Wp(C)/1889/2005 Of N.s.babu v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.SASIDHARAN NAMBIAR THURSDAY, THE 2ND DECEMBER 2010 / 11TH AGRAHAYANA 1932 WP(C).No. 1889 of 2005(Y) ------------------------------------- CC.38/1997 of ADDL.C.J.M.(E&O),ERNAKULAM .................... PETITIONER(S): ----------------------- N.S.BABU, BHARATHY CLAYS, CHAKE, TRIVANDRUM. BY ADV. SRI.K.VINOD CHANDRAN RESPONDENT(S): ------------------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 02/12/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts M.SASIDHARAN NAMBIAR,J. ===========================W.P.(C)No.1889 OF 2005=========================== Dated this the 2[nd] day of December,2010 JUDGMENT PetitioneristheproprietorofM/s.Bharathy Clays, Thiruvananthapuram andM/s.BharathyEarthEngg.Contractors,Trivandrum. For the assessment year 1989-90 hefiled a return on 31.10.1989 declaring loss ofRs.4685/-. From the total income ofRs.2,19,375/- unabsorbed depreciation ofRs.2,24,060/- was deducted resulting in a lossof Rs.4685/-. Along with the return computationstatement and annual account were submitted.Accepting the loss, the return of income wasprocessed under section 143(1)(a) of Income TaxAct on 23.3.1990. Investigating wing of thedepartment conducted a survey in the premisesof the petitioner on 6.3.1990. He sent severalletters calling the petitioner to furnish the details to scrutinise the accounts. As he did notrespond, Assessing Officer proposed to do an exparte assessment of an income of Rs.40,00,000/-.Petitioner submitted a reply and in that reply heoffered to add two items to the income originallydeclared namely Rs.40,413/- being the interestreceived from M/s.Kalpaka Finance, Trivandrum onits winding up and Rs.1,28,335/- received fromM/s.Tranvancore Cements Ltd, Kottayam in fullagainst the advance made. Assessment was doneunder section 143(3) disallowing business expensesof Rs.43,499/-. Petitioner filed an appeal beforeCommissioner of Income tax Appeals. Appeal wasallowed and expenses of Rs.43,499/- was allowed.The Assessing officer was directed adjustment ofproperty income against the income from othersources and to allow deduction under section 80C,which petitioner had not claimed in his return.As a result when originally no tax was payable onregular assessment, petitioner has to payRs.1,64,266/-. Penalty of Rs.1,20,000/- was also imposed. Petitioner filed an appeal under section271(1)(c). In the appeal, C.I.T(A) directed theassessing officer to treat Rs.1,68,748/- asconcealed income and levy the minimum penalty asprovided under section 271(1)(c). It was contendedthat the said levy of penalty was not contestedbefore the Income tax Appellate Tribunal and thepenalty payable was Rs.66,805. Department filed anappeal against the said order before I.T.A.T,Cochin Bench. It was subsequently disposed byExt.P4 order whereunder the penalty imposed was setaside allowing the cross objection filed by theassessee. Department filed Ext.P1 complaint beforeAdditional Chief Judicial Magistrate (EconomicOffences), Ernakulam contending that petitioner deliberately concealed the income with theintention of evading tax and also made a statementon verification under the I.T.Act and delivered anaccount or statement which he knew or believed tobe false and therefore he committed offences undersection 276C and Section 277 of Income-tax Act and also offences under section 193, 196 and 420 ofIndian Penal Code. Learned Magistrate has takencognizance of the offences. Petition is filedunder Article 226 of the Constitution of India toquash Ext.P1 complaint. 2. Learned counsel appearing for the petitioner and Standing Counsel for the firstrespondent were heard. deliberately concealed the income with theintention of evading tax and also made a statementon verification under the I.T.Act and delivered anaccount or statement which he knew or believed tobe false and therefore he committed offences undersection 276C and Section 277 of Income-tax Act and also offences under section 193, 196 and 420 ofIndian Penal Code. Learned Magistrate has takencognizance of the offences. Petition is filedunder Article 226 of the Constitution of India toquash Ext.P1 complaint. 2. Learned counsel appearing for the petitioner and Standing Counsel for the firstrespondent were heard. 3. Section 276C of the Income Tax Act providesthat if a person wilfully attempts in any mannerwhatsoever to evade any tax, penalty or interestchargeable or imposable under the Act, he shall,without prejudice to any penalty that may beimposable on him under any other provision of theAct shall be punishable as provided under theSection. Section 277 provides that if a personmakes a statement in any verification under the Actor under any rule made thereunder, or delivers anaccount or statement which is false, and which heeither knows or believes to be false, or does notbelieve to be true, shall be punishable as provided thereunder. 4. Therefore to attract an offence undersection 276C, petitioner should have eitherwilfully attempted in any manner whatsoever toevade any tax penalty or interest chargeable orimposable under the Act. So also to attract anoffence under section 277, petitioner should havemade a statement in any verification under the Actor under any rule or delivered an account orstatement which is false or which either knew orbelieved to be false, or did not believe to betrue. The allegation against petitioner is that hewilfully attempted to evade tax by not disclosingthe two income namely Rs.40,413/- received asinterest from M/s.Kalpaka Finance, Trivandrum onits winding up and Rs.1,28,335/- from M/s.Travancore Cements Ltd. The question is whether there was any wilful attempt to evade tax,penalty or interest by suppressing the said incomeor whether petitioner omitted to show this incomein the statement on verification with the knowledge that the statements so furnished is false or hebelieved it to be false. 5. As rightly argued by the learned counsel appearing for the petitioner, in the light of thedecision of the Income Tax Appellate Tribunal,Cochin Bench, in CO.NO.41/99 filed against theorder for assessment year 1989-90, in ITA 682(Coch)/1995, it cannot be said that petitionereither made a wilful attempt to evade tax, penaltyor interest or made a false statement by notdisclosing the said income. The AppellateAuthority on the materials held that the non-disclosure of the two income was purely a mistakeon the part of the assessee and it was not conscious concealment. The relevant portion of thefindings in the order in the appeal reads:- “We are of the opinion that the failure on the part of the assessee to declare those two items in his original return of income cannot be said to be the consciousconcealment. Moreover, though the AO had sent the proposal for the bestjudgmentassessmentfor assessing the assessee's income at Rs.40 lakhs, but the assessment is completed undersection 143(3) accepting the additional income declared by the assessee which as per the assessee was an accounting mistake. We also find force on the facts of this case in the contention of the assessee thatwhen the accounts are auditedby a Chartered Accountant, certainly the assessee will berelying on the audited accounts and he filed the return of income based on the said audited accounts. Another aspect we would like to clear here is that the word “concealment” appearing in theSectioncontemplatessomeSectioncontemplatessome deliberate act and not a consciousconcealment. Moreover, though the AO had sent the proposal for the bestjudgmentassessmentfor assessing the assessee's income at Rs.40 lakhs, but the assessment is completed undersection 143(3) accepting the additional income declared by the assessee which as per the assessee was an accounting mistake. We also find force on the facts of this case in the contention of the assessee thatwhen the accounts are auditedby a Chartered Accountant, certainly the assessee will berelying on the audited accounts and he filed the return of income based on the said audited accounts. Another aspect we would like to clear here is that the word “concealment” appearing in theSectioncontemplatessomeSectioncontemplatessome deliberate act and not a mistake. There is no second opinion in respect of the impact of the Explanation to Section 271(1)(c) of the Act, but at the same time, we find that the assessee has offeredhisexplanationfornothisexplanationfornot declaring the two said two sums in his original return but only offered at the time of assessment is sufficient to relieve him from Explanation B to Section 271(1)(c) of the Act. In our further opinion the different decisions relied on by the revenue are distinguishableonfacts. There is no fixed scale or any device to decide whether a particular assessee is liable for penalty under section 271 (1)(c) but each case is to be determined on the basis of the facts. In this case, another aspect to be considered is that no books of accounts were impoundednoranyother enquiries were made by the AO and in our opinion, it was purely a mistake on the part of the assessee and not any conscious concealment.” Though the department challenged the order beforethis court in ITA 219/2009, by Ext.P3 judgment the appeal was dismissed. In such circumstances, itcan only be found that there was no wilful attemptto evade tax as provided under section 276C. In the light of the said finding, it can only befound that petitioner did not make any falsestatement, which is false or which either knew orbelieved to be false. If that be so, petitionercannot be prosecuted for either an offence undersection 276C or 277. The question has beensettled by this court in Edayanal Constructions v.-Incometax Officer and another (2007 288 ITR 134) where it was held that when the AppellateAuthority as well as the Income tax Appellate Tribunal in unambiguous terms found that theexplanation of the assessee for not showing theconcealed income is accepted, an offence undersection 276C or 277 is not attracted. So also noneof the offences under sections 193, 196 or 420 of Indian penal Code is attracted. Hence thecognizance taken and the proceedings pendingbefore the learned Additional Chief JudicialMagistrate can only be quashed. Petition is allowed. Ext.P1 complaint and thefurther proceedings in C.C.38/1997 on the file of W.P.(C)1889/200511 Additional Chief Judicial Magistrate Court (Economic Offences), Ernakulam is quashed. tpl/- M.SASIDHARAN NAMBIARJUDGE M.SASIDHARAN NAMBIAR, J. ---------------------W.P.(C).NO. /06--------------------- JUDGMENT SEPTEMBER,2006