The Income Tax Officer, Ward-I, Phagwara v. M/S Gian Chand Darshan Kumar And Others

IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH Criminal Appeal No. 730-SBA of 1997 Date of decision: 15[th] February, 2010 The Income Tax Officer, Ward-I, Phagwara Versus M/s Gian Chand Darshan Kumar and others … Appellant … Respondents CORAM: HON'BLE MR. JUSTICE KANWALJIT SINGH AHLUWALIA Present:Mr. Vivek Sethi, Advocate for the appellant. Mr. B.S. Sangha, Advocate for respondents No.1 and 2. Mr. B.S. Bali, Advocate for respondent No.3. KANWALJIT SINGH AHLUWALIA, J. (ORAL) The Income Tax Officer, Ward-I, Phagwara launchedprosecution against partnership firm M/s Gian Chand Darshan Kumar,G.T. Road, Goraya and two of its partners namely Gian Chand andDarshan Kumar were also impleaded as accused. The complaint was triedby the Court of Chief Judicial Magistrate, Jalandhar, who vide hisjudgment and order dated 17[th] May, 1997, recorded acquittal of theaccused. Aggrieved against the same, present appeal has been filed.On 30[th] March, 1989, the complaint was presented by Income Tax Officer,Ward-I, Phagwara against the accused. An averment was made in thecomplaint that complaint has been filed at the instance of G.S.Sidhu,Commissioner, Income Tax, Jalandhar, who in exercise of powers vestedin him under Section 279(1) of the Income Tax Act, 1961 (hereinafter referred to as, ‘the Act’), decided to initiate prosecution. Accused No.1 M/sGian Chand Darshan Kumar, partnership firm was assessee of income taxin Ward No.1, Phagwara. The accused firm being a registered firm, filedincome tax return declaring income of Rs.95,090/- for the assessmentyear 1977-78. The verification portion of the income tax return was signedby Darshan Kumar partner, who was arrayed as accused No.3. During theassessment proceedings, account books and other documents filed withthe return were examined by the Income Tax Officer and duringassessment, it surfaced that two persons Surinderpal and Sumer Chandwere paid commission amounting to Rs.4,235/- and Rs.8,829/-respectively. The accused assessees were called upon to producedocumentary evidence to show that the payments were genuinely made tothe agents. The accused assessees replied that the agents were old onesand the conditions for payment of commission were same as were in theearlier years. In 1976-77, payment of commission to these very personswas disallowed on the ground that they were close relatives of GianChand partner of the firm. The accused had filed an appeal, which wasaccepted by Assistant Appellate Commissioner. However, the Income TaxAppellate Tribunal had set aside the order passed by the AssistantAppellate Commissioner and had confirmed the disallowance of thecommission paid to the alleged agents. During the assessmentproceedings for year 1977-78, no books of account reflecting commissionaccount were maintained, therefore, claim of the accused for deduction ofRs.13,064/- from the income was disallowed and this was added totaxable income. Assessment was completed and non-taxable income ofthe accused assessees was determined as Rs.1,11,112/- by the IncomeTax Officer on 18[th] October, 1979. A penalty of Rs.8,495/- was imposedupon the accused assessees by the Income Tax Officer under Section 270 (1)(c) of the Act vide order dated 22[nd] March, 1982. This was done afterthe accused were afforded reasonable opportunity of being heard. Theappeal filed by the accused assessees was dismissed by theCommissioner of Income Tax (Appeals) vide its order dated 16[th]December, 1988. A grievance was made in the complaint that the accusedassessees willfully attempted to evade tax/penalty/interest chargeable andthereby committed offence under Section 276(c)/277 of the Act and theyhad also falsely verified the return and thereby committed offence underSection 278(b) of the Act. (1)(c) of the Act vide order dated 22[nd] March, 1982. This was done afterthe accused were afforded reasonable opportunity of being heard. Theappeal filed by the accused assessees was dismissed by theCommissioner of Income Tax (Appeals) vide its order dated 16[th]December, 1988. A grievance was made in the complaint that the accusedassessees willfully attempted to evade tax/penalty/interest chargeable andthereby committed offence under Section 276(c)/277 of the Act and theyhad also falsely verified the return and thereby committed offence underSection 278(b) of the Act. In the above said complaint, accused were summoned tostand trial. On 18[th] October, 1994, charges were framed against theaccused. The charge stated that M/s Gian Chand Darshan Kumar,registered firm and assessee of Income Tax Ward-1, Phagwara for year1977-78 filed an income tax return declaring income of Rs.95,090/- andduring assessment proceedings, it was found that for payment ofcommission to Surinderpal and Sumer Chand amounting to Rs.4,235/-and Rs.8,829/- respectively, there was no documentary proof. At the timeof assessment proceedings, the net taxable income of the firm wasassessed and determined as Rs.1,11,112/- and a penalty was imposedupon the firm and partners under Section 271(1)(c) of the Act. The appealfiled to higher authorities was dismissed, and thereby they had committedoffence under Section 276(c) and 277 of the Act. They had also verifiedthe return wrongly, as such committed an offence punishable underSection 278(b) of the Act. The accused pleaded not guilty and claimedtrial. Prosecution examined Balbir Singh, Income Tax Officer asPW-1. He stated that during his tenure, he had filed complaint. He wasauthorized to file the complaint by Commissioner of Income Tax, G.S. Sidhu. In cross examination, this witness stated that he had not made anyassessment or passed any order of penalty against the accused. Hefurther stated that he had prepared the draft of authorization letter Ex.P1and had sent it to the Commissioner of Income Tax, Jalandhar. D.S. Walia appeared as PW-2. He stated that in year 1977-78, he was posted as Income Tax Officer in Ward-I, Phagwara. He gavethe details, which have been enumerated in the complaint and reproducedabove. Thereafter, statements of the accused were recorded underSection 313 Cr.P.C. and all incriminating evidence was put to them. Theydenied the same and pleaded innocence. In defence, accused examined Surinderpal. He stated that hehad received the amount of commission from the accused firm. Similarly,Sumer Chand DW-2 also reiterated that he had also received amount ofcommission. The trial Court recorded acquittal of the accused, firstly on theground that it was incumbent upon the authorities to issue a show causenotice to the accused before filing complaint and principles of naturaljustice ought to be, adhered to, before launching the prosecution. Mr.B.S. Sangha, appearing for respondents No.1 and 2, hasvery fairly stated that in ‘Union of India v. Banwari Lal’ 1998 (147)Supreme Court (Taxation) 743, this legal position has been reversed and itis no longer necessary that the notice should be served upon the accused.Counsel has further submitted that when the acquittal of the accused wasrecorded on 17[th] May, 1997, judicial pronouncement in Banwari Lal’s case(supra) had not come and the view taken by the trial Court was inconsonance with the law prevailing at that time. A perusal of the impugnedjudgment reveals that the trial Court had relied upon the statement made Mr.B.S. Sangha, appearing for respondents No.1 and 2, hasvery fairly stated that in ‘Union of India v. Banwari Lal’ 1998 (147)Supreme Court (Taxation) 743, this legal position has been reversed and itis no longer necessary that the notice should be served upon the accused.Counsel has further submitted that when the acquittal of the accused wasrecorded on 17[th] May, 1997, judicial pronouncement in Banwari Lal’s case(supra) had not come and the view taken by the trial Court was inconsonance with the law prevailing at that time. A perusal of the impugnedjudgment reveals that the trial Court had relied upon the statement made by Balbir Singh PW-1 in the cross examination, where he stated that hehad prepared the draft of authorization letter Ex.P1 and had sent it to theCommissioner of Income Tax, Jalandhar. He signed the same andreturned it for filing the complaint. Counsel has submitted that the IncomeTax Commissioner has not been examined and from the record,application of mind of the Commissioner of Income Tax is not apparent.He had merely signed the authorization letter sent to him and thus heacted in a mechanical manner. To support this contention, counsel hasrelied upon a judgment rendered by Andhra Pradesh High Court in‘Income Tax Officer v. Abdul Razack and others’ 1990 (181) IT Reports414, wherein it was held that in order to find whether the complaint is filedat the instance of Commissioner, mere signatures of the authority vestedwith the power to prosecute are not sufficient, there must be application ofmind discernible on the file when order for the prosecution is passed.Counsel has submitted that the fact that Commissioner had not applied itsmind, is also apparent from the fact that the Board of Direct Taxes hadissued a circular on 7[th] September, 1995 taking a conscious decision thatthose persons who have concealed income less than Rs.25,000/-, theyare not to be subjected to the prosecution. To fortify this submission,counsel has relied upon ‘M/s New Fields Advertising (P) Ltd. & Anr. V.O.D. Sharma’ (2007) 197 Taxation 124 (Del.), wherein Delhi High Court,taking the circular into consideration, had quashed the proceedings.Learned counsel has further submitted that prosecution against theaccused was to be launched at district Kapurthala and not at Jalandhar,therefore, there is an error of jurisdiction. I have heard counsel for the parties. The accused had filed assessment for the year 1977-78. Aperiod of more than 32 years is going to elapse. They had shown the payment of commission amounting to Rs.4,235/- and Rs.8,829/- to twopersons, namely Surinderpal and Sumer Chand. The payment ofcommission was disallowed and the total income of the firm was assessedat Rs.1,11,112/- instead of declared income of Rs.95,090/-. The accusedfirm had already paid the penalty. One of the grounds of acquittal thatbefore launching of prosecution, accused were not afforded opportunity ofhearing, has already been made not available to the accused in view ofthe judgment rendered in Banwari Lal’s case (supra). However, for wrongdeduction of Rs.13,064/- which was later disallowed and wrongverification, accused have already suffered mental pain and agony ofprotracted trial for more than 20 years. The view formulated by the trialCourt that Mr.G.S. Sidhu, Commissioner of Income Tax had only signedthe draft of authorization letter Ex.P1 and application of mind on the file isnot apparent, is one view which cannot be held as perverse. Furthermore,the circular issued by Board of Direct Taxes relied in M/s New FieldsAdvertising (P) Ltd.’s case (supra) had also escaped notice of the IncomeTax Commissioner. Thus, taking overall view, no interference is warranted inpresent appeal against acquittal and the same is dismissed. February 15, 2010rps JUDGE