1994 (3) TMI 24 - HC - Income Tax

Income Tax Act Income Tax Authorities Offences And Prosecution Taxing Statutes Wilful Attempt To Evade Tax

Summary

Issues Involved:

1. Validity of the complaints in light of the settlement between the Income-tax Department and the accused.
2. Allegations against partners other than the second accused.
3. Applicability of mandatory imprisonment for a partnership firm.
4. Validity of the authorisation given by the Commissioner of Income-tax to launch the prosecutions.

Detailed Analysis:

1. Validity of the complaints in light of the settlement between the Income-tax Department and the accused:

The petitioners argued that the settlement reached with the Income-tax Department negated the basis for the prosecutions, as it was noted that the alleged inflated purchases were genuine. The court, however, referred to the minutes of the settlement, which stated, "A decision on penalties leviable, prosecution, if any, waiver of interest under the different provisions of the Act are to be decided on the merits after completion of the assessment." This indicated that the possibility of prosecution was explicitly left open. The court emphasized that despite the settlement, the manipulations in the accounts remained as they were. Citing the case of *R. N. Bajaj v. K. Govindan, ITO [1992] 198 ITR 447 (Mad)*, the court held that the prosecution could not be quashed at the threshold merely because of the settlement. The court also referenced *P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC)*, which supported the view that criminal proceedings could proceed independently of the settlement under the Income-tax Act.

2. Allegations against partners other than the second accused:

The petitioners contended that the other partners should not be prosecuted as there were no specific allegations against them. However, the court found that the complaints contained sufficient allegations implicating all the accused. It was noted in the complaints that all the accused had conspired and acted in concert to fabricate the account books and evade tax. The court cited *P. N. Subramaniam v. P. C. Chadaga, Asst. CIT [1992] 195 ITR 910*, which held that allegations of conspiracy and fabrication of false evidence were sufficient to proceed with the trial against all accused partners. Therefore, the court rejected the submission that the complaints lacked necessary allegations against the other partners.

3. Applicability of mandatory imprisonment for a partnership firm:

The petitioners argued that since the first accused was a partnership firm, it could not be sentenced to imprisonment, and thus, proceedings under sections 276C and 277 of the Income-tax Act should be quashed. The court referred to *Manian Transports v. S. Krishna Moorthy, ITO [1991] 191 ITR 1*, which held that where a statute prescribes a mandatory sentence of imprisonment and fine, a firm could still be punished with a sentence of fine. The court agreed with this view and concluded that the proceedings against the partnership firm could not be quashed solely because it could not be imprisoned.

4. Validity of the authorisation given by the Commissioner of Income-tax to launch the prosecutions:

The petitioners challenged the authorisation on the grounds that it did not refer to the settlement of tax. The court examined section 279 of the Income-tax Act, which requires prosecution to be at the instance of the Commissioner. The court found that the authorisation, which stated that the accused had wilfully attempted to evade tax by making false entries, was sufficient to meet the requirement of section 279. The court dismissed the argument that each aspect of the case needed to be detailed in the authorisation. The court also referenced *Parmeet Singh Sawney v. Dinesh Verma [1988] 169 ITR 5 (Delhi)*, which dealt with a different context and did not apply to the issue of authorisation under section 279.

Conclusion:

The court dismissed the petitions, holding that none of the submissions made by the petitioners warranted quashing the complaints. The allegations in the complaints were sufficient to proceed with the trial, and the settlement did not preclude prosecution. The authorisation by the Commissioner was valid, and the partnership firm could still be fined despite the mandatory imprisonment provision.