Rajasthan H.C : Whether for filing a complaint under s. 276C of the Act, it is necessary that there should be a regular assessment under the Act, against the assessee.

Counsel Appeared

R.N. Khandelwal, A.K. Bhandari, & S.K. Singh, for the Petitioner : Amar Singh & K.N. Garg, for the Respondent

M.B. SHARMA, J.:

All the abovenumbered revision petitions involve a common question of law and, therefore, it will be in the interest of justice to deal with them by a common order. It is also necessary to deal with them under a common order because the complaint out of which the abovenumbered revision petitions arise was filed after the proceedings under s. 132(5) of the IT Act, 1961 (” the Act “), were finalised and they arose out of a raid organised on May 20, 1983, by the ITO, Central Circle3, Jaipur.

The common question of law which is involved in all the cases is as to whether for filing a complaint under s. 276C of the Act, it is necessary that there should be a regular assessment under the Act, against the assessee.

On May 20, 1982, under the provisions of s. 132(1) and (1A), a search was conducted in the business premises and residential house of the accused situated in Dhamani Market and also at Bodala farm, Jaipur, after obtaining a search warrant. During that search, it is alleged that cash, precious and semi-precious stones and jewellery as well ascertain documents were found. The ITO, after affording reasonable opportunity to the petitioners of being heard and after making an enquiry under the provisions of the Act, with the approval of the IAC, made an order under sub-s. (5) of s. 132, for various assessment years in respect of the petitioners. In the said order, the amount of tax on the income estimated to be undisclosed income was also calculated. Thereafter, complaints were filed against the accused petitioners under s. 276C for the asst. yrs. 1980-81 to 1984-85. The complaints were filed at the instance of the CIT as required under s. 279 of the Act. Applications were filed in all the cases on behalf of the accused petitioners that the complaints were premature and there were no reasonable grounds for prosecuting the petitioners. The learned Chief Judicial Magistrate (Economic Offences), Jaipur, dismissed the applications.

The main contention of learned counsel for the petitioners is that the prosecution has been launched on uncertain facts. He contends that when the complaints were filed, regular assessment orders had not been made in any of the cases and it cannot be said how much tax is imposable against the accused petitioners. He has further contended that the order under s. 132(5) was not made under the provisions of the Act with the approval of the IAC, as required under sub-s. (5) of s. 132 as it is not so averred in the complaints. He contends that unless a regular assessment order is made, it cannot be said definitely that the accused petitioners have wilfully evaded in any manner payment of any tax, penalty, interest chargeable under the Act, and he cannot be prosecuted under s. 276C of the Act. His contention is also that even if it be assumed that they can be prosecuted, they should not be so prosecuted and the Asstt. CIT should not rush for prosecution of the accused unless there is a regular assessment order from which it can be said that the accused petitioners wilfully attempted in any manner whatsoever to evade any tax/penalty or interest chargeable or imposable under the Act. His further contention is that on the amount of tax sought to be evaded two different kinds of imprisonment’s are provided under cls. (i) and (ii) of sub-s. (1) of s. 276C and, therefore, it will not be in the interest of justice to launch the prosecution unless the liability is established in a regular assessment by the assessing authority. In support of his contention, Mr. Khandelwal, learned counsel for the petitioner placed reliance on the case of Uttam Chand vs. ITO (1982) 133 ITR 909 (SC). In that case, it was held that (p. 910): ” 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…”

6. In the aforesaid case, when the appeal was pending before the Tribunal, the ITO initiated prosecution of the partner of the firm under s. 277 of the Act for filing false returns. It was not held in Uttam Chand’s case (supra) that during the pendency of the appeal, the ITO has no jurisdiction to initiate the prosecution. This case of Uttam Chand came up for consideration before their Lordships of the Supreme Court in P. Jayappan vs. S. K. Perumal, First ITO (1984) 42 CTR (SC) 142 : (1984) 149 ITR 696 (SC), and it was observed that (p. 700): ” It is true that as observed by this Court in Uttam Chand vs. ITO (supra), 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. … “

7. Their Lordships further observed as under (p. 700): ” … an 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. …”

8. It will, therefore, be clear that in the case of P. Jayappan (supra), the hon’ble Supreme Court has categorically held that mere pendency of proceedings of assessment/reassessment under the Act against an assessee is not a bar against initiation of criminal prosecution for the offence punishable under s. 276C or s. 277. In any criminal case, before the prosecution can succeed, it has to establish all the ingredients of the offence. No doubt, in case any assessment or reassessment order is passed in favour of the assessee during the criminal proceeding, the criminal Court has to take note of it and may drop the proceedings.

9. In the case of PNB Finance & Industries Ltd. vs. Miss Gila Kripalani, ITO (1985) 49 CTR (Del) 249 : (1986)
157 ITR 385 (Delhi), on which reliance has been placed by Mr. Khandelwal, learned counsel for the petitioners, it has been observed as under (p. 405): ” In cases of offences, under the tax laws, it would be improper for the Department to rush with the prosecution without a proper determination by a competent authority, under the Act, of liability which is sought to be made the basis for the prosecution, even though such prosecution may not be incompetent. … ” It appears from a perusal of the above judgment that it has been held that the prosecution may not be incompetent in the absence of determination of tax liability.

In the instant case, after a show-cause notice to the petitioners and after affording reasonable opportunity of being heard and making enquiry, an order under sub-s. (5) of s. 132 was made. Sub-s. (5) of s. 132 basically provides for retention by the ITO in his custody of the assets seized or part thereof as are in his opinion sufficient to satisfy aggregate of the amount referred to in its cls. (ii), (iia) and (iii) and in a summary manner to make an enquiry. The order has also to contain an estimate of the undisclosed income to the best of his judgment on the basis of such materials as are available with him. The order is also required to calculate the amount of tax on the income so admitted in accordance with the provisions of the Act. No doubt, a regular assessment order has to follow thereafter. A bare look at s. 276C will show that under it is not necessary that the prosecution can only be launched after a regular assessment has been made. As already stated, the ingredients of the offence of s. 276C will have to be proved by the prosecution in order to succeed.

In the instant case, so far as Gopal Lal Dhamani, petitioner, is concerned, in three of the complaints filed against him, it appears that after the search was conducted and an order under sub-s. (5) of s. 132 was made, returns were filed under s. 148 of the Act, for the asst. yr. 1980-81 and under s. 139 of the Act for the asst. yrs. 1981-82 to 1984-85. Regular assessment orders have been made in respect of the assessment years other than 1980-81 and 1984-85. So far as the asst. yrs. 1980-81 and 1984-85 are concerned, the regular assessment proceedings are still pending. So far as Laxmi Narain Dhamani is concerned, his regular assessment orders have been made for the years 1982-83 and 1983- 84 and for the asst. yr. 1984-85, proceedings are pending. It may be stated that these assessment orders as aforesaid were only made by the ITO having jurisdiction in the matter after the complaints had already been filed under s. 276C. So far as the petitioner, Gopal Lal Dhamani, is concerned, for the asst. yrs. 1981-82, 1982-83 and 1983-84, in his returns filed on September 28, 1983, he had shown his income as Rs. 17,700, Rs. 14,612 and Rs. 15,000, respectively. Under the assessment orders, his income for the aforesaid years has been assessed as Rs. 9,40,790, Rs. 2,19,620 and Rs. 4,88,970. The tax liability along with the interest for the above three years as determined by the ITO is Rs. 10,37,935, Rs. 1,84,695 and Rs. 4,27,131, respectively. So far as Laxmi Narain is concerned, for the asst. yrs. 1982-83, 1983-84 and 1984-85, he had filed his returns showing his income as Rs. 22,110, loss of Rs. 1,36,650 and loss of Rs. 1,73,506, respectively. The assessments for the years 1982-83 and 1983-84 have been finalised, though after filing of the complaints, and the ITO has fixed the liability and has assessed the income at Rs. 2,10,210 and Rs. 17,60,810. The tax liability for the aforesaid two years including interest has been fixed at Rs. 1,64,480 and Rs. 17,36,540, respectively. The proceedings in respect of assessment for the year 1984-85 is pending.

The aforesaid assessment orders made in respect of the petitioners, Gopal Lal Dhamani and Laxmi Narain, are said to be the subject of appeal by the assessee before the CIT and the Tribunal. Be that as it may, in my opinion, as stated earlier, in view of the law laid down by their Lordships of the Supreme Court in the case of P. Jayappan’s case (supra) there appears to be no bar in law for initiating proceedings under s. 276C against the petitioners merely because the pending regular assessment proceedings had not been finalised or if finalised in a few cases, appeals are pending. As already stated, the prosecution will have to establish the ingredients of the offence under s. 276C, independently on the evidence placed before the Court. No doubt, as in a few cases, regular assessment orders have been made, the Court perhaps may have to take note of them. Similarly, if hereinafter, for the remaining years assessments are made or the assessment orders already made or to be made at any future dates are modified or set aside by the appellate Court, the criminal Court may have to take note of them. It may be that if a proper application is made before the learned trial Court bringing circumstances therein and a request is made to stay further proceedings of the complaints till the assessment orders in the remaining cases are made or the appeals are decided, the criminal Court is bound to take them into consideration and pass necessary orders in accordance with the law. Even in the case of P. Jayappan (supra) it is observed (p. 702): “It may be that in an appropriate case, the criminal Court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under s. 309 of the CrPC if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may take also into consideration the order to be passed therein. Even here, the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes it necessary for a criminal Court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only because some proceeding which may have some bearing on it is pending elsewhere.”

In one case, I have taken a view that the complaint should be allowed to proceed till the end and if it reaches the stage of hearing the arguments and till then the appeal against the assessment order is not decided and a request is made by the accused petitioners before the criminal Court to stay the further proceedings, the Court will consider it judicially on the facts of the case in accordance with the law. But in my opinion, it cannot be said that there is any bar to initiation of proceedings under s. 276C merely because regular assessment orders have not been made or are the subject of appeal.

Consequently, all the abovenumbered revision petitions are dismissed. Any observation on merits, if made, are limited to these reasons. No observation made herein will have any effect either way on the complaints and are confined only for disposal of the revision petitions. Petitions dismissed.

[Citation : 172 ITR 456]