Madras H.C : The petitioners, against whom and another the respondent has filed a complaint for offences under ss. 120B, 193 and 420 r/w s. 511 of the Indian Penal Code, 1860 and under s. 277

Counsel Appeared

N.Natarajan, for Jagadeeswaran & S. Jothiraman, for the Assessee : Ramaswamy, for the Revenue

PADMINI JESUDURAI, J.:

The petitioners, against whom and another the respondent has filed a complaint for offences under ss. 120B, 193 and 420 r/w s. 511 of the Indian Penal Code, 1860 and under s. 277 of the IT Act, 1961 (hereinafter referred to as “the Act”), now pending before the Addl. Chief Metropolitan Magistrate (E. O. I.), Madras-2, invoke the inherent powers of this Court under s. 482 to quash the above proceedings, on the ground that since the original assessment of the ITO has been set aside by the Tribunal and reassessment has been ordered, the very basis and substratum of the prosecution now no longer exists.

2. Facts briefly are : The first petitioner is an assessee under the respondent. Petitioners Nos. 2 and 3 are the directors of the first petitioner ; while the fourth petitioner is the cashier and the fifth petitioner is a broker for petitioners Nos. 1 to 3. One Manoharan, who is the sixth accused in the case, was formerly the manager of the first petitioner. For the asst. yr. 1975-76, return dated September 24, 1975, was delivered to the first respondent on or about September 25, 1975. The total income, after adjusting the loss carried forward and unabsorbed depreciation of prior years, was shown as nil. The second petitioner had signed the return as the director in charge of that administration. Along with the return, profit and loss account was also filed. Debit sides showed that interest of Rs.4,57,270 was paid which included alleged payment of interest to five persons, viz., V. K. Thirupandia Nadar, K. Rajendran, S. P. Chokalinga Nadar, Smt. Jayalakshmi Ammal and C. Kandasami, in all amounting to Rs.37,94,544. The return also showed that two credit entries totalling Rs. 2 lakhs purporting to be from one Prabhakaran dated June 14, 1974 and June 15, 1974 and three debit entries by cheques to the said Prabhakaran dated November 15, 1974, November 18, 1974 and November 19, 1974 of Rs. 50,000, Rs. 50,000 and Rs. 1 lakh, respectively. While the assessment proceedings were being conducted, a search was made on July 30, 1976, of the premises of the first petitioner and other places, and counterfoils of cheques purporting to have been issued to the above five persons and also to one Prabhakaran were seized. The original cheques were obtained from Lakshmi Vilas Bank and Indian Bank, Villupuram. On comparison of the counterfoils with the original cheques, it was found that while the counterfoils showed the names of these five persons and Prabhakaran, the original cheques were all in the name of the fifth petitioner. While most of the counterfoils showed that cheques had been endorsed as “account payee” only, the original cheques seized from the banks showed that they were mere bearer cheques, issued to the fifth petitioner. The petitioners were required to produce Prabhakaran and the five persons to whom interest were alleged to have been paid, or to furnish their address. The petitioners failed to do either and expressed their inability as well. Statements were recorded from the petitioners, with reference to the alleged transactions with Prabhakaran and the alleged payment of interest to the above five persons. The fourth petitioner, who was the cashier, stated that he wrote the counterfoils in the names of Prabhakaran and those five persons and wrote the cheques in the name of the fifth petitioner, under the directions of the second petitioner, and that the cheques were handed over to the fifth petitioner. The fifth petitioner admitted that the cheques were all handed over to him and he cashed those eight cheques, but stated that he handed over the cash to the fourth petitioner. The fourth petitioner, however, denied having received any cash from the fifth petitioner. These two petitioners were examined by the ITO in the presence of each other. The second petitioner, however, contended that the sixth accused who is not now before the Court and who was formerly their manager was dismissed from their service and it was he who has been transacting all business, and who dealt with Prabhakaran and the five persons to whom interest was shown to have been paid and it was the sixth accused who got the money under the eight cheques to be handed over to Prabhakaran and the five persons, and that since the sixth accused is now out of service, they are not able to produce either Prabhakaran or those five persons. The sixth accused, when examined, stated that he did not know anything about Prabhakaran or those five persons to whom interest was shown as paid and that he did not receive any cash from the fifth petitioner under any of those eight cheques. None of the petitioners was able to give any information either about Prabhakaran or about the five persons. On these materials, the respondent, finding that the counterfoils of the cheques and the cheques were at variance with each other and that the amounts under the eight cheques had really been drawn by the fifth petitioner who admittedly was a broker for them and had not been drawn by any one of the persons shown in the counterfoils, held that the petitioners and the sixth accused had entered into a conspiracy and for that purpose had fabricated cheques, counter-foils, account books, ledgers, day books and had prepared false returns, verified by the second petitioner and delivered the same to him and had also made false statements on oath during the proceedings and that, therefore, they had committed offences under ss. 120B and 420 r/w ss. 511 and 193, IPC, and s. 277 of the IT Act. The above complaint is now sought to be quashed.

3. Thiru N. Natarajan, learned counsel for the petitioners, contended that in the assessment, the respondent had made addition of two lakhs of rupees relating to the dealing with Prabhakaran and the interest shown as having been paid to those five persons and that the above assessment which was confirmed by the AAC was set aside by the Tribunal by its order dated February 2, 1980, which had remanded the matter, requiring the respondent to look into the books of account and other materials, by giving adequate opportunity to the petitioners and come to a conclusion about the physical existence of these two items and then to call for explanation from the petitioners to explain the source and make the assessment. According to learned counsel, though the Tribunal had not given any positive finding that the entries relating to two lakhs of rupees received and paid to Prabhakaran and the interest paid to those five persons were true, yet, in view of the fact that the respondent has been asked to redo the assessment, the original subjective satisfaction, on the basis of which the respondent had come to the conclusion that the offences noted in the complaint have been committed by the petitioners, is now taken away and that the basis and the substratum of the prosecution no longer exists to warrant a continuance of the trial. According to learned counsel, if, in the de novo assessment, the respondent still finds that the entries relating to Prabhakaran and the five persons are still found to be false, it would be open to the respondent to file a fresh complaint. Once the initial assessment is set aside, the criminal prosecution has necessarily to be quashed. Learned counsel referred to certain decisions which I shall refer to later.

4. Per contra, Thiru Ramaswamy, learned counsel for the Revenue, contended that the assessment proceedings and criminal prosecution are independent of each other, the former intended to fix fiscal liability on the assessee on the basis of the mode laid down in the IT Act and the latter to punish the assessee and others for penal offences they could have committed for the purpose of the assessment proceedings and that, even if the Tribunal had given a positive finding that counterfoils, account books and the ledgers and other documents are all genuine, the present prosecution would still continue, without any reference to the assessment proceed ings being started afresh. Learned counsel also relied upon certain decisions which I shall refer to. The question that arises for consideration is whether, in the circumstances of this case, the order of the Tribunal directing the respondent to redo the assessment is a ground for quashing the criminal prosecution ?

5. I shall first refer to the decisions relied upon by learned counsel for the Revenue. In P. Jayappan vs. S. K. Perumal (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696, the Supreme Court held that merely because reassessment had been ordered, it would not be a bar to a prosecution in an offence committed in relation to the filing of the returns. The assessee in that case had initially filed returns for the year 1977-78 and the same had been accepted by the Department. Later, a search of the residence and seizure of several documents and account books revealed the suppression of purchase, of existence of several bank accounts, fixed deposits, investments in the names of his wife and daughters and several bank accounts not disclosed in the statements filed along with the returns. Criminal prosecution, therefore, was launched for offences under ss. 276C and 277 of the Act and ss. 193 and 196, IPC. Meanwhile, on the basis of the new materials gathered, reassessment proceedings were started. In an application for quashing the criminal prosecution, it was urged that since reassessment proceedings had just started and had not been completed, the criminal prosecution was premature. Negativing the contention, the Court observed :” A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under ss. 276C and 277 of the Act. In the criminal case, 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 an 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.”

6. Relying on the above case, the Delhi High Court in Umesh Kumar Modi vs. K. S. Sahni, ITO (1986) 159 ITR 597(Del), wherein the order of remand by the AAC with a direction to the ITO for a report on certain matters after giving an opportunity to the assessee, was held, not to be a ground for quashing the complaint, for offences under ss. 276C, 277 and 278B of the Act and ss. 193 and 196, IPC, committed with reference to the returns filed.

7. In fact, Gokulakrishnan J. (as he then was) in Associated Industries vs. First ITO (1983) 139 ITR 269 (Mad), declined to quash criminal prosecution for offences under ss. 120B, 193 and 196, IPC, and ss. 277 and 278 of the IT Act committed with reference to the returns filed and books of account and false statements, in view of the fact that the AAC had set aside the assessment order, with a direction to the ITO, to redo the assessment afresh, after verifying the vouchers and examining the concerned individuals. Learned judge observed : ” It is well settled that there can be parallel proceedings both in civil and criminal Courts. The proceedings before the IT authorities can be construed only as civil proceedings. Further, the complaint launched is independent of the order passed by the ITO and the order of the ITO has been quoted incidentally in the complaint. The complaint, as it is, makes out a prima facie case against the petitioners herein and, no doubt, it is for the complainant to establish the offences against the petitioners herein, before the criminal Court. “

8. In Arulprakasam (S. R.) vs. Tmt. Prema Malini Vasan (1987) 61 CTR 9Mad) 64 : (1987) 163 ITR 487, S. A. Kader J. of this Court, held that filing of a revised return did not take away the falsity of the original return. Subsequent to the filing of the original return, a raid on the premises of the office and residence resulted in the seizure of more than one set of account books maintained by the petitioner, scrutiny of which showed suppression of collections. The assessee filed a revised return showing higher total income. The ITO determined the total income at a figure higher than the one shown in the revised return. The same was confirmed by the CIT. The Tribunal determined the income of the petitioner at an amount which was less than the amount shown by the petitioner in the revised return. It had also made an observation that there was no justification to assume that the petitioner had maintained duplicate or triplicate sets of accounts for the assessment year. In an application to quash the complaint for offences under ss. 193 and 420 r/w s. 511, IPC, and ss. 277 and 276C(1) of the IT Act with reference to the filing of the original return, the learned Judge held that the complaint prima facie showed the commission of an offence for which the assessee was required to face the trial and the filing of the revised return would not take away the falsity of the original return filed and would not be a bar to the initiation of penalty proceedings or to the launching of criminal prosecution.

9. In Telu Ram Raunqi Ram vs. ITO (1984) 39 CTR (P&H) 93 : (1984) 145 ITR 111 (P&H), a single judge of the Punjab and Haryana High Court refused to quash the criminal prosecution for offences under s. 277 of the IT Act for having filed false returns, to which the ITO, during the assessment, made considerable additions and which were maintained by the AAC as well as by the Tribunal with some variations, on the ground that the decision of the Supreme Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), would not apply since there was no finding in favour of the assessee that the returns were not false. The contention that a reference was pending before the High Court was not accepted on the ground that mere expectancy of a success in that proceeding would not be a ground for quashing the criminal proceedings. As against these decisions, learned counsel for the petitioners placed reliance upon a decision of the Supreme Court in Uttam Chand vs. ITO (supra). Criminal prosecution was launched for offences under ss. 193, 196, 467 and 471 r/w ss. 109, 114, 34 and 37 of the IPC and s. 277 of the IT Act on the allegation that the assessee-firm had availed itself of the concession due to a registered firm, when in fact it was not registered, since one of the partners of the firm denied her signature in the declaration. The firm was found by the Tribunal to be a genuine firm and the signature of the partner to be genuine signature. The firm was, therefore, held to be a registered firm entitled to the concession due to a registered firm. The petition to quash the criminal prosecution on the ground that, in view of this positive finding by the Tribunal, the prosecution could not be continued, was rejected by the Punjab and Haryana High Court. Reversing the order of the High Court, the Supreme Court held that, in view of the finding recorded by the Tribunal on an appraisal of the entire material on record that the said partner was really a partner of the assessee-firm and the firm was really a genuine firm, there could be no prosecution for filing false returns.

10. Embodying the same principle is the decision of the Delhi High Court in W. L. Kohli vs. CIT (1985) 44 CTR (Del) 24 : (1985) 152 ITR 154 (Del). The assessee was prosecuted for offences under ss. 277 and 278 of the IT Act and ss. 193 and 196 of the IPC for having filed false returns and for having concealed considerable income. The assessee had filed two returns, one in his status as individual and the other, as a firm known as ‘ W. L. Kohli & Co. The ITO found that the firm was fictitious and the income attributed to the firm really belonged to the assessee. The two returns were, therefore, clubbed together in the individual assessment and various other additions were made. The same was upheld right up to the Tribunal. Later, in an appeal to the AAC regarding assessment for two prior years, similarly clubbing two returns, the CIT set aside the assessment and directed the ITO to assess de novo. The ITO gave a positive finding that the firm, W. L. Kohli & Co., did exist and was a genuine one. The assessee, thereupon, moved the Tribunal under s. 254 (2) of the Act, for a review of its decision, relating to the year regarding which criminal prosecution was launched. The Tribunal thereupon set aside its earlier order and sent back the case to the ITO for fresh assessment. While the assessment was not yet finalised, a petition to quash the criminal prosecution was filed on the ground that till the assessment was completed, it could not be assumed that any concealment of income was made or that the returns were false. Upholding the contention, the Delhi High Court quashed the criminal prosecution. The Court has also made an observation that it would be open to the Revenue to file a fresh complaint if the fresh findings warranted the same.

Learned counsel for the petitioners placed reliance upon another decision of the Delhi High Court in Gupta vs. IAC (1987) 168 ITR 33, wherein a distinction was made between the order passed by the AAC under s. 250(4) of the Act, where the initial assessment was kept alive and a remand was made to the ITO calling for a report and an order passed under s. 251(1)(a) of the Act, and where the initial assessment itself was set aside and the matter was remanded to the ITO for de novo assessment and that in the latter case, the criminal prosecution has necessarily to be quashed, there being no basis or material on which the assessee could be prosecuted.

An analysis of the decisions referred to by learned counsel for the petitioner shows that in Uttam Chand’s case (supra), as well as in Kohli vs. CIT (supra), there had been a positive finding by the statutory authorities that the matters alleged to be false either in the returns or in any other documents were, in fact, not false but were true. In Uttam Chand’s case (supra), the Tribunal had given a positive finding that the signature of the partner was really hers and that the firm was, therefore, a registered firm ; in other words, the firm had been found to be a genuine one and the signature of the partner in the partnership deed was found to be not forged. When these findings are accepted, there is no falsity in the returns. Hence, the assessee could not be prosecuted for filing false returns since the returns themselves were found to be true. Similarly, in Kohli’s case (supra), also there was a positive finding that the firm “W. L. Kohli and Co.” did really exist.

Facts, in the instant case, however, are entirely different. No doubt, the Tribunal has set aside the assessment and has ordered de novo assessment to peruse the accounts to verify the physical existence of the two heads of additions and to give an opportunity to the petitioner to explain the source. The Tribunal has not held that the entries regarding Prabhakaran are true or that the entries regarding payment of interest to the five persons are true. All that the Tribunal has stated is that, before the ITO could classify these two items, as income from undisclosed source, for making additions, for the purpose of determining the quantum of tax, the physical existence of these amounts should also be verified, to find out whether the first petitioner could have had other legitimate sources of income. On the contrary, a reading of the order of the Tribunal indicates that the Tribunal has practically accepted that the dealings were not with any Prabhakaran and that the interest had not been paid to those five persons. The Tribunal has required reassessment, only for the purpose of finding out whether the first petitioner could have had sufficient financial resources to make these payments before concluding, that these amounts could be undisclosed income. I am unable to agree with learned counsel for the petitioners that merely because reassessment has been ordered, the satisfaction originally arrived at by the ITO for initiating the prosecution is taken away. The Tribunal has not held that the dealing with Prabhakaran is true or that interest has been paid to the five persons or that there is no difference between the counterfoils and the original cheques, both with reference to the names of the payees as well as the description of the payee as account-payee or otherwise. The Tribunal has also not held that the cash under those eight cheques had not been received by the fifth petitioner. It is these that form the basis and substratum of the prosecution on which the subjective satisfaction for launching prosecution could have been drawn. It is not in every case where the assessment order is set aside that criminal prosecution has necessarily to be brought to a grinding halt. Certain findings of fact have to be arrived at by the tax authorities on the basis of which they have to calculate the tax, and if some of those findings of fact have not been arrived at on a proper analysis, higher forums could remand the matter for fresh consideration and for fixing afresh the extent of the fiscal liability. Such orders would not, in any way, affect prosecution for offences committed with reference to the documents which, on their very face, constitute offences. Incidentally, it could be mentioned that the ITO, after going through the accounts and after giving an opportunity to the petitioners, has again found that the two items of additions have really been received by the first petitioner.

At this stage, this Court has merely to find out whether the allegations made in the complaint bring out the ingredients of the penal provisions shown therein. The prosecution is for offences under ss. 120B, 193, 420 and 511 of the IPC and s. 277 of the Act. Prima facie, the complaint shows ingredients of the above offences. As stated earlier, while the counterfoils seized during the raid are in the names of private parties, all the cheques are in the names of the fifth petitioner. All the cheques have admittedly been cashed by the fifth petitioner who is the broker. The statements of the petitioners as to what the fifth petitioner did with the money are mutually contradictory. It is the trial Court alone which is competent to go into the truth or falsity of the statements and decide which of the conflicting versions is true. That would be beyond the limited scope of these proceedings.

16. In the result, the petition is dismissed. I hasten to add that whatever observations that have been made in this order, touching on the merits of the case, have been made only for the purpose of appreciating the legal contentions put forward by learned counsel for the petitioners and they are in no way to adversely affect the interests of the petitioners during the trial.

[Citation : 175 ITR 172]