1997 (9) TMI 20 - HC - Income Tax

Offences And Prosecution, Wilful Attempt To Evade Tax, False Verification, Prosecution, Mens Rea

Summary

Issues Involved:
1. Alleged false entries and concealment of income by the accused firm.
2. Admissibility and impact of statements made by co-accused.
3. Applicability of Section 139(5) of the Income-tax Act.
4. Requirement of mens rea for prosecution under the Income-tax Act and Indian Penal Code.

Issue-wise Detailed Analysis:

1. Alleged False Entries and Concealment of Income:
The first accused firm filed its return for the assessment year 1984-85, declaring an income of Rs. 38,960. Upon examination, it was found that the firm allegedly borrowed Rs. 20,000 and Rs. 10,000 from one Dharmaraj, which were returned within a day or two. Dharmaraj denied these transactions. Further discrepancies were found in the books of Jupiter Rolling and Binding Works, run by the fifth accused. The fifth and sixth accused admitted to altering entries at the request of the third accused. A revised return showing an income of Rs. 99,464 was later filed. The prosecution argued that these actions constituted offenses under various sections of the Indian Penal Code and the Income-tax Act.

2. Admissibility and Impact of Statements Made by Co-accused:
The court noted that statements made by co-accused (fifth and sixth accused) could not be used against the other accused. The prosecution failed to provide evidence showing who was in actual charge of the administration of the first accused firm. The defense argued that the statements from accused Nos. 5 and 6 should not affect the other accused, as a confession by a co-accused cannot be used against others.

3. Applicability of Section 139(5) of the Income-tax Act:
The defense argued that the revised return was filed within the permissible period under Section 139(5) of the Income-tax Act, which allows for the correction of omissions or wrong statements before the completion of the assessment. The court agreed, noting that the revised return was filed within two months and before the assessment was completed, thus falling within the scope of Section 139(5).

4. Requirement of Mens Rea for Prosecution:
The court emphasized the necessity of proving mens rea (criminal intent) for prosecution under Section 277 of the Income-tax Act and related sections of the Indian Penal Code. The court found no evidence of mens rea on the part of the accused to conceal income. The court referenced the case of Kuldip Rai Chopra, ITO v. Sohan Singh Dhiman, highlighting that a prosecution under Section 277 requires proof that the accused knew or believed the statement to be false. The court concluded that the prosecution failed to establish this requisite mens rea.

Conclusion:
The court found that the prosecution did not provide sufficient evidence to prove the accused had the intent to conceal income. The revised return was filed within the allowable period under Section 139(5), and there was no conclusive evidence of conspiracy or false entries with criminal intent. The court upheld the acquittal of the accused, stating that there was no miscarriage of justice and the evidence was properly appreciated.

Judgment:
The appeal was dismissed, and the judgment of acquittal by the lower court was upheld. The court emphasized the importance of establishing mens rea and the proper application of Section 139(5) of the Income-tax Act.