1994 (10) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Suppression of stocks in income tax return.
2. Validity of prosecution based on rough stock statements.
3. Impact of Income-tax Appellate Tribunal's decision on criminal prosecution.
4. Requirement of notice before filing a criminal complaint.

Detailed Analysis:

1. Suppression of Stocks in Income Tax Return:
The petitioners were accused of suppressing stocks worth approximately Rs. 5 lakhs in their income tax return for the year ending March 31, 1981. The Income-tax Officer alleged that the stock book S.M. No. 84, seized during a search on February 18, 1982, was not fully transferred to the consolidated stock book S.M. No. 137, resulting in an understatement of stock value.

2. Validity of Prosecution Based on Rough Stock Statements:
The petitioners contended that the rough stock statements were prepared for banking purposes and did not reflect the actual physical stock. They argued that the Income-tax Officer should not rely on these rough statements for prosecution. The court held that whether S.M. No. 84 was a rough statement or not is a matter of evidence to be proved at trial. The court referenced the case of Coimbatore Spg. and Wvg. Co. Ltd. v. CIT [1974] 95 ITR 375, rejecting the notion of a "substandard morality" in maintaining stock accounts for banking purposes.

3. Impact of Income-tax Appellate Tribunal's Decision on Criminal Prosecution:
The petitioners argued that since the Income-tax Appellate Tribunal set aside the Income-tax Officer's assessment order, the criminal prosecution should be quashed. The court noted that the Tribunal did not make any findings on the merits of the concealment allegation but remanded the case for lack of opportunity given to the assessee. The Supreme Court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 held that criminal proceedings could continue independently of the reassessment proceedings.

4. Requirement of Notice Before Filing a Criminal Complaint:
The petitioners claimed that they were not given notice before the filing of the criminal complaint, violating principles of natural justice. The court held that neither section 276C nor section 277 of the Income-tax Act requires such notice. The court referenced various decisions, including Dr. Mrs. M. S. Bhawani v. J. Ranganathan, Second ITO [1992] 194 ITR 690 (Mad) and N. K. Mohnot v. Chief CIT [1992] 195 ITR 72 (Mad), which supported the view that no notice is required before initiating prosecution.

Conclusion:
The court dismissed the petition to quash the proceedings, holding that:
1. The difference in stock figures between the seized and submitted books justified the prosecution.
2. The rough stock statements' validity is a matter for trial.
3. The Income-tax Appellate Tribunal's remand did not preclude criminal prosecution.
4. No legal requirement exists for notice before filing a criminal complaint under the relevant sections of the Income-tax Act.