Crlrc/533/2007 Of M/S. V.v.projects And Investments Pvt.ltd v. The Asst. Commissioner Of Income Tax

HON'BLE SRI JUSTICE M.S.K.JAISWAL Criminal Revision Case No.533 of 2007 -ORDER: This revision case is directed against the orders of thelearned Special Judge for Economic Offences, Hyderabad, inCrl.M.P.No.99 of 2007 in C.C.No.10 of 2006, dated 28-02-2007, under Section 239 Cr.P.C., for discharging them of theoffences alleged under Sections 276-C, 276 and 278-B of theIncome-Tax Act (for short ‘the Act’). 2. During the pendency of the proceedings, the 2[nd]petitioner/A.2 died. Petitioner/A.1 is the Company and 3[rd]petitioner/A.3 is its Chairman. 3. The respondent/the Assist Commissioner of Income-tax,Circle-II(3), Hyderabad, filed the complaint alleging that thepetitioners/accused have wilfully attempted to evade the paymentof income-tax, by knowingly making an incorrect claim ofdepreciation of Rs.19,80,000/- on non-existing assets viz., SolarEquipment worth Rs.39,60,000/- and the show cause notices wereissued to the accused Company and its Directors and they werealso given an opportunity of being heard. The explanations givenby them do not bring any material to show that there was no wilfulattempt on their part to evade the tax; on the other hand it clearlyshows that the accused Company and its Directors with anintention to evade tax, submitted a false return and the same wassigned and verified by Sri Satyanarayana. As a matter of fact, thereturn filed by the accused Company on 30-11-1995 was acceptedby the Department under Section 143(1)(a) of the Act and virtuallythe assessment has become final and the attempt of the assesseeto evade the payment of tax on the sum claimed as depreciationknowingly and incorrectly has succeeded. However, on account of certain investigations by the Income Tax Department the factrelating to non-existence of the assets and incorrectness of thedepreciation claimed by the accused was detected. Thereafter theaccused Company was constrained to file a second returnwithdrawing the claim of depreciation of the non-existing assetsclaimed earlier. Further the said second return was not a valid oneunder the law and subsequently the Assessing Officer reopened theassessment and brought the income to tax on which the accusedCompany evaded the payment of tax in the original return. Thus,the above acts of the assessee Company show wilful attempt on itspart to evade the tax. As such the accused Company hascommitted offence punishable under Section 276-C of the Act. That A.2 – C.Satyanarayana made a false verification on 30-11-1995 in the return of income. He knew the declaration to befalse and by falsely verifying the return thus committed an offenceunder Section 277 of the Act. That A.2 – C.Satyanarayana and ac – G.Nagabhushana Rao,being Managing Director and Chairman (Director) respectively,have overall control over the affairs of the Company. They haddecision making authority for the financial matters and wereresponsible for conducting the business of the accused Company. They had certified the annual accounts of the accused No.1 on 04-09-1995 knowing fully well that the alleged solar equipment worthRs.39,60,000/- did not exist, but still included it in the Fixed Assetsleading the claim of depreciation of non-existing assets. Therefore,they are liable to be punished under Section 278-B read withSection 276C of the Act, for the offences committed by theCompany. 4. The contention of the petitioners/accused is that the income-tax returns for the year 1995-96 was filed by showing the NIL 4. The contention of the petitioners/accused is that the income-tax returns for the year 1995-96 was filed by showing the NIL income, that during the said year, the petitioners’ Company haderected the solar water heating equipment by spending an amountof Rs.44,42,129/-, that in the return filed on 30-11-1995, theCompany claimed depreciation and therefore the income wasshown as NIL. The said return was accepted and subsequently oncoming to know the correct position of law and on the advice of theChartered Accountant, a revised return was filed and a tax ofRs.4,77,513/- was paid after claiming various deductions. TheIncome-tax Department has accepted the revised return and theassessment order was passed. The Income-tax Departmentinitiated penalty proceedings and levied a sum of Rs.9,10,800/- aspenalty by the order of the Assessment Officer dated 15-03-2001. The Company preferred an appeal before the Commissioner ofIncome-tax which was dismissed. They also filed an appeal beforethe Income-tax Appellate Tribunal, Hyderabad, which was alsodismissed. Thereafter, the petitioners approached the High Courtof Andhra Pradesh by filing ITT Appeal No.230 of 2005. Pending ofthe proceedings, the respondent/complainant initiated criminalproceedings against the petitioners/accused alleging that they havewilfully evaded the tax. 5. It is further submitted that by Judgment, dated 06-12-2007, a Division Bench of the High Court allowed the ITT Appeal bysetting aside the penalty proceedings. In view of the said orders ofthe Division Bench and in view of the well settled legal position thatall the penalty proceedings have been set aside, continuing thecriminal prosecution cannot be allowed. In support of thiscontention, learned Counsel appearing for the petitioners/accusedrelied upon several decisions of different High Courts, in which it isconsistently held that penalty based on the alleged concealment ofincome or attempt to evade tax if set aside by the competent authority, criminal prosecution on the alleged evasion or wilfulattempt to evade tax cannot be sustained. Suffice it, however, torefer to a decision of the Supreme Court reported inK.C.BUILDERS AND ANR. V. THE ASSISTANT COMMISSIONEROF INCOME-TAX (2004) 2 SCC, 731). The Supreme Court in thesaid decision laid down that once penalties imposed on theassessee under Section 271(1)(c) of the Act are cancelled,prosecution of the assessee for an offence under Section 276-C forwilful evasion of tax cannot be proceeded with thereafter and thatquashing of the prosecution is automatic. 6. The contention of the respondent is that prima facie there iscase against the petitioners/accused to proceed and the trial Courthas considered all the aspects and dismissed the dischargepetition. Only during the course of trial, it will be known as towhether the petitioners/accused have committed any offence ornot. 7. From the above narration of facts, what is evident is that thepetitioners’ Company has filed the income-tax return for theassessment year 1995-96 on 30-11-1995 disclosing NIL income. They claimed depreciation on the solar equipment acquired by it. Subsequently, on 04-05-1998 a revised return was filed declaringtotal income of Rs.4,77,510/- giving up its claim of depreciation onthe solar equipment. The revised return was accepted by theDeputy Commissioner of Income-tax and an order was passed on16-03-2001 under Section 143(3) of the Act determining the taxpayable as under:- Total Income Returned Rs.4,77,510/- Tax thereon Rs.1,43,253/-- Surcharge Rs.21,488/ Rs.1,64,741/- Add.Interest u/s.234-B Rs.2,19,051/-- u/s.234-C Rs.12,187/ - Total Rs.3,95,979/ Total Income Returned Rs.4,77,510/- Tax thereon Rs.1,43,253/-- Surcharge Rs.21,488/ Rs.1,64,741/- Add.Interest u/s.234-B Rs.2,19,051/-- u/s.234-C Rs.12,187/ - Total Rs.3,95,979/ 8. The said tax together with interest has been paid. However,the Department initiated proceedings under Section 271(1)(c) of theAct and imposed penalty of Rs.9,10,800/- being 100% of the taxevaded. The explanation offered by the assessee was rejected. The assessee filed an appeal before the Commissioner of Income-tax and the same was dismissed on 22-08-2002 upholding thepenalty proceedings. An appeal before the Income-tax AppellateTribunal, Hyderabad, was filed which was dismissed. Theassessee/petitioners/accused has filed ITT Appeal230 of 2005 andby Judgment dated 06-12-2007, a Division Bench of ourHigh Court allowed the said appeal holding that the question as towhether the assessee has concealed his income or has deliberatelyfurnished inaccurate particulars thereof is essentially a finding offact which has to be spelt out by way of recording the satisfactionof the Assessing Officer as required under Section 271(1) of theAct. It was further observed that in the absence of such a finding inthe assessment order no penalty proceedings can be initiated. 9. As stated above, in view of the well settled legal position,once the penalty proceedings initiated by the Department havebeen set aside, prosecution of an assessee on the self-same factscannot be allowed to continue. In the decision of the SupremeCourt referred to supra, the points for consideration are (a) whethera penalty imposed under Section 271(1)(c) of the Income-tax Actand prosecution under Section 276-C of the Income-tax Act aresimultaneous? (b) Whether the criminal prosecution gets quashedautomatically when the Income-tax Appellate Tribunal which is thefinal Court on the facts comes to the conclusion that there is noconcealment of income, since no offence survives under theIncome-tax Act thereafter? The Supreme Court held that once the penalties are cancelled on the ground that there is no concealment,quashing of prosecution under Section 276-C of the Act isautomatic and that once the finding of concealment and subsequentlegal penalties under Section 276(1)(c) of the Act has been struckdown by the Tribunal, the Assessing Officer has no otheralternative except to correct his order under Section 154 of the Actas per the directions of the Tribunal. It was also observed that theAssistant Commissioner of Income-tax cannot proceed with theprosecution even after the order of concealment has been set asideby the Tribunal and when the Tribunal has set aside the levypenalty the criminal proceedings against the appellants cannotsurvive for further consideration. 10. Applying the above decision to the facts of the case in hand,it is held that since the penalty proceedings have ultimately beenset aside by a Division Bench of our High Court, the criminalproceedings against the petitioners/accused cannot survive. Therefore, the petitioners are entitled to discharge. 11. In the result, the Criminal Revision Case is allowed and thepetitioners are discharged for the offences under Sections 276-C,276 and 278-B of the Income Tax Act in C.C.No.10 of 2006 on thefile of the Special Judge for Economic Offences, Hyderabad. Miscellaneous petitions, if any, pending in this revision shallstand closed. __________________ M.S.K.Jaiswal, J October, 2015 smr