Crla/1096/2002 Of The Deputy Commissioner Of Income Tax v. M/S. Meghraj Moolchand And Sons

IN THE HIGH COURT OF JUDICATURE, ANDHRAPRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWELFTH DAY OF NOVEMBERTWO THOUSAND AND NINE PRESENT HON’BLE SRI JUSTICE K.C.BHANU Between: CRIMINAL APPEAL No.1096 OF 2002 The Deputy Commissioner of Income Tax,Special Range – 1, Aayakar Bhavan, 3[rd] Floor, Daba Gardens, Visakhapatnam AND ..... Appellant M/s. Meghraj Moolchand & Sons & 5 others 7. The Sate of Andhra Pradesh,Rep. by the Public Prosecutor,High Court of A.P., Hyderabad.Rep. by the Public Prosecutor,High Court of A.P., Hyderabad. ..... Respondents The Court made the following: JUDGMENT: The Criminal Appeal under Section 378 (2) of the Code ofCriminal Procedure, 1973 (for short, “Cr.P.C.”), filed by the DeputyCommissioner of Income Tax, Special Range – I, Visakhapatnam,is directed against the judgment, dated 28.02.2002, in C.C.No.91of 1992, on the file of the learned Special Judge for EconomicOffences, Hyderabad, whereunder and whereby the Accused No.1was found not guilty of the offences punishable under Sections276-C and 277 of the Income Tax Act, 1961 (for short, “the Act”),and Accused Nos.2 to 6 were found not guilty of the offencespunishable under Sections 276-C read with 278-B (1) and 277 readwith 278-B (1) of the Act. 2. Brief facts that are necessary for disposal of theprosecution case may be stated as follows: Accused No.1 is a registered firm by name “M/s.MegarajMoolchand and Sons”. Accused Nos.2 to 6 are the partners ofAccused No.1 firm and Accused No.2 is the Managing Partner,doing business in retail trade in kirana under the name and style“Karachi Kirana Stores”, Visakhapatnam. Accused No.1 firm filedIncome Tax return on 04.09.1984 for the assessment year 1984-85corresponding to the accounting year 01.04.1983 to 31.03.1984before the Income Tax Officer declaring a total income ofRs.1,07,010/-. The assessment was completed under Section 143 (1) ofthe Act on 31.12.1986 by the Income Tax Officer on a total incomeof Rs.2,72,248/-. Notice under Section 271-1 (c) was also issuedfor concealment of particulars of income i.e., suppression of gross profit of Rs.1,07,639/- and interest accrued on promotesRs.25,200/-. Thereafter, on 17.01.1986, search and seizureproceedings were conducted at the business premises of AccusedNo.1 firm and also in the residential premises of Accused Nos.2 to6 who were partners and certain incriminating material, i.e., cashof Rs.22,92,355/- and pronotes standing in the name of differentpartners to a tune of Rs.3,55,000/- were found and out of cash ofRs.22,92,355/-, a sum of Rs.22,76,000/- and pronotes wereseized. Sworn statements of the partners were recorded at thetime of the search and the partners have admitted that the cashand amounts covered by pronotes advanced which were seized bythe Officers had in fact came to their hands out of the unaccountedbusiness income of Accused No.1 firm. Accused No.1 firm alsofiled a petition for a waiver under Section 273-A (4) of the Actbefore the Commissioner of Income Tax, Visakhapatnam on31.12.1986 and the assessees admitted the cash found andpromotes seized as part of the business income of Accused No.1firm in the relevant years. The additions made in the assessment were sustained inappeal by the Commissioner of Income Tax in his consolidatedorder in ITA 38 to 41/VSP/SIC/86-87, dated 31.01.1989. Theassessees have not filed any further appeals against theCommissioner’s order and penalty notice was issued to theaccused who gave a reply and after hearing the matter, penaltywas levied at Rs.37,612/- under Section 271 (1) (c) of the Actwhich was confirmed by the Commissioner of Income Tax in hisorder, dated 27.10.1989. Therefore, Accused No.1 firm made a false statement in the The additions made in the assessment were sustained inappeal by the Commissioner of Income Tax in his consolidatedorder in ITA 38 to 41/VSP/SIC/86-87, dated 31.01.1989. Theassessees have not filed any further appeals against theCommissioner’s order and penalty notice was issued to theaccused who gave a reply and after hearing the matter, penaltywas levied at Rs.37,612/- under Section 271 (1) (c) of the Actwhich was confirmed by the Commissioner of Income Tax in hisorder, dated 27.10.1989. Therefore, Accused No.1 firm made a false statement in the verification part of the returns of income filed by it on 04.09.1984with the knowledge that the returns are false and untrue and alsobelieved to be false statements and enclosures, knowing them tobe false and thus, committed an offence punishable under Section277 of the Act and that Accused No.2 who is the Managing Partnerand Accused Nos.3 to 6 who are the partners of Accused No.1firm are responsible for the conduct of the business and they areliable for punishment under Section 278-B of the Act. 3. When the charges under Sections 276-C and 277 of the Actagainst Accused No.1 and 276-C read with 278-B (1) and 277 readwith 278-B (1) of the Act against Accused Nos.2 to 6 were framed,read over and explained to the accused, they pleaded not guiltyand claimed to be tried. 4. To prove the charges levelled against the accused, theprosecution examined P.Ws.1 to 8 and got marked Exs.P1 to P35. 5. After closure of the prosecution evidence, the accused wereexamined under Section 313 Cr.P.C. with reference to theincriminating material found against them in the evidence ofprosecution witnesses. They denied the same. On behalf of theaccused, D.W.1 was examined and Ex.D1 was marked. 6. The trial Court, after considering the evidence on record,acquitted the accused on the ground that the prosecution failed toestablish that the amounts seized from the residential premises ofthe partners was not shown to be that of the business income ofAccused No.1 firm, that the burden placed on the complainant hasnot been discharged and accordingly acquitted the accused. Challenging the same, the present Criminal Appeal is filed. 7. Now the point for determination is whether the prosecutionproved its case beyond all reasonable doubt for the chargeslevelled against the accused and whether the judgment of the trialCourt is correct, legal and proper? 8.Learned Standing Counsel appearing for the appellantcontended that on application made under Ex.P23-Petition underSection 273-A (4) of the Act, Accused No.1 firm, represented byAccused Nos.2 to 6, filed revised returns; that the Income TaxOfficer passed an order, which has become final; that further whena penalty was imposed by the Income Tax Officer, the same wasconfirmed by the Appellate authority; that therefore, these orderswould clearly disclose that Accused No.1 firm has filed two sets ofreturns and in these two sets of returns, there is a variation ofincome of the firm which clearly go to show that the true andcorrect income of Accused No.1 firm has not been shown, andtherefore, the accused have committed the offences with whichthey were charged. He also contended that P.Ws.6 to 9 who werethe authorized Officers to record the sworn statements underSection 132 (4) of the Act and those statements can be read as anevidence in prosecution of accused under any one of theprovisions under the Act; that on their own admissions, it is clearthat the income that was found in the residential premises of theother partners is the income relating to Accused No.1 firm, andtherefore, he prays to set aside the order of acquittal. 9.On the other hand, the learned counsel appearing for theRespondent Nos.1 to 6 contended that the money seized from theresidential premises of the partners do not belong to the AccusedNo.1 firm and as a matter of fact, with reference to the amountfound in the residential premises of the partners, separate returns 9.On the other hand, the learned counsel appearing for theRespondent Nos.1 to 6 contended that the money seized from theresidential premises of the partners do not belong to the AccusedNo.1 firm and as a matter of fact, with reference to the amountfound in the residential premises of the partners, separate returns were submitted by the partners in their individual capacity, but topurchase a peace with the Income Tax Department, they havegiven a conditional admission under Ex.P23 thinking that theIncome Tax Department would waive the penalty and prosecution,that therefore, the cash and amounts relating to pronotes seizedduring such proceedings was not that of the income of theAccused No.1 firm and that in the assessment proceedings, thedepartment has taken a plea that the sworn statements have notbeen recorded under Section 132 (4) of the Act, that whereas theprosecution have come forward with a different version in thiscase stating that the sworn statements of the partners have beenrecorded, that the trial Court, after elaborate consideration ofevidence on record, rightly held that the prosecution has failed toestablish the income found during the search and variations werenot shown to be that of the income of the Accused No.1 firm andthere are absolutely no grounds to interfere with the impugnedJudgment. 10. There cannot be any dispute that in dealing with the CriminalAppeal against the order of acquittal, the Appellate Court has gotfull power to reappreciate the evidence available on record, but itwill slow in interfering with the findings in view of the fact thatthere is a presumption under law that the accused is presumed tobe innocent unless contrary is proved by the prosecution beyondall reasonable doubt. That presumption of innocence is furtherstrengthened by an order of acquittal. Unless there are compellingor substantial reasons viz., the findings are perverse, or not basedupon any evidence, or admissible evidence has not been takeninto consideration, or inadmissible evidence was taken intoconsideration, ordinarily this Court would not interfere with thesame. The sum and substance of the powers of the appellate Court to interfere with the order of acquittal, there must becompelling or substantial reasons. 11.On this aspect, it is pertinent to refer to a decision reportedin Aher Raja Khima v. State of Saurashtra[[1]], wherein it is heldthus: “A court hearing an appeal under S.417 might beconfronted with three possibilities: (i) It might come to the same conclusion as thetrial court on the questions in issue, in which case, ofcourse, it should dismiss the appeal; (ii) it might considerthat the evidence was not clear and conclusive one wayor the other, in which case its duty as an appellate courtwould be not to interfere with the judgment appealedagainst; and (iii) it might come to a conclusion on anappreciation of the evidence opposite to that reached bythe court of first instance, in which case it would clearlybe its duty in exercise of its powers under S.417 to setaside that order of acquittal.” Bearing the above principles in mind, it is to be seenwhether the complainant proved its case beyond all reasonabledoubt for the charges leveled against the accused. 12. Section 276-C (1) of the Act reads thus: “-Wilful attempt to evade tax, etc.: (1) If a person wilfully attempts in any mannerwhatsoever to evade any tax, penalty or interestchargeable or imposable under this Act, he shall, withoutprejudice to any penalty that may be imposable on himunder any other provision of this Act, be punishable,- (i) in a case where the amount sought to beevaded exceeds one hundred thousand rupees, withrigorous imprisonment for a term which shall not be lessthan six months but which may extend to seven yearsand with fine; (ii) in any other case, with rigorous imprisonmentfor a term which shall not be less than three months butwhich may extend to three years and with fine.” 12. Section 276-C (1) of the Act reads thus: “-Wilful attempt to evade tax, etc.: (1) If a person wilfully attempts in any mannerwhatsoever to evade any tax, penalty or interestchargeable or imposable under this Act, he shall, withoutprejudice to any penalty that may be imposable on himunder any other provision of this Act, be punishable,- (i) in a case where the amount sought to beevaded exceeds one hundred thousand rupees, withrigorous imprisonment for a term which shall not be lessthan six months but which may extend to seven yearsand with fine; (ii) in any other case, with rigorous imprisonmentfor a term which shall not be less than three months butwhich may extend to three years and with fine.” A perusal of the above provision makes it clear that mereevasion of tax or penalty or interest, is not per se an offence. There must be willful evasion of the tax or penalty. The willfulevasion of the tax refers to the deliberate mental intention of theassessee. There must be a mensria on the part of the assesseewith an intention to suppress certain income or to give a falsestatement. 13. Section 277 of the Act reads thus: “False statement in verification, etc.:- If a person makes a statement in any verificationunder this Act or under any rule made thereunder, ordelivers an account or statement which is false, andwhich he either knows or believes to be false, or doesnot believe to be true, he shall be punishable.- (i)in a case where the amount of tax, whichwould have been evaded if the statement or account hadbeen accepted as true, exceeds one hundred thousandrupees, with rigorous imprisonment for a term which shallnot be less than six months but which may extend toseven years and with fine; (ii)in any other case, with rigorousimprisonment for a term which shall not be less thanthree months but which may extend to three years andwith fine.” The above provision also makes it clear that the intention onthe part of the accused can be inferred because the accused mustbe having a knowledge or reason to believe that the statement is a false. 14. Section 278-B (1) of the Act provides that where theoffence has been committed by a company, every person, who atthe time of offence was committed, was incharge of and wasresponsible to the company for the conduct of the business of thecompany as well as the company, can be deemed to be guilty ofthe offence. 15. Accused Nos.3 to 6 are shown as partners. AccusedNo.2 is the Managing Partner. There is no allegation in thecomplaint that Accused Nos.3 to 6 were incharge and responsiblefor the day-to-day affairs of the conduct of the business of Accused No.1firm. 16. There cannot be any dispute that there may be a sleepingpartner or partners who are not actively participating in the affairsor conduct of the firm. In such circumstances, Section 278-B (1)of the Act says that the complainant has to establish that all thepartners were incharge of and responsible for the affairs of thefirm. There is no such evidence to show that Accused Nos.3 to 6were actively participating in the affairs of the conduct of thebusiness of the firm. Simply they were shown as partners ofAccused No.1 firm. No doubt, as rightly contended by the learnedcounsel appearing for the appellant that the assessment ordershave become final and the penalty imposed by the concernedIncome Tax Officer has also become final, as they were confirmedby the appellate authority. But that cannot be a ground to convictthe accused. It must be shown that there was willful evasion oftax or penalty. 17. There is evidence on record which would go to show thateven prior to filing of Ex.P23, which is the application filed byAccused No.1 firm to waive the penalty and prosecution, theindividual partners submitted a returns in respect of the moneysfound when the Income Tax officials conducted a search on17.01.1986. It is not in dispute that when the Income Tax officialsconducted a search in respect of the residential premises ofAccused Nos.2 to 6, an unaccounted cash of Rs.22,92,355/- fromvarious partners and the pronotes valued at Rs.3,55,000/- werefound. If the individual partners have not submitted any returns forthe excess amount found in their respective residential premises,then it can be said that there would be a willful evasion of tax. 18. It is in the evidence on record which would go to show thatAccused Nos.2 to 6 filed separate returns on 30.09.1986 inrespect of the amounts seized during raid, but by virtue of Ex.P23-Petition which is subsequent filing of individual returns, they madeit clear that they have conceded to treat the amounts found duringraid as the income of Accused No.1 firm. In pursuance of Ex.P23-letter, some of the amounts that were seized duringsearch were intended to tag on to the income of Accused No.1firm. Therefore, under no stretch of imagination, it can be saidthat the income of Rs.22,92,355/-, which was found in theresidential premises of Accused Nos.2 to 6, were shown to be thatof the income of Accused No.1 firm. There is no willful evasementof payment of tax or not showing the income in the return of theAccused No.1 firm. It is not a case of concealment of income ofAccused No.1 firm. Therefore, the assessment order of theconcerned authority as confirmed by the appellate authority andthe penalty order as confirmed by the appellate authority are of norelevance to arrive at a conclusion that the accused willfully orknowingly evaded to pay the tax or gave a false statement. Therefore, considering all these aspects, the trial Court rightlyacquitted the accused. Therefore, the judgment under challengedoes not suffer from any infirmities so as to call for interference by this Court. There are no compelling or substantial reasons tointerfere with the same. Hence, the Criminal Appeal is devoid ofmerit and is liable to be dismissed. 19. Accordingly, the Criminal Appeal is dismissed confirmingthe judgment, dated 28.02.2002, in C.C.No.91 of 1992, on the fileof the learned Special Judge for Economic Offences, Hyderabad. Dated: 12[th] November, 2009. ______________ (K.C.BHANU, J) KL [1] A.I.R. 1956 S.C. 217 (V.43 C. 45 Mar.)