income Tax Act, 1961 (hereinafter referred to as the I.T. Act). Since it was an official complaint which was filed alongwith sanction under section 279(1) of the Income Tax Act the learned Special Judge, Economic Offences, Muzaffarpur by its order dated 26.2.1992 took cognizance of offences under sections 276C, 276D & 277D of the Income Tax Act (hereinafter referred to as the I.T. Act).
4. In the meanwhile, the petitioner had filed appeal before the Commissioner of Income Tax(Appeals). By order dated 29.6.1992, the income as assessed by the Assessing Authority was reduced from Rs. 4,69,090/- to Rs. 2,93,760/-. Thereafter, the petitioners filed an appeal before the Income Tax Appellate Tribunal, Patna Bench, Patna against the order dated 29.6.1992 passed by the Commissioner of Income Tax (Appeals). A quashing application vide Cr. Misc. No. 5072 of 1993 was preferred by the petitioner no. 1 and others before this court. Since the appeal preferred by the petitioners was pending before the Income Tax Appellate Tribunal, this court by its order dated 5.7.1993 without going into the merit of the case disposed of Cr. Misc. 5072 of 1993. However, it was observed that the prosecution in lower court will be stayed till the disposal of the appeal. The Income Tax Appellate Tribunal disposed of the appeal preferred by the petitioners. So far as assessment is concerned, the Assessing Officer in view of order passed by the Tribunal recomputed the total income under the different heads and finally determined the income of the petitioner firm to the tune of Rs. 88,510/-. The Assessing Authority after the order of the Tribunal further excluded the income of M/s Deepak Electricals from the income of the petitioner firm in view of Voluntary Disclosure Of Income Scheme, 1997. After the income of the petitioner firm was re-determined in the light of order passed by the Income Tax Appellate Tribunal, the petitioner approached this court by filing the present petition which was admitted on 10.3.1999. While admitting, this court directed that further proceeding in Complaint Case No.47(C) of 1992 / 569 of 1993 pending before Special Court of Economic Offences, Civil Court, Patna shall remain stayed till disposal of this application.
5. Sri K.N. Jain, learned senior counsel appearing on behalf of the petitioners, at the very outset, has argued that after the order passed by the Income Tax Appellate Tribunal and re-computation of the income of the petitioner firm which was finally reduced to Rs. 88,510 /-from the amount of Rs. 4 lakhs and odd which was determined by the Assessing Officer nothing remains on record indicating either violation of any provision or commission of any offence and as such, the proceeding before the court below is simply an abuse of the process of the court which requires to be quashed.
6. Sri Jain, has further argued that in the entire complaint petition or even in sanction order which was granted by the Commissioner, Income Tax under section 279(1) of the Income Tax Act nothing has been whispered as to whether any of the partners of petitioner no. 1 had committed any act attracting penal provisions. It was submitted that all along in the complaint petition it was alleged that petitioner no. 1 i.e. M/s Deepak Engineering Works (U.R.F.) had committed offences as alleged by the complainant. It was submitted that in any event, the firm cannot be imposed any punishment for undergoing sentence and as such, no purpose will be served in allowing continuance of the proceedings before the court below.
7. Sri Jain has emphatically argued that had there been a case of concealment or evasion of the tax, the Income Tax Authority would have initiated penalty proceeding. It was submitted that in this case penalty proceeding was never initiated and in absence of penalty proceeding prosecution of petitioners for alleged offences is not permissible in the eye of law.
8. Sri Jain to strengthen his argument that after the final determination of the tax which has been determined as Rs. 88,510/- nothing remains for proceeding with the present criminal proceeding has heavily relied on a judgment of Hon’ble Apex Court reported in 224 I.T.R. 687 (S.C.) at page 690(C)(G.L. Didwania & Anr. v Income Tax Officer & Anr.). It was submitted that in the G.L. Didwania’s Case (Supra) since the Appellate Tribunal had set aside the order passed by the Assessing Authority it was held that criminal proceeding was not sustainable. Learned senior counsel for the petitioner to strengthen this argument has also relied on a single bench judgment of this court reported in 230 ITR 252 (Prem Kumar Keshri v State of Bihar & Ors.).
9. Accordingly, it has been prayed that in similar manner entire criminal proceedings in the present case also be set aside.
10. Smt. Archana Sinha, learned counsel appearing on behalf of the Income Tax Department has forcefully opposed the prayer of the petitioner. It was submitted that on the date of first assessment itself it was found that petitioner had filed an incorrect return whereby the accused persons had deliberately evaded paying due income tax. The complaint petition categorically indicates that the petitioners had committed offence under sections 276C, 276D & 277 of the Income Tax Act. It was further argued that petitioners have directly come against the order of cognizance. If at subsequent stage, any event has taken place in favor of the petitioners the petitioners can well be advised to appear before the court below and take their defence. It was submitted that time without number it has been held that normally the order of cognizance or criminal proceeding may not be interfered with while exercising power under section 482 of the Code of Criminal Procedure. It was submitted that this power is to be exercised in exceptional and rarest of rare cases. According to Smt. Archana Sinha, learned counsel for the Income Tax Department, the present case cannot be categorized as an exceptional or rarest of rare case. It was further submitted that under the Code of Criminal Procedure petitioners have got other remedies and as such they can well be advised to avail those remedies before the court below.
11. Besides hearing learned counsel for the parties, I have also perused the materials available on record.
12. The first plea which has been taken by Sri K.N. Jain, learned senior counsel for the petitioner that since in the petition there is no specific averment of commission of any of the offences by the petitioner nos. 2 to 4 they cannot be prosecuted is concerned, the court is of the opinion that this submission is simply required to be noticed for its rejection. First of all in the complaint petition there was specific averment that petitioner nos. 2 to 3 and one other were partners of petitioner no. 1 which was an unregistered firm (U.R.F.). In the complaint petition there is specific averment that accused nos. 2 to 4 being partners of accused no. 1 M/s Deepak Engineering Works were equally responsible for every act or act of omission and commission of the said firm. Under section 278B of the Income Tax Act, all the partners were equally responsible for commission of any offence by the company / firm. At this stage the court is tempted to quote section 278B of the Income Tax Act which is as follows:
278B.(1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section (1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-section (1), or the director, manager, secretary or other officer of the company referred to in sub-section (2) , shall be liable to be proceeded against and punished in accordance with the provisions of this Act.)
Explanation- For the purposes of this section,-
(a) “company” means a body corporate, and includes-
(i) a firm; and
(ii an association of person or a body of individuals whether incorporated or not; and
“director”, in relation to –
(i)a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.)
13. On perusal of aforesaid provision it is evident that petitioner nos. 2 to 4 are equally responsible for the offences committed by the firm. Moreover, section 278B, makes it clear that onus lies on the Partners or Directors to prove that they are not responsible for any of the offence committed by a firm / company. First proviso to section 278B(1), quoted above, makes it clear that onus lies on the Partners or Directors to prove that they were not responsible for acts of omission or commission committed by the firm / company. The question as to whether petitioner nos. 2 to 4 were actually involved in this case or not is a question of fact which is to be determined during the trial and onus is on the petitioners to prove that they were not responsible for any act of omission or commission of the firm i.e. petitioner no.1 M/s Deepak Engineering Works. Accordingly, in view of statutory provisions contained in section 278B of the Income Tax Act (hereinafter referred to as the I.T. Act) first submission of learned counsel for the petitioner is not sustainable.
14. So far as the ground taken by Sri Jain that the assessment order has already been unsettled, and as such, criminal proceeding is not sustainable is concerned, I am of the view that same is not the position in the present case. From the complaint petition, it is evident that, return was filed for the assessment year 1989-1990, showing total income of Rs. 49,470/-. Even after final order of re-computation, it has been computed as Rs. 88,510/- i.e. just double to the income shown in the return filed on behalf of petitioner no. 1. Besides this, the income of M/s Deepak Electricals was not excluded, since it was entirely different firm, but benefit has been given to the petitioner under the scheme of ‘Voluntary Disclosure Of Income’ which was introduced in the year 1997. In the present case, allegation was made by the complainant that false return was filed clubbing the income of M/s Deepak Electricals with the income of petitioner no. 1 M/s Deepak Engineering Works on 1.9.1989 i.e. on the date of filing of the return. It was a case of filing incorrect and false return clubbing the income of M/s Deepak Electricals. It appears that after noticing that criminal prosecution was filed for the alleged act, at much belated stage in the year 1997, under the scheme of ‘Voluntary Disclosure Of Income’ tax was paid on behalf of M/s Deepak Electricals. The court is of the opinion, that at subsequent stage, action taken by the accused persons may not absolve them from the charges of the present case, at least for the period between 1989 to 1997 offence for evasion of the income tax was committed by the accused persons. In any event, the return which was filed showing income as Rs. 49,470/- is still incorrect and with evasive of tax. Since the computation of the income which has taken its finality shows that income of the petitioner firm was to the tune of Rs. 88,510/-. In view of the facts of the present case, the court is of the opinion, that petitioner cannot get any benefit either from G.L. Didwania’s Case (Supra) or Prem Kumar Keshri case (Supra). In G.L. Didwania’s case the order of Assessing Authority was quashed by the Appellate Authority, and as such, the Apex Court was of the view, that criminal proceeding, thereafter was not sustainable. Similar was the position in the case of Prem Kumar Keshri (Supra). Accordingly, both the judgments are not applicable in the facts and circumstances of the present case.
15. So far as the point relating to non-initiation of penalty proceeding is concerned, the submission of Sri Jain in contrary to the fact recorded in the complaint petition itself. In complaint petition it has been indicated that penalty proceeding under section 271(1)(C) of the Income Tax Act was already initiated. Accordingly, the said submission is fit to be ignored.
16. The court is aware that while hearing a petition under section 482 of the Code of Criminal Procedure it is not advisable to go into the merit of the case but I have noticed some facts above only with a view to come to just decision in the case. The court is in agreement with the submission advanced by Smt. Archana Sinha, learned counsel appearing on behalf of the Income Tax Department, that at initial stage of a criminal proceeding, this court should refrain from interfering. The court is of the opinion that it is not a fit case for exercising inherent jurisdiction in favour of the petitioners, and as such, the petition stands rejected.
17. It is made clear that whatever observation has been made by this court in the present case has been observed for just decision in the present case and the learned court below may not be prejudiced or influenced by this order in proceeding with the case.
18. In view of rejection of this petition interim order of stay stands automatically vacated.
19. Let a copy of this order be sent to the court below forthwith.