1998 (7) TMI 26 - HC - Income Tax

Issues Involved:
1. Alleged fabrication of account books and false evidence.
2. Alleged submission of false income tax returns.
3. Alleged willful attempt to evade tax, penalty, and interest.
4. Alleged offences under sections 193, 196, 420 read with section 511 of the Indian Penal Code.
5. Alleged offences under sections 276C(1) and 277 of the Income Tax Act, 1961.
6. Adequacy of evidence presented by the prosecution.
7. Reasoning of the trial magistrate for acquittal.
8. Appropriate sentencing for the convicted offences.

Detailed Analysis:

1. Alleged Fabrication of Account Books and False Evidence:
The respondent was accused of fabricating his account books for the accounting period 1-4-1982 to 31-3-1983, which led to understating his real income. The prosecution argued that the respondent's books showed discrepancies, such as unrecorded payments and false credit entries. The trial magistrate found that there was no acceptable evidence to prove that the respondent paid cash to the witnesses (PWs 4, 5, and 7) apart from their interested testimonies.

2. Alleged Submission of False Income Tax Returns:
The respondent submitted a return of income for the assessment year 1983-84, which was later found to contain discrepancies. The respondent initially showed an income of Rs. 7,300 from his oil business, but after scrutiny and personal verification by the Income Tax Officer, he submitted a revised return showing an income of Rs. 59,300. The trial magistrate concluded that the respondent acted bona fide by submitting a revised return upon realizing the discrepancies.

3. Alleged Willful Attempt to Evade Tax, Penalty, and Interest:
The prosecution contended that the respondent willfully attempted to evade tax by omitting relevant entries and making false statements. The trial magistrate held that it is natural for any human being to commit mistakes in accounts and that the respondent's submission of a revised return was not intentional evasion but a bona fide correction.

4. Alleged Offences under Sections 193, 196, 420 read with Section 511 of the Indian Penal Code:
The respondent was charged under sections 193 (fabricating false evidence), 196 (using evidence known to be false), and 420 read with section 511 (attempt to cheat) of the Indian Penal Code. The trial magistrate acquitted the respondent, stating that the prosecution failed to prove the charges beyond a reasonable doubt.

5. Alleged Offences under Sections 276C(1) and 277 of the Income Tax Act, 1961:
The respondent was also charged under sections 276C(1) (willful attempt to evade tax) and 277 (false statement in verification) of the Income Tax Act. The trial magistrate acquitted the respondent on these charges as well, citing insufficient evidence.

6. Adequacy of Evidence Presented by the Prosecution:
The prosecution presented evidence including testimonies from seven witnesses and 23 documents. The trial magistrate found the evidence insufficient, primarily because the testimonies of PWs 4, 5, and 7 were considered interested and not corroborated by independent evidence.

7. Reasoning of the Trial Magistrate for Acquittal:
The trial magistrate acquitted the respondent for three main reasons:
- Lack of acceptable evidence to prove cash payments.
- No opportunity given to the respondent to controvert the statements of PWs 4, 5, and 7.
- The respondent's immediate submission of a revised return indicated bona fide action rather than intentional fraud.

8. Appropriate Sentencing for the Convicted Offences:
Upon appeal, the High Court found substantial force in the appellant's arguments and held that the trial magistrate's reasoning was incorrect and perverse. The High Court convicted the respondent under sections 193, 196, 420 read with section 511 of the Indian Penal Code, and sections 276C(1) and 277 (2 counts) of the Income Tax Act. The respondent was sentenced to imprisonment till the rising of the court and fined Rs. 2,500 for each offence under the Indian Penal Code and Rs. 2,000 for each offence under the Income Tax Act, totaling Rs. 13,500. The respondent was ordered to pay the fine within six weeks.

Conclusion:
The High Court set aside the trial magistrate's acquittal, finding the respondent guilty of fabricating account books, submitting false returns, and willfully attempting to evade tax. The respondent was sentenced to imprisonment till the rising of the court and fined a total of Rs. 13,500.

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