2002 (12) TMI 52 - HC - Income Tax

Offences and Prosecution - The case of the petitioner is that the opposite party misrepresented the facts that the assessment order in respect of the firm in appeal has been set aside but the fact is that the assessment order of the firm of opposite party for the block period comprising of the assessment years 1987-88 to 1997-98 which formed the basis of the complaint petition is still valid and has not been cancelled or modified by any income-tax authority or by the Income-tax Appellate Tribunal or any court of law - A prayer has been made for cancellation of bail granted to the opposite party by this court on April 30, 2001. - The petitioner admitted that the assessment order in respect of the opposite party in his individual capacity for the assessment year 1996-97 has been set aside but according to the petitioner it is independent assessment from the assessment of the firm and therefore cancellation of this assessment order is no way connected with the present complaint petition.

Issues:
1. Bail cancellation application filed by the Union of India against the opposite party.
2. Allegations of tax evasion and deliberate attempt to evade tax by the firm and its partners.
3. Discrepancies in the claimed purchases and expenses by the firm.
4. Counter affidavit filed by the opposite party opposing the bail cancellation plea.
5. Pending appeal against the assessment orders for the block period 1987-88 to 1997-98.
6. Interpretation of protective assessment under section 158BC of the Income-tax Act.
7. Comparison with a similar case where bail was granted.
8. Assessment order set aside for the individual capacity of the opposite party for the year 1996-97.

Analysis:
1. The Union of India filed an application seeking the cancellation of bail granted to the opposite party by the High Court. The petitioner alleged that the opposite party, a partner in a firm, was involved in tax evasion and non-compliance with income tax notices. The assessment revealed discrepancies in claimed purchases and expenses, leading to a complaint case under sections 276C, 277, and 278 of the Income-tax Act.

2. The petitioner contended that the firm and its partners deliberately attempted to evade tax, as evidenced by false claims and non-compliance with tax authorities. Despite a show cause notice for prosecution, no response was received from the partners, leading to the institution of a complaint case. The Second Additional Sessions Judge had previously rejected the opposite party's bail plea.

3. The opposite party opposed the bail cancellation, stating that appeals against the assessment orders for the block period were pending adjudication. The assessments were made protectively under section 158BC of the Income-tax Act, with substantive assessments in the hands of another individual. The opposite party argued that protective assessments are permissible to safeguard revenue interests until final findings are established.

4. The High Court analyzed the facts presented, noting that the opposite party had misrepresented certain aspects related to assessment orders. The court considered the grounds for granting bail, including the set-aside of an assessment order for the individual capacity of the opposite party for the year 1996-97. The court found no merit in the bail cancellation application and dismissed it accordingly.

5. The court also compared the case with a similar one where bail was granted, highlighting the pending appeal against the assessment orders. The assessment orders for the block period were crucial in determining the validity of the complaint petition, and the court found no connection between the set-aside assessment order for the individual capacity of the opposite party and the present complaint petition.

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