1995 (1) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Whether the petitioners willfully attempted to evade tax under Section 276C of the Income-tax Act, 1961.
2. Whether the petitioners made false statements in verification of returns under Section 277 of the Income-tax Act, 1961.
3. Whether the requisite mens rea was established for the offences under Sections 276C, 277, and 278B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Willful Attempt to Evade Tax:
The prosecution alleged that the petitioners, a registered firm and its managing partner, filed returns with discrepancies in the closing and opening stock for the assessment years 1980-81 and 1981-82. The Income-tax Officer detected an inflation of Rs. 16,949.01 between the two years. The defense argued that the discrepancy was a typographical mistake and not a willful attempt to evade tax. The court emphasized that Section 276C requires proof of willful evasion, which necessitates a culpable mental state. Since the case predated the insertion of Section 278E, the prosecution had to prove the mens rea beyond a reasonable doubt. The court found no evidence that the petitioners willfully attempted to evade tax, as the returns were prepared by their tax practitioner, and the discrepancy was not shown to be intentional.

2. False Statements in Verification of Returns:
Under Section 277, making a false statement in verification requires the prosecution to prove that the statement was made knowing it to be false or believing it to be false. The court referred to precedents, including *Bijayananda Patnaik v. Union of India* and *B. T. X. Chemicals (P.) Ltd. v. Suraj Bhan*, which highlighted that the false statement must be made with the knowledge or belief of its falsity. The defense argued that the managing partner signed the returns prepared by the tax practitioner without knowing the discrepancy. The court found that the prosecution failed to prove that the petitioners knowingly made false statements, as the managing partner relied on the tax practitioner's preparation of the returns.

3. Requisite Mens Rea:
The court reiterated that mens rea is a sine qua non for prosecution under Sections 276C and 277. The evidence showed that the returns were prepared by the petitioners' tax practitioner, and the managing partner signed them based on the practitioner's instructions. The court noted that the petitioners' manager corroborated this, and the Income-tax Officer admitted that the assessments were completed based on the tax practitioner's submissions. The court also considered that the managing partner was not present during the assessment proceedings and the press was closed due to labor disturbances. Given these circumstances, the court found no evidence of mens rea, as the managing partner did not knowingly submit false returns.

Conclusion:
The court concluded that the prosecution failed to establish the requisite mens rea, which is essential for constituting an offence under Sections 276C, 277, and 278B. There was no evidence that the managing partner made false statements in the returns knowing or believing them to be false. Consequently, the conviction and sentence of the petitioners were set aside, and the petitioners were acquitted of the offences. The criminal revision was allowed.