Punjab & Haryana H.C : Krishan Lal Kathuria was prosecuted under s. 277, IT Act, 1961.

A.L. BAHRI, J.:

Krishan Lal Kathuria was prosecuted under s. 277, IT Act, 1961. The Judicial Magistrate, First Class, Faridabad, on 4th Aug., 1981, convicted him and sentenced him to rigorous imprisonment for three months and to pay a fine of Rs. 3,000; in default of payment of fine he was to further undergo rigorous imprisonment for six months. This order was successfully challenged before the Session Judge, Faridabad, who vide his order dt. 4th Nov., 1982, set aside the conviction and sentence. This appeal is by the ITO. A criminal complaint was filed by the ITO against Krishan Lal Kathuria under s. 277 of the Act. The accused, Krishan Lal Kathuria, was carrying on business of manufacturing cast iron under the name and style of M/s Indian Castings, Faridabad. Krishan Lal is the proprietor. He had submitted IT return on 29th July, 1972, for the asst. yr. 1972-73, accounting year being 1971-72. Alongwith the return, balance sheet, P&L account, list of sundry creditors and debtors were furnished. The return was verified by Krishan Lal. The ITO directed the assessee to file copies of closing stock and certificate from the bank showing details of stocks pledged and hypothecated and certain other documents. On 30th Oct., 1974, these documents were furnished. According to the statement of closing stocks furnished, 22 tonnes of pig iron valued at Rs. 12,000 and 2 tonnes of cast iron scrap valued at Rs. 960 and consumable stores valued at Rs. 525, i.e., goods worth Rs. 12,485 were shown in stock on 31st March, 1972. The ITO also secured certain records from the bank. There were discrepancies and after giving notice to the assessee, he added a sum of Rs. 12,000 to the income of the assessee as undisclosed income. The assessment order was made on 31st Dec., 1974. The appeal of the assessee was dismissed on 28th Jan., 1976, by the AAC and the second appeal was dismissed by the Tribunal on 17th Nov, 1976. It was, thereafter, that the ITO started penalty proceedings for concealing the aforesaid income of Rs. 12,000 and as per order dt. 30th March, 1977, the ITO imposed penalty of Rs. 12,000 holding that the assessee had made a false statement in the verification of return. This was false and the assessee knew it to be false. Proceedings under s. 277 of the IT Act were started by filing a criminal complaint.

The complainant examined PW1, V.R. Rishi, ITO, PW2, L.R. Dhingra, Asstt. Director, PW3, Miss Anita, clerk from the office of the ITO, and PW4, Shri M.L. Gari, Assistant in the SBI. The accused, while making the statement under s. 313, CrPC, admitted to being the proprietor of the firm and having filed the return and other documents. He, however, denied for want of knowledge that any information was sought by the ITO directly from the bank. He further asserted that the penalty of Rs. 12,000 imposed by the ITO was ultimately set aside by the Tribunal in appeal. He pleaded false implication. In defence, he produced five witnesses.

4. Shri A.K. Mittal, the advocate who appeared on behalf of the appellant, has argued that the approach of the learned Session Judge in setting aside the order of conviction primarily basing the decision on the order of the Tribunal, whereby the penalty of Rs. 12,000 was set aside is erroneous in law. According to counsel, the criminal Court was not bound by the decision of the authorities under the IT Act and was required to take an independent decision in the criminal case. The Judicial Magistrate after referring to the evidence produced in the case had rightly come to the conclusion that the verification of the IT return was false and this was to the knowledge of the accused. Before I refer to the authorities cited on the subject as well as relied upon by the Session Judge, it would be necessary to refer to the order of the Tribunal whereby penalty of Rs. 12,000 was set aside, in order to find out whether any finding was recorded by the Tribunal as to whether it was a case of concealment or not. If it was a case of concealment it may be pointed out that knowledge could also be attributed to the accused that the particulars given in the return and its verification regarding false entries was with his knowledge. Sec. 277 of the IT Act reads as under : “277. If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,— (i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.”

5. The aforesaid provision contemplates two thing. Firstly, that a person in his statement in any verification or in any account had made a false statement and, secondly, that he knew or believed that the same was false, or did not believe it to be true. It is on proof of these ingredients that it can be said that he had committed the offence and could be punished as mentioned therein. Exhibit D.A. is the order of the Tribunal. The operative portion reads as under : “After hearing both the parties, I am of the view that the penalty is not exigible on facts. The AAC found discrepancies in the stock book as mentioned by the assessee and the figures given to the bank for non-explanation of the presumption of the stock, the ITO presumed some sales. Unfortunately, the assessee failed even in the second appeal stage. But the sole question before me is whether such an addition so confirmed by itself singly establishes concealment or not. I am of the view that it does not. The IT authorities in order to justify penalty have to establish something more than what they have done in their orders and that something being patently establishing concealment on the part of the assessee. Therefore, the assessee’s case squarely falls within the ratio of the decisions of their Lordships of the Supreme Court in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) and CIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC)”.

6. A perusal of the aforesaid order leaves no manner of doubt that a specific finding was recorded by the Tribunal that it was not a case of concealment and on that score penalty of Rs. 12,000 was set aside. Learned counsel for the appellant has referred to the decision of the Kerala High Court in C.G. Balakrishnan vs. ITO (1988) 171 ITR 1 (Ker) in support of his contention that the proceedings under s. 277 of the Act are independent and simply because assessment proceedings were set aside was no ground to set aside the conviction. A perusal of the judgment shows that the decision of the Supreme Court in P. Jayappan vs. S.K. Perumal, ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) was relied upon and the following passage was quoted therefrom :

“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 IT Act would be binding on the criminal Court. The criminal Court has to judge the case independently on the evidence placed before it.”

7. It may be noticed that the Supreme Court in Jayappan’s case (supra) had held that though the proceedings in the criminal case under s. 277 of the Act were independent, however, in a given case those proceedings could be dropped on the basis of orders passed by the authorities. Further reference may be made to the decision of this Court in Parkash Chand vs. ITO (1982) 134 ITR 8 (P&H). It was held therein that in view of the finding of the Tribunal that there was no concealment and no inaccurate accounts were filed by the petitioners, the criminal proceedings against the assessee could not continue and were liable to be quashed. The ratio of the decision of the Supreme Court in Uttam Chand vs. ITO (1982) 133 ITR 909 (SC), was applied. It was observed by the Supreme Court as under : “In view of the finding recorded by the Tribunal that it was clear on the appraisal of the entire material on the record that Shrimati 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.”

8. Reference has been made to the decision of Harbans Singh Rai J., in Sant Parkash vs. CIT (1991) 188 ITR 732 (P&H). In this case, the Magistrate has summoned the accused and thereafter the authorities under the IT Act had set aside the assessment proceedings. It was held that the complaint could still proceed and the prosecution could not be quashed. It may be stated that the ratio of the decision cannot be applied to the case in hand as the prosecution was not required to be quashed at the initial stage. The accused has already been tried and the trial had been completed. Now the question is as to what value, if any, can be attached to the order of the Tribunal. This matter was further considered by S.S. Kang, J., in D.N. Bhasin vs. Union of India (1987) 66 CTR (P&H) 55 : (1988) 171 ITR 7 (P&H). After criminal prosecution was launched, the CIT(A) deleted the additions to the income and accepted the original return filed by the assessee. It was held that on that account criminal proceedings were liable to be quashed. Reference was made to the decisions of the Supreme Court in Uttam Chand and P. Jayappan’s cases (supra). It was held as under : “If the CIT(A) came to the conclusion that the additions made to the income of the assessees were not justified and ordered the same to be deleted, it could no longer be pleaded that the assessees tried to evade tax or had made false statements in the verifications of their returns. There was no case left for prosecuting the assessees in a criminal Court for filing false returns or attempting to evade tax. The criminal complaints were liable to be quashed.”

9. The position of law as depicted from the ratio of the decision aforesaid is quite clear that orders of the authorities which are ultimately in favour of the assessee are relevant for consideration by the criminal Court. In case the element of concealment is missing, as held by the Tribunal, it cannot be said that the accused knew the statement in the return and verification to be false or believed it to be so. There is no force in the contention of learned counsel for the appellant that the factum of concealment has nothing to do with the false averment or believing the same to be so. In such circumstances, it was not necessary for the Sessions Judge to deal in detail with the evidence produced to come to the same conclusion. It was rightly observed by the Sessions Judge that by simply showing that there was an error in the return furnished or there was a false averment, the conviction of the accused cannot be maintained. There has to be something more, i.e., that such an error or omission was false to the knowledge or belief of the accused. No doubt, the second ingredient is to be proved by raising an inference from a given set of circumstances in a particular case and there may not be any direct evidence as has been argued by counsel for the appellant. However, in the present case, when such a finding has been recorded by the Tribunal in the order exhibit D.A., which was passed during the pendency of the present criminal proceedings, the same being relevant was rightly taken into consideration in coming to the conclusion that the second ingredient of s. 277 was not made out. Finding no merit in the appeal, the same is dismissed.

[Citation: 204 ITR 252]