High Court Of Delhi
Rakesh Kalia vs. ITO
Section 276C
Asst. Year 1992-93
A.K. Sikri, J.
Crl. M.M. No. 1702 of 1993
2nd May, 2007
Counsel Appeared
S. Santhanam, for the Petitioner : R.D. Jolly, for the Respondent
JUDGMENT
A.K. Sikri, J. :
Petitioner, who is an income-tax assessee, had filed return for the asst. yr. 1992-93 on 29th Aug., 1992, the due date being 31st Aug., 1992, declaring his total income as Rs. 49,300 from salary and meeting fee etc. It was stated in this return that during this year he had received an amount of Rs. 2,55,000 from the NRE account under the Foreign Remittance (Immunities) Scheme, 1991. The petitioner had filed original copy of declaration dt. 30th Jan., 1992 purportedly stamped and signed by the branch manager, State Bank of India, Race Course Road, Bangalore, as a proof of receipt of the said amount. On this return, order of assessment dt. 26th Feb., 1993 was passed and tax demand of Rs. 1,67,441 was raised against the petitioner. In the assessment order, the Income-tax Officer (for short, ‘ITO’) observed that the aforesaid amount of Rs. 2,55,000 had actually come from the resident depositor’s account and not from the NRE account. The chief manager, State Bank of India, Race Course Road, Bangalore, also intimated vide his letter dt. 22nd Dec., 1992 that no such declaration in favour of the petitioner had been issued by the bank. The aforesaid sum of Rs. 2,55,000 was, therefore, added to the income of the petitioner as income from undisclosed sources. For this suppression, show-cause notice dt. 11th March, 1993 was also issued asking the petitioner to show-cause as to why prosecution under s. 276C(1) of the IT Act, 1961 (hereinafter referred to as ‘the Act’) be not initiated against him. The petitioner submitted his replies dt. 15th and 18th March, 1993 stating that he had not committed any wilful fraud and lapse was only on the part of the branch manager, State Bank of India, Race Course Road, Bangalore. He also stated that in the meantime he had approached the Settlement Commission for settling his case. Not satisfied with this reply, Shri S.S. Jain, ITO, filed a criminal complaint under s. 276C(1) of the Act against the petitioner alleging that the petitioner had wilfully attempted to evade tax, penalty or interest chargeable/imposable under the Act and also wilfully caused other circumstances to exist, which had an effect of enabling him to evade tax, penalty or interest chargeable/imposable under the Act or the payment thereof and was, thus, liable for having committed offence under s. 276C (1) of the Act. On receipt of the complaint, cognizance thereof was taken and the learned ACMM summoned the petitioner vide order dt. 31st March, 1993. Challenging these summoning orders the present petition is filed under s. 482 of the Criminal Procedure Code seeking quashing of the said orders and proceedings in the criminal complaint.
2. The main ground which is taken in the petition is that the complainant altogether ignored the fact that the moment an application for settlement is filed before the Settlement Commission, the authority which is to decide whether or not a complaint should be filed or an action for prosecution should be taken, is the Settlement Commission and there is no jurisdiction with the complainant to launch such a prosecution till the decision of the said application by the Settlement Commission.
3. It may be noted that during the pendency of this petition, the Settlement Commission ultimately passed order dt. 30th Nov., 1994. Certain other developments also took place and for bringing these events on record the petitioner filed supplementary affidavit dt. 22nd April, 1997. In this affidavit, following developments are brought on record :(a) Order dt. 30th Nov., 1994 passed by the Settlement Commission under s. 245D of the Act By this order, the application of the petitioner for settling the case has been dismissed.
The petitioner, however, alleges in the affidavit that the Settlement Commission has not properly appreciated the case and dismissed the application relying upon the judgment of the Supreme Court in the case of CIT vs. Express Newspapers Ltd. (1994) 116 CTR (SC) 496 : (1994) 206 ITR 443 (SC), which judgment is wrongly applied to the facts of this case. (b) It is further pointed out that the Settlement Commission directed the petitioner to seek redressal of grievance before the appellate forum under the Act. Accordingly, the petitioner preferred an appeal before the CIT(A), which was decided vide order dt. 14th May, 1996. This appeal is also decided against the petitioner and he has preferred further appeal before the Tribunal. (c) It is also mentioned that after passing the order of assessment, the assessing authority had imposed a penalty on the petitioner vide order dt. 30th Aug., 1993 under s. 271(1)(c) of the Act whereby total penalty of Rs. 1,37,493 was levied. Against this order the petitioner had preferred appeal before the CIT(A). This appeal was also dismissed vide order dt. 16th July, 1996, which order is challenged by the petitioner by filing an appeal before the Tribunal. Since the present petition could not be decided even thereafter, another additional affidavit was filed by the petitioner on 27th Jan., 2001 bringing on record the decision of the Tribunal rendered on 9th Jan., 2001 whereby both the appeals preferred by the petitioner, as mentioned above, have been decided. By this order, the Tribunal has set aside penalty orders of the lower authorities and in view thereof the petitioner submits that the criminal, proceedings against him warrant to be dropped.
Learned counsel for the petitioner submitted that once penalty proceedings under s. 271(1)(c) of the Act are set aside, no prosecution for the same offence could be launched and in support he referred to the following three judgments, one of which is a judgment of this Court: (i) Ruchi Associates (P) Ltd. & Anr. vs. Assistant CIT (2002) 172 CTR (Del) 90 (ii) Laxmi Stores vs. Union of India (2004) 188 CTR (Raj) 592 and (iii) Patna Guinea House & Ors. vs. CIT & Anr. (2000) 161 CTR (Pat) 536 : (2000) 243 ITR 274 (Pat).
6. Question as to whether on the exoneration of the accused persons in the Departmental proceedings the criminal proceedings can continue or not is considered by me in a detailed judgment in the case of Sunil Gulati vs. R.K. Vohra, being Crl. M.C. No. 2173 of 2004 and connected matters dt. 20th Dec., 2006. After scanning through the relevant case law, following legal propositions were culled out: “1. On the same violation alleged against a person, if adjudication proceedings as well as criminal proceedings are permissible, both can be initiated simultaneously. For initiating criminal proceedings one does not have to wait for the outcome of the adjudication proceedings as the two proceedings are independent in nature.
The findings in the Departmental proceedings would not amount to res judicata and initiation of criminal proceedings in these circumstances can be treated as double jeopardy as they are not in the nature of “prosecution”.
In case adjudication proceedings are decided against a person who is facing prosecution as well as the Tribunal has also upheld the findings of the adjudicators/assessing authority, that would have no bearing on the criminal proceedings and the criminal proceedings are to be determined on its own merits in accordance with law, uninhibited by the findings of the Tribunal. It is because of the reason that insofar as criminal action is concerned, it has to be proved as per the strict standards fixed for criminal cases before the criminal Court by producing necessary evidence.
In case of converse situation namely where the accused persons are exonerated by the competent authorities/Tribunal in adjudication proceedings, one will have to see the reasons for such exoneration to determine whether these criminal proceedings could still continue. If the exoneration in Departmental adjudication is on technical ground or by giving benefit of doubt and not on merits or the adjudication proceedings were on different facts, it would have no bearing on criminal proceedings. If, on the other hand, the exoneration in the adjudication proceedings is on merits and it is found that allegations are not substantiated at all and the concerned person(s) is/are innocent, and the criminal prosecution is also on the same set of facts and circumstances, the criminal prosecution cannot be allowed to continue. The reason is obvious criminal complaint is filed by the Departmental authorities alleging violation/contravention of the provisions of the Act on the part of the accused persons. However, if the Departmental authorities themselves, in adjudication proceedings, record a categorical and unambiguous finding that there is no such contravention of the provisions of the Act, it would be unjust for such Departmental authorities to continue with the criminal complaint and say that there is sufficient evidence to foist the accused persons with criminal liability when it is stated in the Departmental proceedings that ex facie there is no such violation. The yardstick would, therefore, be to see as to whether charges in the Departmental proceedings as well as criminal complaint are identical and the exoneration of the concerned person in the Departmental proceedings is on merits holding that there is no contravention of the provisions of any Act.” Therefore, what is to be seen is whether or not the Tribunal has exonerated the petitioner on merits in respect of the same allegations on the basis of which criminal complaint is filed. Order dt. 9th Jan., 2001 passed by the Tribunal would reveal that the petitioner was not exonerated of the charge on merits at that time. The said appeal was allowed only on the ground that before using the information collected by the ITO, full opportunity was not given to the petitioner to rebut the said evidence. Therefore, while setting aside the order, the case was remitted back to the ITO to redecide the issue in accordance with law after giving full opportunity to the petitioner/assessee. It appears that after the aforesaid order was passed, the AO again took up the fresh assessment proceedings under s. 254 r/w s. 143(3) of the Act and opportunity was given to the petitioner. However, the assessing authority maintained the earlier order and added amount of Rs. 2,55,000 as income from undisclosed sources in the fresh assessment orders passed by him. He also initiated penalty proceedings under s. 271(1)(c) of the Act. Treating the petitioner’s reply as unsatisfactory, the ITO stated that earlier order passed by him imposing penalty did not require any revision. Against these fresh assessment and penalty orders, the petitioner preferred appeals before the CIT(A), who confirmed both the additions in the income as well as penalty. Still dissatisfied, the petitioner filed appeals before the Tribunal. These appeals have been decided by the said Tribunal vide orders dt. 16th Sept., 2005. Copy of the order was placed on record at the time of arguments. A perusal of the order passed by the Tribunal would show that addition of Rs. 2,55,000 as income from undisclosed sources has been upheld. However, insofar as imposition of penalty under s. 271(1)(c) of the Act is concerned, the orders of the assessing authority as well as the CIT(A) are set aside and this order is passed on merits and not on technical ground. The operative portion of the order of the Tribunal dismissing the appeal qua addition of income and allowing the appeal insofar as the penalty proceedings are concerned is as under : “10. I have gone through the orders of the CIT(A) minutely and I agree with the factual findings given by him which have not been successfully contested before me on behalf of the assessee. The picture I got from a reading of the case right from its inception is that of an assessee, who has not complied with the legal requirement relating to the proof of the nature and source of the deposit in his bank account of Rs. 2,50,000 on some specious plea or the other, despite sufficient opportunities given by the AO, in compliance with the directions of the Tribunal. The matter relates to the asst. yr. 1992-93, and the proceedings have been successfully dragged on by the assessee for nearly 14 years without complying with the simple requirement of proving the identity and creditworthiness of Arun L and the genuineness of the transaction.
The learned counsel for the assessee as an alternative plea submitted that the assessee may be given a further opportunity by remanding the proceedings to the AO. I do not think any useful purpose would be served by accepting this plea. As already noted by me, the matter has taken 14 years without reaching any finality and without the assessee being able to comply with the requirements of the AO and what purpose the remand would serve except to delay proceedings further? I do not, therefore, see any justification for accepting the alternative plea. I would hesitate to characterize the plea as preposterous.
As regards the penalty, the main contention advanced by the learned counsel for the assessee was that the assessment order did not disclose the requisite satisfaction that the assessee has concealed his income or furnished inaccurate particulars thereof. The assessment order merely contained a sentence at the last para that “penalty proceedings under s. 271(1)(c) already imposed will stand as it is”. The order of penalty passed on 27th March, 2002 shows that an opportunity was given to the assessee to reply to the penalty notice. The AO merely stated therein that the reply furnished by the assessee is not considered satisfactory and, therefore, the order under s. 271(1)(c) earlier passed is not revised. In my opinion, the penalty order cannot stand. It does not contain any finding of concealment or filing of inaccurate particulars of the income. The earlier penalty order passed consequent to the original assessment proceedings has been set aside by the Tribunal and cannot be revived. It was incumbent on the part of the AO, in the course of the fresh assessment proceedings, to record a satisfaction that the assessee concealed his income or furnished inaccurate particulars thereof. No such satisfaction is seen recorded in the fresh assessment order. Even in the penalty order, there is no finding of concealment of income or furnishing of inaccurate particulars thereof. The AO has merely stated that there is no change in the quantum of taxable income and, therefore, the earlier penalty order passed is not revised. The ingredients necessary for a valid penalty order are missing. Merely because I have sustained the addition of Rs. 2,55,000, it is not possible for me to sustain the penalty, given the nature of the penalty order passed by the AO after the fresh assessment proceedings. The plea that no satisfaction has been recorded in the fresh assessment order finds support from the following judgments of the Hon’ble Delhi High Court : Ram Commercial Enterprises (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del); CIT vs. Super Metal Rerollers (2003) 185 CTR (Del) 349 : (2004) 265 ITR 82 (Del).”
9. Learned counsel for the petitioner had referred to the judgment of the Supreme Court in the case of K.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC). In this case, the apex Court held that once penalties imposed on the assessee under s. 271(1)(c) of the Act are cancelled on the basis of the conclusive findings of the Tribunal that there is no concealment of income, prosecution of the assessee for an offence under s. 276CC of the Act for wilful evasion of tax cannot be proceeded with thereafter quashing of the prosecution is automatic. It is clear from this judgment that the criminal prosecution would not be allowed to continue if there is a conclusive finding of the Tribunal that there is no concealment of income. The reason given by the Court was ‘concealment’ inherently carries with it the element of mens rea. The Court further held:
“In the instant case, the penalties levied under s. 271(1)(c), were cancelled by the respondent by giving effect to the order of the Tribunal, in ITA Nos. 3129-3132. It is settled law that levy of penalties and prosecution under s. 276C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under s. 276C is automatic.
In our opinion, the appellants cannot be made to suffer and face the rigours of criminal trial when the same cannot be sustained in the eyes of law because the entire prosecution in view of a conclusive finding of the Tribunal that there is no concealment of income becomes devoid of jurisdiction and under s. 254 of the Act, a finding of the Tribunal supersedes the order of the AO under s. 143(3) more so when the AO cancelled the penalty levied.
In our view, once the finding of concealment and subsequent levy of penalties under s. 271(1)(c) of the Act has been struck down by the Tribunal, the AO has no other alternative except to correct his order under s. 154 of the Act as per the directions of the Tribunal. As already noticed, the subject matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the AO. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. The Asstt. CIT cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.” Applying the aforesaid ratio into the facts of this case, it is clear that merely because there is an addition of income, it would not automatically follow that the assessee had ‘concealed’ his income. Penalty proceedings under s. 271 of the Act or the prosecution under s. 276 of the Act is when ‘concealment of income by the assessee is proved’. As held by the Supreme Court in the aforesaid case, ‘concealment’ inherently carries with it the element of mens rea. The Tribunal while reversing the order of the AO observed that he had not recorded satisfaction that the assessee concealed his income or furnished inaccurate particulars thereof. Even in the penalty order, there was no finding of concealment of income or furnishing of inaccurate particulars thereof. On this ground, the Tribunal set aside the penalty proceedings. Since the matter has been adjudicated upon and finally settled by the Tribunal holding that concealment was not proved and these findings can be treated as findings on merits, quashing of the prosecution becomes automatic in view of the dicta laid down by the Supreme Court in K.C. Builders (supra). This petition is, accordingly, allowed and the complaint filed by the respondent is dismissed. No costs.
[Citation : 295 ITR 486]
