Crla/1098/2002 Of The Deputy Commisioner 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.1098 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 theDeputy Commissioner of Income Tax, Special Range – I,Visakhapatnam, is directed against the judgment, dated28.02.2002, in C.C.No.93 of 1992, on the file of the learnedSpecial Judge for Economic Offences, Hyderabad, whereunderand whereby the Accused No.1 was found not guilty of theoffences punishable under Sections 276-C and 277 of theIncome Tax Act, 1961 (for short, “the Act”), and Accused Nos.2to 6 were found not guilty of the offences punishable underSections 276-C read with 278-B (1) and 277 read with 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 firmfiled Income Tax return on 19.09.1986 for the assessment year1986-87 corresponding to the accounting year 01.04.1985 to31.03.1986 before the Income Tax Officer declaring a totalincome of Rs.2,01,540/-. The assessment was completed under Section 143 (3) ofthe Act on 31.12.1986 by the Income Tax Officer on a totalincome of Rs.27,13,327/-. Notice under Section 271-1 (c) wasalso issued for concealment of particulars of income i.e.,unaccounted promotes Rs.1,46,000/-, interest on promotesRs.73,100/- and unaccounted cash Rs.22,92,355/-. Thereafter,on 17.01.1986, search and seizure proceedings were conductedat the business premises of Accused No.1 firm and also in theresidential premises of Accused Nos.2 to 6 who were partnersand certain incriminating material, i.e., cash of Rs.22,92,355/-and pronotes standing in the name of different partners to a tuneof Rs.3,55,000/- were found and out of cash of Rs.22,92,355/-, asum of Rs.22,76,000/- and pronotes were seized. Swornstatements of the partners were recorded at the time of thesearch and the partners have admitted that the cash andamounts covered by pronotes advanced which were seized bythe Officers had in fact came to their hands out of theunaccounted business income of Accused No.1 firm. AccusedNo.1 firm also filed a petition for a waiver under Section 273-A(4) of the Act before the Commissioner of Income Tax,Visakhapatnam on 31.12.1986 and the assessees admitted thecash found and promotes seized as part of the business incomeof Accused No.1 firm 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 the accused who gave a reply and after hearing the matter, penaltywas levied at Rs.12,55,756/- under Section 271 (1) (c) of theAct which was confirmed by the Commissioner of Income Taxin his order, dated 27.10.1989. 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 the accused who gave a reply and after hearing the matter, penaltywas levied at Rs.12,55,756/- under Section 271 (1) (c) of theAct which was confirmed by the Commissioner of Income Taxin his order, dated 27.10.1989. Therefore, Accused No.1 firm made a false statement inthe verification part of the returns of income filed by it on19.09.1986 with the knowledge that the returns are false anduntrue and also believed to be false statements and enclosures,knowing them to be false and thus, committed an offencepunishable under Section 277 of the Act and that Accused No.2who is the Managing Partner and Accused Nos.3 to 6 who arethe partners of Accused No.1 firm are responsible for theconduct of the business and they are liable for punishmentunder Section 278-B of the Act. 3. When the charges under Sections 276-C and 277 of theAct against Accused No.1 and 276-C read with 278-B (1) and277 read with 278-B (1) of the Act against Accused Nos.2 to 6were framed, read over and explained to the accused, theypleaded not guilty and claimed to be tried. 4. To prove the charges levelled against the accused, theprosecution examined P.Ws.1 to 7 and got marked Exs.P1 toP33. 5. After closure of the prosecution evidence, the accusedwere examined 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 ofthe accused, 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 failedto establish that the amounts seized from the residentialpremises of the partners was not shown to be that of thebusiness income of Accused No.1 firm, that the burden placedon the complainant has not been discharged and accordinglyacquitted the accused. Challenging the same, the presentCriminal Appeal is filed. 7. Now the point for determination is whether theprosecution proved its case beyond all reasonable doubt for thecharges levelled against the accused and whether the judgmentof the trial Court is correct, legal and proper? 8.Learned Standing Counsel appearing for the appellantcontended that on application made under Ex.P20-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 furtherwhen a penalty was imposed by the Income Tax Officer, thesame was confirmed by the Appellate authority; that therefore,these orders would clearly disclose that Accused No.1 firm hasfiled two sets of returns and in these two sets of returns, thereis a variation of income of the firm which clearly go to show thatthe true and correct income of Accused No.1 firm has not beenshown, and therefore, the accused have committed the offenceswith which they were charged. He also contended that P.Ws.6to 9 who were the authorized Officers to record the swornstatements under Section 132 (4) of the Act and thosestatements can be read as an evidence in prosecution ofaccused under any one of the provisions under the Act; that on their own admissions, it is clear that the income that was foundin the residential premises of the other partners is the incomerelating to Accused No.1 firm, and therefore, he prays to setaside the order of acquittal. their own admissions, it is clear that the income that was foundin the residential premises of the other partners is the incomerelating to Accused No.1 firm, and therefore, he prays to setaside the order of acquittal. 9.On the other hand, the learned counsel appearing for theRespondent Nos.1 to 6 contended that the money seized fromthe residential premises of the partners do not belong to theAccused No.1 firm and as a matter of fact, with reference to theamount found in the residential premises of the partners,separate returns were submitted by the partners in theirindividual capacity, but to purchase a peace with the IncomeTax Department, they have given a conditional admission underEx.P20 thinking that the Income Tax Department would waivethe penalty and prosecution, that therefore, the cash andamounts relating to pronotes seized during such proceedingswas not that of the income of the Accused No.1 firm and that inthe assessment proceedings, the department has taken a pleathat the sworn statements have not been recorded underSection 132 (4) of the Act, that whereas the prosecution havecome forward with a different version in this case stating thatthe sworn statements of the partners have been recorded, thatthe trial Court, after elaborate consideration of evidence onrecord, rightly held that the prosecution has failed to establishthe income found during the search and variations were notshown 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 theCriminal Appeal against the order of acquittal, the Appellate Court has got full power to reappreciate the evidence availableon record, but it will slow in interfering with the findings in viewof the fact that there is a presumption under law that theaccused is presumed to be innocent unless contrary is provedby the prosecution beyond all reasonable doubt. Thatpresumption of innocence is further strengthened by an order ofacquittal. Unless there are compelling or substantial reasonsviz., the findings are perverse, or not based upon any evidence,or admissible evidence has not been taken into consideration,or inadmissible evidence was taken into consideration,ordinarily this Court would not interfere with the same. The sumand substance of the powers of the appellate Court to interferewith the order of acquittal, there must be compelling orsubstantial reasons. 11.On this aspect, it is pertinent to refer to a decisionreported in Aher Raja Khima v. State of Saurashtra[[1]],wherein it is held thus:“A court hearing an appeal under S.417 mightbe confronted 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 mightconsider that the evidence was not clear andconclusive one way or the other, in which case its dutyas an appellate court would be not to interfere with thejudgment appealed against; and (iii) it might come to aconclusion on an appreciation of the evidenceopposite to that reached by the court of first instance,in which case it would clearly be its duty in exercise ofits powers under S.417 to set aside that order ofacquittal.” Bearing the above principles in mind, it is to be seen whether 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,without prejudice to any penalty that may beimposable on him under any other provision of thisAct, 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 beless than six months but which may extend to sevenyears and with fine; Bearing the above principles in mind, it is to be seen whether 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,without prejudice to any penalty that may beimposable on him under any other provision of thisAct, 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 beless than six months but which may extend to sevenyears 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.” 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 a willful evasion of the tax or penalty. The willfulevasion of the tax refers to the deliberate mental intention of theassessee. There must be a mens ria on the part of theassessee with an intention to suppress certain income or togive a false statement. 13. Section 277 of the Act reads thus: “False statement in verification, etc.:- If a person makes a statement in any verification under this Act or under any rule madethereunder, or delivers an account or statement whichis false, and which he either knows or believes to befalse, or does not believe to be true, he shall bepunishable.- (i)in a case where the amount of tax,which would have been evaded if the statement oraccount had been accepted as true, exceeds onehundred thousand rupees, with rigorous imprisonmentfor a term which shall not be less than six months butwhich may extend to seven 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 accusedmust be having a knowledge or reason to believe that thestatement is a false. 14. Section 278-B (1) of the Act provides that where theoffence has been committed by a company, every person, whoat the time of offence was committed, was incharge of and wasresponsible to the company for the conduct of the business ofthe company as well as the company, can be deemed to beguilty of the 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 andresponsible for the day-to-day affairs of the conduct of the business of AccusedNo.1 firm. 16. There cannot be any dispute that there may be a sleepingpartner or partners who are not actively participating in theaffairs or conduct of the firm. In such circumstances, Section278-B (1) of the Act says that the complainant has to establishthat all the partners were incharge of and responsible for theaffairs of the firm. There is no such evidence to show thatAccused Nos.3 to 6 were actively participating in the affairs ofthe conduct of the business of the firm. Simply they wereshown as partners of Accused No.1 firm. No doubt, as rightlycontended by the learned counsel appearing for the appellantthat the assessment orders have become final and the penaltyimposed by the concerned Income Tax Officer has also becomefinal, as they were confirmed by the appellate authority. Butthat cannot be a ground to convict the accused. It must beshown that there was willful evasion of tax or penalty. 17. There is evidence on record which would go to show thateven prior to filing of Ex.P20, 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 Taxofficials conducted a search in respect of the residentialpremises of Accused Nos.2 to 6, an unaccounted cash ofRs.22,92,355/- from various partners and the pronotes valued atRs.3,55,000/- were found. If the individual partners have notsubmitted any returns for the excess amount found in theirrespective residential premises, then it can be said that therewould be a willful evasion of tax. 18. It is in the evidence on record which would go to show that Accused Nos.2 to 6 filed separate returns on 30.09.1986 inrespect of the amounts seized during raid, but by virtue ofEx.P20-Petition which is subsequent filing of individual returns,they made it clear that they have conceded to treat the amountsfound during raid as the income of Accused No.1 firm. Inpursuance of Ex.P20-letter, some of the amounts that wereseized during search were intended to tag on to the income ofAccused No.1 firm. Therefore, under no stretch of imagination,it can be said that the income of Rs.22,92,355/-, which wasfound in the residential premises of Accused Nos.2 to 6, wereshown to be that of the income of Accused No.1 firm. There isno willful evasement of payment of tax or not showing theincome in the return of the Accused No.1 firm. It is not a caseof concealment of income of Accused No.1 firm. Therefore, theassessment order of the concerned authority as confirmed bythe appellate authority and the penalty order as confirmed bythe appellate authority are of no relevance to arrive at aconclusion that the accused willfully or knowingly evaded to paythe tax or gave a false statement. Therefore, considering allthese aspects, the trial Court rightly acquitted the accused.Therefore, the judgment under challenge does not suffer fromany infirmities so as to call for interference by this Court. Thereare no compelling or substantial reasons to interfere with thesame. Hence, the Criminal Appeal is devoid of merit and isliable to be dismissed. 19. Accordingly, the Criminal Appeal is dismissedconfirming the judgment, dated 28.02.2002, in C.C.No.93 of1992, on the file of the learned Special Judge for EconomicOffences, Hyderabad. ______________ (K.C.BHANU, J) Dated: 12[th] November, 2009. KL [1] A.I.R. 1956 S.C. 217 (V.43 C. 45 Mar.)