Patna H.C : the petitioners have challenged the order taking cognizance under ss. 276C and 277

High Court Of Patna

Mukesh Kumar & Ors. vs. CIT & Ors.

Sections 245C, 245D, 245F, 245H, 276C, 277

Asst. Year 1985-86, 1989-90

Nagendra Rai, J.

Crl. Misc. No. 3398 of 1992 & 5422 of 19932

9th September, 1994

Counsel Appeared

Indu Shekar Singh, with Ram Adya Singh, Ajay Kumar & Jagdish Kumar, for the Assessees : S.K. Sharan, for the Revenue

JUDGMENT

NAGENDRA RAI, J. :

As a common question of law is involved in both the cases, though they have been heard on two different dates, they are being disposed of by this common judgment. In both the cases, the petitioners have challenged the order taking cognizance under ss. 276C and 277 of the IT Act, 1961 (hereinafter referred to as “the Act”), passed by the Presiding Officer, Special Court for Economic Offences, Bihar, Muzaffarpur, on 6th March, 1992, and 28th Feb., 1992, respectively. The only question that has to be determined in this case is as to whether the prosecution for the aforesaid offences should be quashed or at least be stayed during the pendency of the application filed for settlement of cases before the Settlement Commission constituted under the provisions of s. 245B falling under Chapter XIX-A of the Act.

2. The matrix of facts has to be stated first for appreciating the point involved in both the cases. Petitioner No. 1, Shri Mukesh Kumar, petitioner No. 2 Smt. Neelam Singh, petitioner No. 3, Sri Baban Bihari Singh, and petitioner No. 4, Smt. Durga Devi, in Crl. Misc. No. 3398 of 1992 are partners of a registered firm, namely, Chitranjan Construction Company, Rajendra Nagar. The accused persons filed the return of income of Rs. 1,94,980 for the asst. yr. 1989-90 under the provisions of the Act. The assessment was completed on a total income of Rs. 11,37,950 after making additions of bogus debits in raw materials account, false credit in the bills account, cash credits and excess of the assets over liabilities. The petitioners are alleged to have concealed the particulars of income and to have deliberately furnished the incorrect particulars of income and as such attempted to evade the tax chargeable and imposable under the Act. One of the partners accused, Sri Chitranjan Prasad Singh, who verified the return deliberately made a false statement which he either knew or believed to be false or did not believe to be true and as such the accused persons committed the offences under ss. 276C and 277 of the Act. The CIT sanctioned prosecution of the accused persons under s. 279(1) of the Act on 27th Feb., 1992, and thereafter a complaint petition was filed before the Special Court for Economic Offences, Muzaffarpur, on 6th March, 1992. The Presiding Officer, Special Court, Economic Offences, Muzaffarpur, took cognizance on the same date against four of the petitioners which has been challenged in this case. It is stated in this case on behalf of the petitioners that the petitioners have filed the application under s. 245C of the Act before the Settlement Commission, Additional Bench, Calcutta, which was received by it on 16th Sept., 1991, i.e., prior to the filing of the complaint petition and the same has been registered as Case No. 3/P/18/91-9T/2241 and the same is pending disposal. Ashoka Cold Storage Ltd., Sohsarai, Nalanda, in Criminal Misc. No. 5422 of 1993 is a company and the petitioner, Shri Shyam Sunder Prasad, is the managing director of the said company. For the asst. yr. 1985-86, the assessment of the company was completed on 23rd Feb., 1987, and in its return Rs. 66,559 was shown as a profit from the business. In the return filed by the accused persons the said profit was set off against the loss of the previous year amounting to Rs. 4,45,874 and a gross loss of Rs. 3,79,315 was shown in the return. On 11th Feb., 1988, a search was conducted in the business premises as well as in the residential house of the managing director, petitioner No. 1, under s. 132 of the Act. A bunch of loose sheets was seized from the residence of the managing director which showed the profit and loss of the asst. yrs. 1982-83 to 1986-87. Several irregularities were noticed from those documents during the inspection. Thereafter, notices were served on the accused under s. 147 of the Act and the assessment was reopened. The accused did not appear in the reassessment proceeding of the income- tax and the authorities finally determined the matter on the basis of the materials available on the record. It was found that on account of suppression of potato receipts, suppression of surplus potato, complete suppression of income from house property and huge suppression of net profit the total income for the asst. yr. 1985-86 was determined at Rs. 1,48,217 after allowing depreciation which was entirely set off against unabsorbed depreciation of the early years.

The petitioner aggrieved by the redetermination of income filed an application for settlement before theSettlement Commission under s. 245C of the Act for the asst. yrs. 1985-86, 1987-88 and 1988-89. The Settlement Commission denied the admission of the application for the asst. yr. 1985-86. Thereafter a complaint petition was filed on 28th Feb., 1992, after obtaining sanction on 20th Feb., 1992, by the CIT under s. 279(1) of the Act. It was asserted in the complaint, inter alia, that the accused wilfully attempted to evade the tax chargeable or imposable under the Act by furnishing incorrect particulars of the income. The accused persons also wilfully made the statement in verification of return or delivered an account or statement which was false and which they either knew or believed to be false or did not believe to be true and as such committed an offence punishable under ss. 276C and 277 of the Act. There is no dispute between the parties that even after rejection of the petition by the Settlement Commission the petitioner has again filed a fresh petition before the Settlement Commission on 21st Jan., 1992, and the same has been registered by the Settlement Commission. Learned counsel for the parties in both the cases submitted that as the applications filed by the petitioners under s. 245C of the Act is pending before the Income-tax Settlement Commission constituted under s. 245B of the Act, their prosecution for the offences under ss. 276C and 277 of the Act has to be quashed or at any rate their prosecution has to be stayed till final determination of the matter by the Commission as provided under s. 245D of the Act. Elaborating their submission, it was contended that, as the Settlement Commission has power to grant immunity from prosecution and penalty in view of the provision under s. 245H of the Act, it would be an abuse of the process of the Court if the prosecution is allowed to continue during the pendency of the application before the Settlement Commission.

Learned counsel appearing on behalf of the Department, on the other hand, contended that mere pendency of an application before the Settlement Commission is not a valid ground either to quash the prosecution under s. 276C or 277 of the Act or to stay the prosecution till the final determination of the matter by the Settlement Commission inasmuch as a criminal proceeding cannot be quashed or stayed on the ground that there is expectation of success by the accused persons in the proceeding pending before the Settlement Commission. It was also contended that pendency of an application before the Settlement Commission where there is expectation of success cannot be a ground for giving relief of either quashing the proceeding or staying the criminal prosecution. Learned counsel for the parties have referred to a large number of cases in support of their contentions which will be referred to at a later stage. To appreciate the point canvassed at the Bar it will be necessary to refer to certain provisions of the Act having an important bearing on the question in controversy. Sec. 276C of the Act prescribes punishment with regard to wilful attempts to evade to pay the tax. Sec. 277 of the Act prescribes punishment with regard to false statement in verification; if a person makes a statement in any verification or delivers an account or statement which either knows or believes to be false or does not believe to be true he commits an offence punishable under s. 277 of the Act. Chapter XIX-A was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1st April, 1976, with a view to give effect to one of the recommendations of the Wanchoo Committee Report. This part provides for settlement of tax disputes and immunity from prosecution and penalty. Sec. 245B of the Act provides for constitution of a Commission to be called the Income-tax Settlement Commission. Sec. 245C of the Act provides for filing of an application for settlement of cases, the relevant portion of which runs as follows: “(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the AO, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided : Provided that no such application

shall be made unless,— (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and (b) the additional amount of income-tax payable on the income disclosed in the application exceeds fifty thousand rupees”. Sec. 245D provides the procedure on receipt of an application under s. 245C of the Act, and runs as follows: “(1) On receipt of an application under s. 245C, the Settlement Commission shall call for a report from the CIT and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application: Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided further that the CIT shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applications made under s. 245C on or after the date on which the Finance (No. 2) Bill, 1991, receives the assent of the President and if the CIT fails to furnish the report within the said period, the Settlement Commission may make the order without such report. (2) A copy of every order under sub-s. (1) shall be sent to the applicant and to the CIT. (2A) Subject to the provisions of sub-s. (2B), the assessee shall, within thirty-five days of the receipt of a copy of the order under sub-s. (1) allowing the application to be proceeded with, pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission. (2B) If the Settlement Commission is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income-tax referred to in sub-s. (2A) within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments if the assessee furnishes adequate security for the payment thereof. (2C) Where the additional amount of income-tax is not paid within the time specified under sub- s. (2A), then, whether or not the Settlement Commission has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-s. (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in sub-s. (2A). (2D) Where the additional amount of income-tax referred to in sub-s. (2A) is not paid by the assessee within the time specified under that sub-section or extended under sub-s. (2B), as the case may be, the Settlement Commission may direct that the amount of income-tax remaining unpaid, together with any interest payable thereon under sub-s. (2C), be recovered and any penalty for default in making payment of such additional amount may be imposed and recovered, in accordance with the provisions of Chapter XVII, by the AO having jurisdiction over the assessee. (3) Where an application is allowed to be proceeded with under sub-s. (1), the Settlement Commission may call for the relevant records from the CIT and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the CIT to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. (4) After examination of the record and the report of the CIT received under sub-s. (1), and the report, if any, of the CIT received under sub-s. (3), and after giving an opportunity to the applicant and to the CIT to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application, and any other matter relating to the case not covered by the application, but referred to in the report of the CIT under sub-s. (1) or sub-s. (3). (5) Subject to the provisions of s. 245BA, the materials brought on record before the Settlement Commission shall be considered by the members of the concerned Bench before passing any order under sub-s. (4), and, in relation to the passing of such order, the provisions of s. 245BD, shall apply. (6) Every order passed under sub-s. (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. (6A) Where any tax payable in pursuance of an order under sub-s. (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at fifteen per cent, per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid. (7) Where a settlement becomes void as provided under sub-s. (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the IT authority concerned may, notwithstanding anything contained in any other

provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. (8) For the removal of doubts, it is hereby declared that nothing contained in s. 153 shall apply to any order passed under sub-s. (4) or to any order of assessment, reassessment or recomputation required to be made by the AO, in pursuance of any directions contained in such order passed by the Settlement Commission and nothing contained in the proviso to sub-s. (1) of s. 186 shall apply to the cancellation of the registration of a firm required to be made in pursuance of any such directions as aforesaid”. Sec. 245F of the Act provides the powers and procedure of Settlement Commission and runs as follows: “(1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an IT authority under this Act. (2) Where an application made under s. 245C has been allowed to be proceeded with under s. 245D, the Settlement Commission shall, until an order is passed under sub-s. (4) of s. 245D, have, subject to the provisions of sub-s. (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case. (3) Notwithstanding anything contained in sub-s. (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on the basis of self-assessment in relation to the matters before the Settlement Commission. (4) For the removal of doubts, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission. (5) Omitted by the Finance Act, 1987, w.e.f. 1st June, 1987. (6) Omitted by the Finance Act, 1987, w.e.f. 1st June, 1987. (7) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings”. Sec. 245H of the Act provides regarding power of Settlement Commission to grant immunity from prosecution and penalty and runs as follows: “(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under s. 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the IPC (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement:

Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under s.

245C. (1A) An immunity granted to a person under sub-s. (1) shall stand withdrawn if such person fails to pay any sum specified in the order of settlement passed under sub-s. (4) of s. 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted. (2) An immunity granted to a person under sub-s. (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person had, in the course of the settlement proceedings concealed any particulars material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted”.

6. The first question to be determined is as to whether a prosecution under ss. 276C and 277 of the Act should be quashed on the ground of pendency of an application filed by an assessee under s . 245C of the Act before the Settlement Commission. Learned counsel appearing for the parties did not bring to my notice any provision under the Acts which provides that the prosecution under the Act should be quashed or the accused should be discharged during the pendency of either reassessment proceedings, an appeal, a revision or the pendency of an application before the Settlement Commission with regard to the connected matter or the matter in issue in the criminal proceeding except the provision of s. 279(1A). The aforesaid provision admittedly has no application in the facts of this case. It provides that a person shall not be proceeded against for an offence under s. 276C or s. 277 of the Act in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on

him under cl. (iii) and sub-s. (1) of s. 271 has been reduced or waived by an order under s. 273A of the Act. Sec. 279(1) of the Act provides that the prosecution under ss. 276C and 277 of the Act and other sections has to be launched after the previous sanction of the CIT or the appropriate authority. Even under Chapter XIX-A which deals with the settlement of cases, there is no provision that during the pendency of an application for settlement no prosecution can be launched or a pending prosecution has to be quashed. As noticed above, it is clear that after an application is filed under s. 245C of the Act, the procedure has to be followed as provided under s. 245D of the Act, which provides that on the filing of an application, the Settlement Commission shall call for a report from the CIT and on the basis of the materials contained in the said report and other materials referred to thereunder, the Commission shall allow the application to be proceeded with or reject the application. In case the application is allowed to be proceeded with, the matter has to be again re-examined and the final order has to be passed after taking into consideration the materials referred to in sub-s. (4) of s. 245D of the Act. Sec. 245F of the Act provides with regard to the powers and procedure of the Settlement Commission. Sub-s. (1) of s. 245F provides that in addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an IT authority. Sub-s. (2) of s. 245F provides that after the application under s. 245C has been allowed to be proceeded with under s. 245D, the Settlement Commission is vested with exclusive jurisdiction to exercise the powers and perform the functions of an IT authority under this Act in relation to the case. However, sub-s. (4) of s. 245F provides that in the absence of any specific direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission to grant immunity from prosecution and penalty which power has to be exercised at the time of final disposal of the application filed before the Settlement Commission. Sec. 245-I of the Act makes the order of the Settlement Commission conclusive as to the matters stated therein and if further proceeds that matter covered by the order of the Settlement Commission shall not be reopened in any proceeding under this Act or under any other law for the time being in force. From the aforesaid provision it is clear that the commission is not empowered to proceed with the application automatically after its filing by the assessee. After the filing of the application, the Settlement Commission has to consider the report of the CIT and other materials and then to allow the application to be proceeded with. After the application has been ordered to be proceeded with, the Commission is vested with exclusive jurisdiction to exercise the powers and perform the functions of IT authorities under the Act in relation to the case in exercise of the power under sub-s. (2) of s. 245F of the Act. Thus, after going through the aforesaid provisions it cannot be held that after the filing of an application by the assessee before the Settlement Commission a pending prosecution should be quashed.

Learned counsel appearing for the petitioners relied upon the following cases in support of his submission. Uttam Chand vs. ITO (1982) 133 ITR 909 (SC) : TC 48R.304, Balaji Oil Traders vs. ITO (1984) 42 CTR (Kar) 274 : (1984) 150 ITR 128 (Kar) : TC 48R.1063, Dr. Mrs. Geeta Gupta vs. IAC (1987) 59 CTR (Del) 127 : (1987) 168 ITR 222 (Del) : TC 48R.934, R.I. Chadha vs. ITO (1987) 63 CTR (P&H) 228 : (1987) 168 ITR 591 (P&H) : TC 48R.930 and Banwarilal Satyanarain vs. State of Bihar (1989) 80 CTR (Pat) 31 : (1989) 179 ITR 387 (Pat) : TC 48R.258. So far as Uttam Chand’s case (supra) is concerned, it appears from the facts of the case that the ITO granted registration to the firm. Later on, at the instance of one of the alleged partners, the ITO proceeded to examine the genuineness of the firm and came to the conclusion that the firm was not a genuine one and accordingly cancelled the registration and passed an order of assessment. The assessee filed an appeal before the AAC and after having been unsuccessful before him it filed an appeal before the Tribunal. While the appeal was pending the IT Department filed a complaint against the assessee for the offence under s. 277 of the Act and other sections of the IPC with regard to the asst. yr. 1963-64. The appeal was finally decided in favour of the assessee regarding the relevant assessment year and thereafter he filed an application for discharging him in the criminal prosecution under s. 482, Cr.PC, before the Punjab & Haryana High Court, which was dismissed and thereafter the matter was brought before the Supreme Court, where it was held as follows: “Heard counsel, special leave granted. In view of the finding recorded by the Tribunal that it was clear on the appraisal of the entire material on the record that Smt. Janak Rani was a partner of the assessee-firm and that the firm was a genuine firm, we do not see how the assessee can be prosecuted for filing false returns. We, accordingly, allow this appeal and quash the prosecution. There will be no order as to costs”.

The aforesaid case has no application in the present case as admittedly no final orders have been passed in favour of the petitioners either by any IT authority or by the Settlement Commission in their cases. This case was

considered by the Supreme Court in the case of P. Jayappan vs. S. K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) : TC 48R.501, and it was held as follows: “It is true that, as observed by this Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC) : TC 48R.304, the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under s. 276C and s. 277 as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. 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 s. 276C and s. 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. Otherwise, there is a danger of a contention being advanced that whenever an assessee or any other person liable under the Act had failed to convince the authorities in the proceedings under the Act that he has not deliberately made any false statement or that he has not fabricated any material evidence, the conviction of such person should invariably follow in the criminal Court”.

9. The cases of Uttam Chand (supra) and P. Jayappan (supra), have been noticed by the Supreme Court in the case of K.T.M.S. Mohammed vs. Union of India : Amanullah Quareshi vs. Union of India (1991) 108 CTR (SC) 84 : (1992) 197 ITR 196 (SC) : TC 48R.228, and it has been held that the result of the proceeding under the IT Act is one of the major factors to be considered by the criminal Court while deciding a proceeding regarding the relevant assessment year and the resultant finding in the said proceedings has to be given due regard in deciding the criminal prosecution. In the words of the Supreme Court: “It may not be out of place to refer to an observation of this Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC) : TC 48R.304, wherein it was observed that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings. But, in Jayappan vs. S.K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) : TC 48R.501, it has been held that thedecision in Uttam Chand’s case (supra), is not an authority for the proposition that no proceedings can be initiated at all under s. 276C and s. 277 as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. Though, as held in Jayappan’s case (supra), a criminal Court has to judge the case before it independently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under the IT Act, 1961”.

Thus, only on the ground that some proceeding is pending under the Act and there is a chance of success of the assessee, the criminal prosecution cannot be quashed against the assessee. So far as the case of Balaji Oil Traders (supra), is concerned, it appears from the facts of that case that the prosecution was launched under ss. 276C and

277 of the Act against the assessee on the allegation of suppression of some relevant and important information as well as on the ground of non-disclosure of proper income and also for making a false verification in the return. The assessment order on the basis of which the prosecution was launched was challenged in appeal and writ proceeding. In that context, the learned single judge of the Karnataka High Court held that, during the pendency of the appeal and writ application, the continuation of the prosecution against the assessee will amount to an abuse of the process of the Court. It appears that the learned judge relied upon the dictum of the Supreme Court in Uttam Chand’s case (supra), for holding that the pendency of the appeal and the writ application in the High Court would be a good ground for quashing the prosecution. The aforesaid judgment, in my view, is no longer good law in view of the law laid down by the Supreme Court in Jayappan’s case (supra), that pendency of the proceeding before the authority under the Act is no ground for quashing the prosecution. In the case of Dr. Mrs. Geeta Gupta vs. IAC (supra), it appears that a complaint was filed before the magistrate for the offence under ss. 276C, 277 and 278 of the Act and 193, 196 of the IPC on the allegation that the assessee-petitioner was guilty of wilful attempt to evade tax, making false verification in her statement under the Act and fabricating false evidence to be used in income-tax proceedings for the asst. yr. 1980-81. The assessee filed an application under s. 245C of the Act for settlement of her case and an objection was raised by the CIT under s. 245D(1A) of the Act, which has now been omitted w.e.f. 27th Sept., 1991. The Settlement Commission passed an order rejecting the objection and ordered the application to be proceeded with. Thereafter, the assessee applied to the magistrate for dismissing the complaint which was rejected and thereafter the matter came before the Delhi High Court. Dealing with the said matter, the learned single judge of the Delhi High Court held as follows: “Keeping in mind the aforesaid provisions contained in ss. 245D, 245F(2), 245H and 245-I of the Act when the Settlement Commission, after dealing with the objections of the CIT raised under sub-s. (1A) of s. 245D, is not satisfied with the correctness of the same and dismisses the same on the basis of the material available at that point of time holding that concealment of income has not been established nor is likely to be established, there is no material left whatever with him at that particular point of time to continue with the prosecution of the person who has made the application under s. 245C for settlement as after the making of that application, it is the Settlement Commission alone in whom vests thereafter the exclusive jurisdiction under s. 245F(2) to exercise the powers and perform the functions of an IT authority under the Act in relation to the case including the power of continuing the prosecution already launched by the CIT even prior to the making of the application under s. 245D. The making of the aforesaid order by the Settlement Commission holding that no concealment of income had been established or is likely to be established acted as a complete interception at that point of time for the continuance of the prosecution against the petitioner for want of any material for the same and it was only thereafter that on considering the further report of the CIT on further enquiry or investigation under sub-s. (3) or after examining such further evidence, as may be placed by the parties before the Settlement Commission or obtained by it and the examination of the material already before it and after hearing both the parties, if the Settlement Commission, while making the final order finds any concealment of income on the part of the petitioner, it may recommend the launching of a prosecution against the petitioner or may grant immunity from prosecution under s. 245H and if no such immunity from prosecution is granted by the Settlement Commission, the thread may again be picked up by the IAC(Asst.) for launching a fresh complaint against the petitioner on the basis of the material collected by the Settlement Commission under sub-ss. (3) and (4) of s. 245D and the finding of concealment resting thereupon, but the prosecution already launched by the IAC (Asst.), Range XIV, New Delhi, against the petitioner cannot be allowed to continue during the void between the passing of the first order dt. 27th Dec., 1985, by the Settlement Commission that no concealment of income on the part of the petitioner had been established nor was likely to be established for the asst. yr. 1980-81 and the order of settlement yet to be passed by it under subs. (4) of s. 245D, during which period the verdict of ‘no concealment of income’ having been given by the Settlement Commission against the CIT rendered the present complaint against the petitioner bereft of any substratum necessary for prosecution of the petitioner, and the suggestion emanating from learned amicus curiae, Mr. U.K. Jain advocate, who is a brilliant expert on income-tax matters and who opposed the contentions of Mr. S.C. Gupta, learned counsel for the petitioner, regarding the interpretation of the question of law involved in this case, that the continuance of complaint against the petitioner may be ordered to be simply stayed till the settlement order is made by the Settlement Commission under sub-s. (4) of s. 245D cannot be accepted”.

12. With respect of the learned judge, I find myself unable to agree with the proposition that only because an application has been ordered to be proceeded with under s. 245D sub-s. (1), of the Act after rejecting the objection of the CIT, the prosecution cannot continue and the same has to be quashed. The power has been vested in the Settlement Commission to give immunity from prosecution at the final stage of the proceeding and that power cannot be exercised in favour of the assessee even if an order is passed in favour of the assessee unless the condition mentioned under s. 245H of the Act is fulfilled. Only pendency of an application even if it has been ordered to be proceeded with cannot be a ground to quash the pending prosecution as mentioned above. It would only amount to that an application is pending for final decision and the principle laid down in P. Jayappan’s case (supra), to the effect that pendency of the proceeding is no ground for quashing the criminal prosecution will be fully applicable to such application pending before the Settlement Commission. The law laid down in this case also in my view cannot be treated as good law in view of the aforesaid decision of the Supreme Court. So far as the case of R.I. Chadha (supra), is concerned, from the facts of the case it appears that the law laid down in this case has no application to the facts of this case as in that case while the application under s. 245C, which was allowed to be proceeded with after rejecting the objection of the CIT was pending, the prosecution was launched by the CIT. Dealing with the said matter, the learned single judge of the Punjab & Haryana High Court after taking into consideration the provisions of s. 245F of the Act held that till the finalisation of the settlement proceeding, the Settlement Commission alone has exclusive jurisdiction to launch the prosecution and the IT authorities have no jurisdiction to launch any prosecution of the assessee during the pendency of the proceeding before the Settlement Commission. The facts of the said case are quite different from the present cases as in the present cases the prosecution has been launched before an application has been ordered to be proceeded with and

as such the provision of s. 245F of the Act has no application. Even after application has been ordered to be proceeded with under s. 245D(1) of the Act, the prosecution cannot be quashed on the ground of pendency of the application for the reasons mentioned above. Accordingly, I find myself unable to agree with the law laid down in the case of R.I Chadha (supra).

The law laid down by a learned single judge of this Court in Banwarilal (supra), has no application in the present case. From the facts of the said case, it appears that the assessee did not deduct income-tax under s. 194A in time and as a result of which, the same was not paid within time. A penalty proceeding was initiated under the relevant provisions of the Act and penalty was imposed upon the assessee. While a revision application against the order of penalty was pending before the CIT, a complaint was filed against him for the offence under s. 276B of the Act. Later on, the CIT allowed the revision on the merits and deleted the penalty. In such a situation his Lordship held that if an order on the merits is passed in favour of the assessee in the proceeding under the Act by the authority in relation to the very same default which is the subject-matter of the prosecution and the order has attained finality the prosecution of the assessee has to be discontinued. In the present case no final order has been passed and as such the said case is of no help to the petitioners. In my view, mere pendency of the application before the Settlement Commission at any stage, that is to say even after the application has been allowed to be proceeded with, is not a ground for quashing the prosecution or discharging an accrued in a criminal case even if the matter in issue before the Settlement Commission has a direct bearing on the question in issue in the criminal proceeding. It is to be made clear that if the Settlement Commission passed a final order in favour of a person and further grants immunity from prosecution and penalty then the criminal prosecution with regard to the matter decided by the Settlement Commission has come to an end. But if the Settlement Commission has only passed an order in favour of the person having moved the Commission with regard to matter in issue before it as well as in the criminal prosecution, on that ground alone the criminal proceeding will not come to an end in the sense that either the accused shall be discharged or the criminal prosecution shall be quashed. The criminal Court shall give due regard/weight to the result of the proceeding under the Act while disposing of the criminal prosecution. The next point for consideration is as to whether a criminal prosecution launched against the accused should be stayed during the pendency of an application before the Settlement Commission with regard to the matter which is in issue in both the proceedings. In the case of Ashwini Kumar Vadilal Patel (Dalal) vs. P.T. Mehta, ITO (1980) 77

CTR (Guj) 216 : (1989) 178 ITR 385 (Guj) : TC 48R.933, the prosecution was stayed during the pendency of an application before the Settlement Commission. From the facts of the said case, it appears that the petitioner was prosecuted under s. 276C of the Act as well as s. 195 of the IPC on the allegation that the petitioner did not render satisfactory explanation regarding some of the items seized during the raid. The petitioner of that case has challenged his prosecution on the ground that he has approached the Settlement Commission. The Settlement Commission recorded a finding that no concealment had been established and none was likely to be established. In other words, in that case the application was allowed to be proceeded with after rejecting the objection of the CIT as provided under s. 245D (1A), of the Act and in that situation the proceeding was stayed till the final decision of the Settlement Commission.

Similarly, in the case of Kothari & Sons vs. N. Subramanian, ITO (1993) 113 CTR (Mad) 188 : (1992) 196 ITR

82 (Mad) : TC 48R.929, a learned single judge of the Madras High Court after considering the law on the question held that when an assessee has filed an application before the Settlement Commission under s. 245C of the Act and such application has been allowed to be proceeded with by the Settlement Commission under s. 245D of the Act till the final order under s. 245D(4) on the said application is passed by the Settlement Commission, the prosecution could not be proceeded with and has to be stayed. A learned single judge of this Court has also had occasion to consider the question as to whether the criminal prosecution has to be stayed or not during the pendency of an application before the Settlement Commission in the case of K. Pechisia vs. Union of India (1993) 2 PLJR 21. From the fact of the said case, it appears that before the launching of the prosecution by the Department, the assessee had moved the Settlement Commission for settlement of his case. A report was called for from the CIT. The CIT objected to the application being proceeded with in accordance with the provisions contained under s. 245D(1A) of the Act and after considering the matter the Commission rejected the objection of the CIT and ordered the application filed under s. 245C of the Act to be proceeded with and the matter was pending with the Settlement Commission, for final decision. Thereafter, the prosecution was launched for the offences under s. 276C and 277 of the Act. After taking note of the provision of s. 245H, which empowers the Settlement Commission to grant immunity to the person concerned from prosecution, it was held that if the prosecution is allowed to continue, the provisions of s. 245H would become redundant and in that view of the matter, so long as the matter is pending before the Settlement Commission, the prosecution should not be allowed to continue and the same should remain pending and accordingly the criminal prosecution was stayed till the final disposal of the application by the Settlement Commission. In the aforesaid three cases the order has been passed for staying the criminal prosecution during the pendency of the application before the Settlement Commission after the application filed under s. 245C of the Act were ordered to be proceeded with under s. 245D(1) of the Act. I find myself in respectful agreement with the view taken by the learned single judge of this Court as well as in the aforesaid two cases for the reasons that the Settlement Commission after applying its mind to the materials on the record and, after considering the report of the CIT and other materials, has found that the case of the assessee has to be proceeded with. In other words, a prima facie case on the merits has been found in favour of the person moving the Settlement Commission and in such a situation as the Settlement Commission has power to grant immunity from prosecution under s. 245H of the Act in appropriate cases, it would be proper in the interest of justice to stay the criminal proceeding with regard to the matters in issue pending for decision before the Settlement Commission till the final order is passed by the Settlement Commission. There is another reason to take this view. After the application filed under s. 245C is ordered to be proceeded with under s. 245D(1) of the Act, the provision of sub-s. (2) of s. 245F holds the field till the passing of the final order under s. 245D(4) of the Act and according to the said provision the Settlement Commission has exclusive jurisdiction to exercise all the powers and perform the functions of the IT authority under the Act in relation to the case. In such a situation, if the same issue or a relevant or related issue is the subject-matter of the criminal prosecution, then allowing the prosecution to continue will create an anomalous situation. The Commission in exercise of power during the period may stay or withdraw the prosecution by virtue of exclusive jurisdiction vested in it. So in the interest of justice and to obviate an anomalous situation being created it is just and proper to stay the criminal prosecution if the matter in issue before the criminal Court and the Settlement Commission is the same or related, till the passing of the final order by the Settlement Commission. Such cases would be treated to be appropriate cases for staying the prosecution as held by the Supreme Court in P. Jayappan (supra). However, the question in the present two cases are different. Here the question is as to whether by merely filing an application before the Settlement Commission which has not reached the stage where the Settlement Commission has allowed the application to be proceeded with, the prosecution has to be stayed. Even at the cost of repetition I may mention that on the filing of an application it is not automatically admitted or allowed to be proceeded with by the Settlement Commission. On the other hand, the Settlement Commission has to consider the report of the CIT and other materials and then has to pass an order that the application is to be proceeded with as provided under s. 245D(1) of the Act. In that view of the matter, unless the Settlement Commission applies its mind and allows the application to be proceeded with, a criminal prosecution involving the same issue which is before the Settlement Commission could not be stayed merely on the basis of the filing of an application before the Settlement Commission.

In the case of Ashwini Kumar Vadilal Patel vs. S. Rajguru (supra), the learned single judge of the Gujarat High Court held that the mere making of an application to the Settlement Commission is not a ground for staying the criminal prosecution. Similarly, a learned single judge of the Punjab & Haryana High Court in the case of Harbans Singh vs. Union of India (1987) 66 CTR (P&H) 165 : (1988) 171 ITR 23 (P&H) : TC 48R.740, has held that mere filing of the application for settlement under s. 245C will not have the effect of staying the other provisions of the Act like those providing for prosecution of the assessee for concealing and making incorrect and false statement in the return. After considering the matter from different angles and after giving my thoughtful consideration, I am of the view that mere filing of an application before the Settlement Commission for settlement of the claims by an assessee with regard to the matters which are in issue in the criminal prosecution could not be a ground for staying the proceeding. However, as mentioned above, if the application filed by the assessee has been allowed to be proceeded with then the prosecution has to be stayed till the final decision by the Settlement Commission. If ultimately the Settlement Commission decides in favour of the person concerned and grants immunity from prosecution, then the criminal prosecution has to end. However, if no immunity from prosecution is granted and only a favourable order is passed in favour of the person concerned, then the stay has to be vacated and criminal prosecution has to be decided according to law. A favourable finding or order passed by the Settlement Commission has to be given due weight or regard while deciding the criminal proceedings [see K.T.M.S. Mohammed vs. Union of India (supra)]. It goes without saying that in case of rejection of claim by the Settlement Commission the criminal proceeding shall continue. It is also made clear that in the cases in which criminal prosecution has been launched before the date of receipt of application under s. 245C of the Act as provided under the proviso to s. 245H, the prosecution should not be stayed on the ground of subsequent filing of the application under s. 245C of the Act. It is also held that pendency of an application before the Settlement Commission at any stage is no ground for quashing the criminal prosecution. Coming to the facts of the present case in Criminal Misc. No. 3398 of 1992, it is clear that it is not stated in the petition that the application has reached the stage of s. 245D(1) of the Act and the order has been passed allowing the application to be proceeded with. In that view of the matter, only because an application has been filed by the petitioner, the prosecution cannot be stayed. Accordingly, the said application is dismissed. Regarding Criminal Misc. No. 5422 of 1993, an application was filed before the Settlement Commission earlier by the petitioner when s. 245D(1A) was in force and it was rejected after upholding the objection raised by the CIT and again an application has been filed on 21st Jan., 1992, but no averment has been made that the Settlement Commission has applied its mind and thereafter has allowed the application to be proceeded with and in that view of the matter, only on the ground of filing an application before the Settlement Commission the prosecution cannot be stayed. Thus, both the applications are dismissed with an observation that if the Settlement Commission does not reject the applications and it allows the applications to be proceeded with under s. 245D(1) of the Act, it will be open for the petitioner to move the learned magistrate for stay of the prosecution till final disposal of the matter by the Settlement Commission, who, on being satisfied that the Settlement Commission has allowed the application to be proceeded with, may stay the prosecution till the final disposal of the matter by the Settlement Commission in accordance with the observations made above. In the result, both the applications are dismissed with the aforesaid observations.

 

[Citation : 230 ITR 230]

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