1997 (3) TMI 86 - HC - Income Tax

Summary

Issues Involved:
1. Conviction of A-1 under sections 276C and 277 of the Income-tax Act.
2. Acquittal of A-2 under sections 276C and 277 of the Income-tax Act.
3. Mens rea and wilfulness in filing false returns.
4. Admissibility of statements under section 132(4) of the Income-tax Act.

Summary:

1. Conviction of A-1 under sections 276C and 277 of the Income-tax Act:
The court below convicted A-1, Visakha Medical Stores, for the offence u/s 276C of the Income-tax Act, imposing a fine of Rs. 5,000 and in default, A-2 to undergo rigorous imprisonment for six months. A-1 was also convicted and sentenced to pay a fine of Rs. 5,000 for the offence u/s 277, with the same default penalty for A-2. The conviction of A-1-firm is not challenged in this appeal and has become final.

2. Acquittal of A-2 under sections 276C and 277 of the Income-tax Act:
The court acquitted A-2 of the offences u/s 276C and 277, stating there was no mens rea on the part of A-2 in filing the return on an estimated profit basis. The Department's appeal against this acquittal contended that A-2 wilfully evaded tax, but the court found no evidence of wilfulness or knowledge of false entries by A-2.

3. Mens rea and wilfulness in filing false returns:
The court emphasized that to constitute an offence u/s 276C, the Department must prove the requisite mens rea, i.e., knowledge on the part of the person who made the alleged false statement. The court cited the case of Thakasi Satyanarayana v. State of A. P., which held that mere possession of books with false entries is not punishable unless there is knowledge of such false entries. The court found that the Department did not assert any mens rea on the part of A-2, and the mistakes were accepted by A-2 to buy peace with the Department.

4. Admissibility of statements under section 132(4) of the Income-tax Act:
The court examined the admissibility of exhibit P-13, a statement made by A-2, under section 132(4) of the Income-tax Act. It concluded that for a statement to be admissible, it must be recorded by an authorized officer during the search and on oath. Exhibit P-13 did not meet these criteria, as it was not clear who recorded it, and it was not proved by examining the person who recorded the statement. Therefore, exhibit P-13 was not admissible in evidence.

Conclusion:
The court upheld the acquittal of A-2, finding no evidence of mens rea or wilfulness in filing the false return. The appeal by the Department was dismissed, and the order of the lower court was affirmed.