Madhya Pradesh H.C : Whether the Tribunal was justified in confirming the penalty under s. 271(1)(c) of the IT Act when under s. 69A the cash of Rs. 1,35,000 found on 9th July, 1982 is not assessable in the asst. yr. 1984-85

High Court Of Madhya Pradesh : Indore Bench

Harkawat & Company & Ors. vs. Union Of India

Section 276C, 278B

S.S. Dwivedi, J.

Misc. Criminal Case No. 1366 of 2007

13th January, 2009

Counsel Appeared :

Shailendra Mukati, for the Applicants : R.L. Jain, for the Respondent

ORDER

S.S. DWIVEDI, J. :

The applicants have filed this petition under s. 482 Cr.PC for quashment of the criminal proceedings pending before the CJM, Ratlam for the offence under ss. 276C and 278B of IT Act, 1961 against the applicants.

Briefly stated the facts of the case are, the non-applicant Union of India through IT Department had filed a criminal complaint against the applicant under s. 276C r/w s. 278B of IT Act before the CJM at Ratlam in compliance of the order passed by the AO against the applicants. Against the order of AO the applicant has filed an appeal before the CIT, which had been dismissed. Thereafter the applicant again preferred an appeal before the Tribunal. Then the learned Tribunal has made a reference to the High Court on the legal point, whether the Tribunal was justified in confirming the penalty under s. 271(1)(c) of the IT Act when under s. 69A the cash of Rs. 1,35,000 found on 9th July, 1982 is not assessable in the asst. yr. 1984-85 ?

This High Court in IT Ref. Case No. 24 of 1997 by order dt. 2nd Nov., 2004 answered the question referred to the High Court in favour of the assessee and held that the Tribunal was not justified in confirming the penalty imposed by the assessing authority on the applicants. After the aforesaid order in the income-tax reference case passed by this High Court the applicant has filed an application before the learned CJM, Ratlam for the discharge of the applicant/accused as the order has been set aside by the High Court imposing the penalty on the applicants for filing of the criminal complaint against the applicants. The learned CJM by order dt. 26th July, 2005 dismissed the application filed by the applicants and held that as the charges have already been framed against the applicants and after framing of charge the Trial Court cannot discharge the accused persons. Aggrieved by the dismissal of the application the applicants preferred the Criminal Revision No. 185 of 2005 before the Addl. Sessions Judge, Ratlam. The learned revisional Court by order dt. 17th Nov., 2006 dismissed the revision and again held that the Trial Court is not having jurisdiction to discharge the accused after framing of the charge as the Trial Court is not having inherent power to discharge the accused at any stage. Aggrieved by the aforesaid orders the applicant has come up before this Court by this petition under s. 482 Cr.PC. For quashment of the concerning criminal proceedings pending against the applicants before CJM, Ratlam.

Having heard both the counsel for the parties and perused the record. It is submitted by the learned counsel for the applicants that the criminal proceeding has been lodged by the IT Department in compliance of the penalty order passed by the assessing authority and if that order has been set aside and found to be illegal in view of the order passed by High Court in IT Ref. Case No. 24 of 1997 then certainly the order passed by the assessment officer for lodging of the criminal complaint against the applicants is not in existence and, therefore, the Trial Court ought to acquit the applicant in the criminal case concerned and the learned Trial Court as well as learned revisional Court have wrongly dismissed the application filed by the applicants for discharge of the applicants from the offence under ss. 276C and 278B of the IT Act. Therefore, prayed for the quashment of the concerning criminal proceedings pending before CJM, Ratlam against the applicant.

5. Learned standing counsel appearing on behalf of IT Department, supported the impugned order and submits that the Trial Court has correctly held that the Trial Court cannot discharge the accused after framing of the charge and, therefore, no illegality is committed in the impugned order passed by the Trial Court and no substantial grounds are available for quashment of the concerning criminal proceedings pending against the applicants before the Court concerned. Hence, prayed for dismissal of the petition.

6. After consideration on the rival contentions of both the counsel for the parties and on perusal of the record it is apparent that criminal prosecution against the applicant has been lodged for the offence under ss. 276C and 278B of IT Act, 1961 and a specific charge has been framed against the applicants for the aforesaid offence. Admittedly, the aforesaid criminal complaint had been filed by the IT Department against the applicants on the basis of the penalty order passed by the assessment officer and that order is found to be illegal by this High Court in IT Ref. Case No. 24 of 1997 by the order dt. 2nd Nov., 2004, wherein this Court has clearly opined here as under :

“9. In view of the aforesaid discussion, we answer the question No. 2 in favour of assessee and against the Revenue. In other words, we answer the question No. 2 by holding that Tribunal was not justified in confirming the penalty without disposing of the grounds of appeal claiming immunity under the Amnesty Scheme.”

7. If the legal position is that if the order on which basis the criminal complaint has been filed by the IT Department has been set aside and found to be illegal by the High Court then certainly in compliance of that order the criminal complaint filed by the IT Department is also found to be illegal and erroneous and on this position criminal proceedings filed against the applicants found to be illegal and futile then certainly such type of proceedings ought to be quashed.

8. The Hon’ble apex Court in case of K.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721, in the similar circumstances held here as under : “18. 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. 276 is automatic. In our opinion, the appellants cannot be made to suffer and face the rigors 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) moreso 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 complaint 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 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 Tribunal exhibited as a defence document in as much as the passing of the order as aforementioned is unsustainable and unquestionable.”

In view of the aforesaid decision of the Hon’ble apex Court, which is squarely covered with the facts of the present case, wherein the penalty order passed by the AO under s. 271(1)(c) of the IT Act has been set aside by the competent Court, then certainly the prosecution of the applicants under s. 276C r/w s. 278B of the IT Act has to be quashed automatically. Same view has been taken by this High Court in the case of Suresh Chand Gupta vs. Union of India (1998) 148 CTR (MP) 218 : 1998 (1) MPLJ 49, wherein it is held, “where the levy of penalty on assessee has been set aside by the Tribunal and also confirmed by the High Court in income-tax reference case then certainly very foundation of prosecution under ss. 276C and 277 automatically gets demolished, therefore, the prosecution on the basis of the complaint filed by the IT Department against the assessee is liable to be quashed.” Same view is again taken by this Court in case of S.S.R. Pirodia & Ors. vs. Union of India (2008) 219 CTR (MP) 295 : (2008) 302 ITR 1 (MP), wherein the criminal prosecution under ss. 276, 277 and 278B has been quashed on the ground that the penalty order passed by the assessment officer under s. 271(1)(c) is set aside by the Tribunal.

In view of the aforesaid decisions of the Hon’ble apex Court as well as that of this Court, in the present case also the penalty order passed by the assessment officer under the provisions of s. 271 (1)(c) of the IT Act has been set aside by the competent appellate authority, then certainly the prosecution of the applicants under ss. 276C and 278B is also found to be illegal and erroneous and liable to be quashed. Resultantly, the petition filed by the applicants succeeds and is allowed and the criminal proceedings against the applicants pending before CJM, Ratlam in Criminal Case No. 784 of 1999 for the offence under s. 276C r/w s. 278B of the IT Act is hereby quashed.

[Citation : 328 ITR 624]