Andhra Pradesh H.C : The 1st petitioner is a registered firm carrying on manufacture of biscuits in the name and style of ” M/s, Ashok Biscuit Works “.

Counsel appeared

C. Malla Reddy, for the Petitioner : N.V.S.R. Gopala Krishnamacharyulu, for the Respondent

RADHAKRISHNA RAO, J.:

The 1st petitioner is a registered firm carrying on manufacture of biscuits in the name and style of ” M/s, Ashok Biscuit Works “. Petitioners Nos. 2 to 4 are its partners. The petitionerfirm filed returns for the asst. yrs. 1976-77, 1977-78 and 1978-79. On January 20, 1979, the ITO issued a letter to the 1st petitioner- firm pointing out that sales aggregating to Rs. 2,29,249 properly accountable as sales for the previous year ending March 31, 1976, have not been accounted for under ” sales “. The 1 st petitioner- firm was requested to offer its objections, if any, for treating the sum of Rs. 2,29,249 as its concealed income for the asst. yr. 1976-77. The 1st petitionerfirm was requested to file its reply by January 27, 1979. On February 7, 1979, the 1st petitioner-firm filed a revised return of income disclosing a total income of Rs. 2,88,434.62 along with a letter stating that the reasons for filing the revised return and the reply to the letter dated January 20, 1979, would be filed on February 9, 1979. On February 15, 1979, the 1st petitioner-firm filed a reply. Two sworn statements were recorded from accused No. 3, one on September 24, 1983, and the other on November 2, 1983. The assessment was completed on March 30, 1979, determining the income at Rs. 3,40,347 by taking into consideration the revised return filed on March 7, 1979.

The ITO, by his order dated December 17, 1983, levied penalty for the three assessment years under s. 271 (1)(c) of the IT Act for concealment of the income. The assessee succeeded in the penalty proceedings finally before the Tribunal and a revised reference was also asked for and the same was rejected.

2. Before the determination by the Tribunal, complaints have been filed in C. C. Nos. 126, 127 and 128 of 1986 for the concealment of income of Rs. 1,13,365, Rs. 2,85,921 and Rs. 4,70,849 for the asst. yrs. 1976-77, 1977-78 and 1978-79, respectively, against the petitioner-firm under s. 276C (1) of the IT Act for evasion of tax, under s. 277 for making false statement in verification and under ss. 193 and 196 of the IPC for giving false evidence. As the petitioner-firm succeeded in the penalty proceedings before the Tribunal, three applications were filed before the Special judge for Economic Offences under ss. 482 and 245, Cr. P.C., to quash the proceedings. The Special judge dismissed the three petitions by a common order dated August 22, 1986, with an observation that the finding of the Tribunal that there is no case for imposing penalty cannot be a ground for quashing the proceedings, keeping in mind the view of the Allahabad High Court in Dr. D. N. Munshi vs. Singh (N.B.) (1984) 42 CTR (SC) 180 : (1978) 112 ITR 173 and that of the Supreme Court in P. Jayappan vs. S. K. Perumal, First ITO (1984) 149 ITR 696. Against those orders, the present petitions have been filed under s. 482, Cr. P. C., to quash the proceedings in C. C. Nos. 126, 127 and 128 of 1986 pending on the file of the Special judge for Economic Offences, Hyderabad.

Sri Malla Reddy, learned counsel for the petitioner-firm, contended that though the Department has got a right to initiate criminal proceedings at the inception, they cannot be pursued further in view of the finding of the Tribunal that there are bona fides in not disclosing the same at the earliest point of time. It is also contended that when the statute has given a right to submit revised returns and when such returns have been filed in time and when they were accepted and the same was confirmed by the Tribunal and as the Tribunal also has upheld the plea of the petitioner that no penalties have to be levied, the proceedings before the Special judge for Economic Offences should not be allowed to go on.

The point that arises for consideration is whether prosecution for offences under ss. 276C and 277 of the IT Act and ss. 193 and 196, IPC, instituted by the Department when the assessment proceedings have become final are liable to be quashed on the ground that they are not maintainable. There is no provision in law which provides that prosecution for the offences in question cannot be launched or pursued even though the revised statements filed by the assessee in time and accepted by the Department have become final. Sec. 279 of the Act provides that a person shall not be proceeded against for an offence under s. 276C or s. 277 of the Act, except at the instance of the CIT. It further provides that a person shall not be proceeded against for an offence punishable under those provisions in relation to the assessment for an assessment year in respect of which penalty imposed or imposable on him under cl. (iii) of sub-s. (1) of s. 271 has been reduced or waived by an order under s. 273A of the Act. TheCommissioner has power either before or after the institution of proceedings to compound any such offence.

Learned counsel relied upon Uttam Chand vs. ITO (1982) 133 ITR 909 (SC). In that case, for the asst. yr. 1969-70, the ITO cancelled the registration on the ground that the firm was not genuine, on the basis of the statement of one of the parties that the signatures in the records were not hers and that she was not a partner. The Tribunal, on an appraisal of the material on record, found that she was a partner of the firm and that the firm was genuine and set aside the cancellation order of the ITO. The ITO initiated prosecution of the partners of the firm under s. 277 of the Act for having filed false returns and the Punjab and Haryana High Court, in a revision petition for quashing the prosecution against the firm, held that the Tribunal’s finding was not binding on the criminal Court, and cannot be a bar to the prosecution proceedings and that the same may be produced before the criminal Court, if admissible as evidence. On appeal to the Supreme Court by special leave, it was found that in view of the finding recorded by the Tribunal that she was a partner of the firm and that the firm was genuine, the assessee could not be prosecuted for filing false returns.

In that case, originally the firm was assessed for several years as a registered firm prior to 1969-70. Prosecution was launched only on the ground that it was not a genuine firm, but when once it was found that it was a genuine firm by the Tribunal, the natural consequence would be that the prosecution will not lie. It is from that angle that as the cancellation of the registration was not genuine and as the firm is entitled to file the same as a genuine one, the Supreme Court found that the partner who claims that she was not a partner, was found to be a partner and that the firm was a genuine one and the assessee could not be prosecuted for filing false returns. This judgment was considered in Jayappan’s case (supra) and it was found that the decision in Uttam Chand’s case (supra), is no authority for the proposition that no proceedings can be initiated at all under ss. 276C and 277 of the Act as long as some proceeding under the Act, in which there is a chance of success of the assessee, is pending.

Sri Malla Reddy contended that the facts in Jayappan’s case (supra) are different and the principle laid down in Uttam Chand’s case (supra) alone is applicable. In Jayappan’s case (supra), the contention was that there is a chance of success of the assessee before the Tribunal and in view of that expectation of success, any appeal or reference alone has been considered. If we go through the judgment in Jayappan’s case (supra), it is clear that the pendency of the reassessment proceedings cannot act as a bar to the institution of criminal prosecution for offences punishable under s. 276C or 277 of the Act. In criminal cases, all the ingredients of the offence in question have to be established in order to secure the conviction of the accused. The criminal Court, no doubt, has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings in the light of the order passed under the Act. It does not, however,
mean that the result of a proceeding under the Act would be binding on the criminal Court. The criminal Court has to judge the case independently on the evidence placed before it.

In the case on hand, the allegation is that the books of account contain false entries inasmuch as the value of finished goods were not shown in the closing stock figure shown in the goods account in the ledger. The mere fact that the revised returns were filed within the statutory period will not come in the way of the Department initiating action for the offences under s. 276C or 277 of the Act. Whether false statement and verification have, been made or not, has to be judged with reference to the date of the filing of the original return. In Uttam Chand’s case(supra), the main allegation was about the registration of the firm and that firm was found to be a genuine one. In the case on hand, admittedly, the finished stock of goods with regard to four commission agents was not furnished. It is only when a notice has been issued about the concealment of income, that time was taken and revised statements have been filed. If the revised statements were filed before the notice of concealment, the position would be different. If the revised statement has been filed with a view to get over the allegation about concealment, we have to find out whether a false statement has been made in the verification in the original return that has been filed by the firm or not. Simply because a revised return has been filed after the issuance of the notice and the same was accepted and the penalty proceedings also were dropped at a later stage, we cannot say that the assessee has not committed any offence with regard to the statement that has been made by him in the original return. That fact has to be determined by the criminal Court. Similarly, with regard to the wrong accounting that has been made by him, it has to be decided with reference to the statements made by the firm and with reference to the non- disclosure of the stocks lying with four agents, while disclosing the stock with two agents in the return, whether the wrong accounting that has been pleaded by the firm is bona fide or not and whether a false statement about the verification has been made, in the original return or not, has to be considered by the criminal Court.

9. In this connection, we have to see the view taken by the Supreme Court in Sharda Prasad Sinha vs. State of Bihar, AIR 1977 SC 1754. In that case, it was observed as follows (p. 1755): ” It is now settled law that where the allegations set out in the complaint or the charge-sheet do not constitute any offence, it is competent to the High Court exercising its inherent jurisdiction under s. 482 of the CrPC to quash the order passed by the Magistrate taking cognizance of the offence. “

10. The same view has been reiterated in Municipal Corporation of Delhi vs. Ram Kishan Rohtagi, AIR 1983 SC 67, which reads as follows (headnote): ” Proceedings against an accused can be quashed only if on the face of the complaint or the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out, then the High Court will be justified in quashing the proceedings in exercise of its powers under s. 482 of the CrPC. “

11. By applying that test, if we see the complaint as it is, it has been mentioned about nondisclosure of four items in one assessment year and the chart filed discloses the exact position as to when the original return was filed, when the revised return was filed and when the complaint has been filed. The chart is as under: For the assessment year C. C. No. C. C. No. 127/86 C. C. No. 126/86 128/86 . 1976-77 1977-78 1978-79 Date of filing of original 25-9-1976 14-10-1977 21-11-1978 return Date of filing of revised 7-2-1979 15-6-1979 21-7-1979 return Date of assessment 30-3-1979 29-12-1979 13-3-1981 Date of the order of Tribunal — 7-1-1984 28-2-1986 Date of filing the complaint 27-3-1986 27-3-1986 27-3-1986.

12. The facts stated in the complaint disclose a prima facie case. The order of the Tribunal is not binding on the criminal Court, but at the same time, the Court is entitled to look into that aspect and the same has been expressed by the Supreme Court also in Jayappan’s case (supra) and the result of the penalty proceedings by the Tribunal or the acceptance of the revised statements would not be binding on the criminal Court. The criminal Court has to judge the case independently on the evidence placed before it.

13. Sri Malla Reddy also relied upon a judgment of the Karnataka High Court in Balaji Oil Traders vs. ITO (1984) 42 CTR (Kar) 274 : (1984) 150 ITR 128. The Karnataka High Court relied on Uttam Chand’s case (supra). The facts in that case are : Balaji Oil Traders, a partnership firm, together with its four partners, was prosecuted for offences under ss. 276C and 277 of the IT Act in the Court of the Chief Metropolitan Magistrate, Bangalore. After the evidence of one witness for the prosecution was over, the accused filed an application praying that the Court discharge them on the ground that they had preferred an appeal against the assessment order passed by the ITO and the same was pending before the appellate authority and the prosecution was, therefore, premature, and hence they should be discharged. It was observed in that case as follows (p. 133): ” To pursue the prosecution in the criminal Court during the pendency of such proceedings on the Revenue side would amount to prosecuting on uncertain facts which cannot even be countenanced under our system of administration of justice. Even to allow the complaint pending in the Court below awaiting the decision in the appeals, revision, etc., if any, filed and pending, would, according to me, amount to an abuse of the process of the Court.”

14. While observing so, the proceedings were quashed, reserving the right of the IT Department to take appropriate action after the appeal before the IT authorities is decided.

15. In Parkash Chand vs. ITO (1982) 134 ITR 8 (P&H), the prosecution was launched against the assessee-firm and its partners for offences under s. 277 of the IT Act and ss. 193 and 471, IPC, on the basis of false returns, false accounts and inflated items of purchases. While the criminal case was pending, the Tribunal cancelled the penalty, holding that the material before the IT authorities did not disclose that the purchases were inflated. There was no proof that the assessee had concealed its income or furnished inaccurate particulars. A writ petition was filed by the assesseefirm and its partners for quashing the criminal case pending against them in the Court of the Chief judicial Magistrate, Sonepat. It was observed that in view of the finding of the Tribunal that there was no concealment and no inaccurate accounts by the assessee-firm and its partners, the criminal proceedings against them could not continue and quashed the proceedings. The principle laid down in Uttam Chand’s case (supra) was also followed.

16. Learned standing counsel for the Department contended that the mere fact that the Tribunal, whose order is now final, had set aside the penalty, cannot by itself be a ground for quashing the proceedings against the petitioner. He also relied upon Dr. Munshi’s case (supra), wherein it was observed that under sub-s. (1A) of s. 279, there is a bar to the institution or continuation of the prosecution against the assessee under s. 277 of the Act in case the CIT had waived the penalty imposable upon the assessee, under sub-s. (4A) of s. 271 of the Act. When the Tribunal allows the assessee’s appeal against imposition of penalty, it does not act under s. 271(4A) of the Act and the finding given by the Tribunal cannot by itself be sufficient to direct the dismissal of the complaint or discharge of the accused. The decision of the Allahabad High Court in Munshi’s case (supra) runs counter to the view taken by the Karnataka High Court and the Punjab and Haryana High Court.

17. The contention of both the parties was set at naught by the ruling of the Supreme Court in Jayappan’s case (supra). Simply because in that case they contended that only a mere chance of success of the assessee was pending, it cannot be said that no prosecution can be launched, particularly when the decision was rendered by the Supreme Court, wherein particularly they have pointed out that the decision in Uttam Chand’s case (supra) is no authority for the proposition that no proceedings can be initiated at all under s. 276C or 277 of the Act as long as some proceedings under the Act in which there is a chance of success of the assessee are pending. In Jayappan’s case (supra), the Supreme Court approved the decision of the Punjab and Haryana High Court in Telu Ram Raunqi Ram vs. ITO (1984) 39 CTR (P&H) 93 : (1984) 145 ITR 111 and overruled the decision of the Calcutta High Court in Jyoti Prakash Mitter vs. Haramohan Chowdhury (1978) 112 ITR 384. Taking the legal position and the allegation in the complaint, per se, I am of the view that institution of criminal proceedings cannot, in the circumstances, amount to an abuse of the process of the Court. I am also of the view that the finality of the penalty proceedings by the Tribunal or the pendency of the reassessment proceedings cannot act as a bar to the institution or continuation of the criminal prosecution for offences punishable under s. 276C or s. 277 of the IT Act. The Special judge was, therefore, right in refusing to quash the prosecution proceedings in the three cases instituted against the petitioners under ss. 482 and 425, Criminal Procedure Code.

In the result, all the three petitions are dismissed.

[Citation : 171 ITR 300]