1997 (7) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Propriety and legality of the issuance of subpoenas to prosecution witnesses.
2. Impact of the Settlement Commission and Income-tax Appellate Tribunal's orders on the prosecution.
3. Applicability of sections 244 and 245 of the Criminal Procedure Code in the context of the case.
4. Whether the complaints against the accused are maintainable in light of the Tribunal's findings.

Issue-wise Detailed Analysis:

1. Propriety and Legality of the Issuance of Subpoenas to Prosecution Witnesses:
The accused challenged the magistrate's orders to issue subpoenas to prosecution witnesses. The magistrate concluded that "in a private warrant procedure case, the petition for discharge under section 245(2), Criminal Procedure Code cannot be entertained unless the prosecution is allowed to adduce evidence under section 244, Criminal Procedure Code." Therefore, the prosecution should be given an opportunity to present evidence before considering the petition to dismiss the complaints and discharge the accused.

2. Impact of the Settlement Commission and Income-tax Appellate Tribunal's Orders on the Prosecution:
The Settlement Commission's order did not grant immunity from prosecution to the accused. The Income-tax Appellate Tribunal set aside the assessments and penalties related to the complaints and remanded the matter for fresh assessments. The Tribunal's order indicated that "the said amounts may be admissible as business expenditure in the hands of the assessee-company." This casts doubt on the basis of the prosecution, as the Tribunal's findings are binding and suggest no concealment of income or fictitious companies.

3. Applicability of Sections 244 and 245 of the Criminal Procedure Code:
The magistrate must record all evidence produced by the prosecution under section 244 before considering a discharge under section 245. The court emphasized that "without recording any evidence or ascertaining from any other documentary evidence, a petition filed on behalf of the accused praying for the discharge under section 245(2) of the Code cannot at all be entertained." The magistrate has the discretion to halt proceedings if the evidence is found to be groundless.

4. Whether the Complaints Against the Accused are Maintainable in Light of the Tribunal's Findings:
The Tribunal's order nullified the basis of the prosecution, as it found no evidence of fictitious employees or payments not made as indicated in the seized documents. The Supreme Court's rulings in similar cases, such as K. T. M. S. Mohammed v. Union of India and G. L. Didwania v. ITO, support the view that criminal proceedings cannot be sustained if the Tribunal's findings negate the basis of the prosecution. The court held that "the findings given by the Appellate Tribunal on factual aspects must be given due regard by the court."

Conclusion:
The revisions succeed, and the impugned orders for issuing subpoenas to prosecution witnesses are set aside. The prosecution cannot proceed as the Tribunal's findings have nullified the basis of the complaints.