High Court Of Andhra Pradesh
Prabhava Organics (P) Ltd. & Ors. vs. DCIT & Anr.
Section 271(1)(c), 276C, 277, 278B
Asst. Year 1995-96
Dr. G. Yethirajulu, J.
Crl. Petn. No. 920 of 2007
14th March, 2007
Counsel Appeared :
M.V. K. Viswanadham, for the Petitioners : V. Narasimha Sarma, for the Respondent No. 1
Dr. G. Yethirajulu, J. :
This criminal petition is filed under s. 482 of the Cr.PC by the accused to quash the proceedings in C.C. No. 83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, filed for the offences punishable under ss. 276C, 277 and 278B of the IT Act, 1961 (for short “the Act”).
The Dy. CIT, Circle-16(3), Hyderabad, filed the above complaint. The first petitioner is M/s Prabhava Organics (P) Ltd. and the second and third petitioners are the managing director and director of the said company respectively. They were in-charge and responsible for the day-to-day affairs and conducting the business. The first petitioner-company, filed its IT return for the asst. yr. 1995-96 mentioning that the total income of the company is “nil”, after adjusting the brought forward losses of the earlier years to an extent of Rs. 34,74,157. While processing the return of the first petitioner-company under s. 143(1)(a) of the Act, the income-tax officials disallowed the excess depreciation of Rs. 2,65,741 and donation of Rs. 5,500. Notice under s. 142 of the Act was issued to the first petitioner-company directing to produce books of account and other relevant documents in support of the returns and also requested to furnish such other information by way of questionnaire. The AO, during the course of scrutiny proceedings, once again issued a detailed questionnaire asking the assessee company to file confirmation letters and the exact postal addresses and sources for the unsecured loans given to the assessee company. The confirmation letters given by the four persons do not indicate that they have sufficient funds to advance the loans to the assessee company and source of money explained by them does not appear to be genuine. The burden of proof of providing the worthiness of the creditors lies on the assessee company and there was no evidence of giving loans to the petitioners. Therefore, there was an unexplained income of Rs. 7,70,000. The petitioners deliberately conceal the income and filed the return with false information. Hence, the petitioners are liable for penalty under s. 271(1)(c) of the Act to a tune of Rs. 3,54,200.
The petitioners, being aggrieved by the order of the AO, preferred an appeal bearing No. ITA No. 216/R- 16/ACIT-2(3)/CIT(A)-V/ 2005-06, before the CIT(A)-V, Hyderabad. The said CIT passed an order on 23rd Jan., 2006, confirming the levy of penalty of Rs. 3,54,200 ordered by the AO. Therefore, the present complaint has been filed under ss. 276C, 277, 278B of the Act to punish the petitioners according to law. The petitioners, being aggrieved by the Court below taking cognizance of the alleged offences, filed the present criminal petition under s. 482 of the Cr.PC to quash the proceedings.
In the present quash petition, learned counsel for the petitioners contended that the first petitioner is a private limited company incorporated under the Indian Companies Act. It is engaged in the manufacture of bulk drugs, chemicals and intermediataries. Its factory is located at Bollarum on the outskirts of Hyderabad and was running in three shifts by engaging 120 workmen. The CIT (A), through his order dt. 30th March, 1999, set aside the addition and directed the AO to reexamine the issue de novo. After examining the AO, not only retained the addition of Rs. 7,70,000 but also added Rs. 5,33,500 as a new item, while confirming the old item of Rs. 7,70,000. After remand, a minimum penalty of Rs. 3,54,200 was levied on the first petitioner for failing to prove its claim of genuineness of its loans. Being aggrieved by the order of the CIT(A)-V, Hyderabad, the petitioners preferred an appeal before the Tribunal, Hyderabad and it is pending. He further contended that where the assessee returned the loss and the AAC reduced the loss, the assessee could not be said to have suppressed any income and therefore, penalty under s. 271(1)(c) of the Act was not leviable. Sri S.R. Ashok, learned senior counsel appearing for the petitioners drew the attention of this Court to certain decisions in support of the said contention. He further contended that in view of the settled law, the prosecution ex facie is illegal and cannot stand. He further contended that s. 276C of the Act has no application to the facts of the case. As there is no evasion of tax, he requested to quash the proceedings against the petitioners.
5. In the light of the above contentions raised by learned counsel for the petitioners, the point for consideration is whether the proceedings against the petitioners in C.C. No. 83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, are liable to be quashed ?
6. The filing of the return by the first petitioner company for the asst. yr. 1995-96 is not disputed. The company had shown the income for the said year as “nil” on account of the unsecured loans obtained by them to a tune of Rs. 13,81,900. Out of them, three loans were found to be genuine and four loans to a tune of Rs. 7,70,000 does not appear to be genuine. Therefore, the said amount was added to the income of the petitioners and the assessment order has been passed imposing a minimum penalty on the petitioners. After assessment of the matter, the AO added Rs. 5,33,500 to the income, but it was deleted by the CIT(A) in an appeal preferred by the petitioners, by confirming the order of the AO. So far as the addition of income of Rs. 5,33,500, being aggrieved by the order of the CIT(A), an appeal was said to be preferred before the Tribunal, Hyderabad, and it is pending.
7. The contentions of learned counsel for the petitioners are two fold; firstly since the appeal before the Tribunal, Hyderabad, is pending, the prosecution of the petitioners is illegal and, secondly, where the assessee returned the loss the AAC reduced the loss, the assessee could not be said to have suppressed any income. Therefore, the penalty under s. 271(1)(c) of the Act cannot be levied and in such a case, the prosecution cannot be maintained.
8. In Parkash Chand vs. ITO (1982) 134 ITR 8 (P&H), the Punjab & Haryana High Court observed that the prosecution was launched against the assessee for the offence under s. 277 of the Act on the basis of false returns and false accounts showing inflated items of purchases. During pendency of criminal proceedings in penalty proceedings for concealment of income, the Tribunal examined the material and arrived at a finding that none of the IT authorities established clearly that particular items of purchases were inflated and as such there was no proof that the assessee had concealed the income or furnished inaccurate particulars and cancelled the penalty. Thereupon, the assessee filed a writ petition to quash the criminal proceedings. The Punjab & Haryana High Court, after considering the material, held as under (headnote) : “… in view of the finding of the Tribunal that there was no concealment and no inaccurate accounts were filed by the petitioners, the criminal proceedings against the assessee could not continue and were liable to be quashed.”
9. In Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), the Supreme Court observed that a firm was assessed for several years as a registered firm. 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 “J”, one of the alleged partners (a lady), 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 “J” was a partner of the firm and that the firm was genuine and set aside the cancellation order of the ITO. In the meantime, the ITO initiated prosecution of the partners of the firm under s. 277 of the Act for having filed false returns and the Punjab & Haryana High Court, in a revision petition for quashing the prosecution against the firm, held that the Tribunalâs 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 way of filing special leave petition, it was held as under (headnote) : “…… in view of the finding recorded by the Tribunal that J was a partner of the firm and that the firm was genuine, the assessee could not be prosecuted for filing false returns.”
In the above judgments, it is indicated that in the event of the Tribunal comes to a conclusion that there were no false returns, the criminal proceedings are liable to be quashed. It is further indicated that the prosecution was launched before the decision rendered by the Tribunal. Since pendency of the proceedings before the Tribunal is not a bar, I hold that the prosecution is maintainable during pendency of the appeal before the Tribunal, but the continuation of the prosecution depends on the judgment of the Tribunal. It is for the Tribunal to give a decision whether the order passed by the AO is correct or not. If the Tribunal gives a judgment in favour of the petitioners, the prosecution may not be maintainable.
In the light of the above circumstances, the proceedings against the petitioners in C.C. No. 83 of 2006 on the file of the Special Judge for Economic Offences, Hyderabad, are not liable to be quashed during pendency of the appeal before the Tribunal. However, I am inclined to stay the prosecution proceedings till a decision rendered by the Tribunal in this matter.
Accordingly, the criminal petition is dismissed subject to the above findings.
[Citation : 297 ITR 392]