2010 (4) TMI 652 - HC - Income Tax

Offences and prosecution false verification Willful attempt to evade tax criminal proceedings Petition discharged discharge petition filed on ground penalty cancelled by Tribunal, making prosecution groundless cancellation of penalty by Tribunal not binding on Criminal court assessee charged under Indian Penal code also court to proceed with discharge petition and after that take up matter of issue of summons to witness. This is an unfortunate case which has been pending on the file of the lower court from the year 1992. Interests of justice would require for early disposal of the case. Accordingly, the lower court is directed to complete the proceedings before it within a period of six months from the date of receipt of a copy of this order.

Issues Involved:
1. Wilful attempt to evade income-tax under section 276C(1) of the Income-tax Act, 1961.
2. Filing of false return of income with false statement of accounts under section 277 of the Income-tax Act, 1961.
3. Fabricating false evidence under section 193 of the Indian Penal Code.
4. Using false evidence in judicial proceedings under section 196 of the Indian Penal Code.
5. Cheating the Income-tax Officer under section 420 of the Indian Penal Code.
6. Maintainability of discharge petition under section 245(2) of the Code of Criminal Procedure, 1973, before recording evidence under section 244.
7. Binding nature of the Income-tax Appellate Tribunal's order on the criminal court proceedings.

Detailed Analysis:

1. Wilful Attempt to Evade Income-Tax (Section 276C(1) of the Income-tax Act, 1961):
The petitioner, an Assistant Commissioner in the Income-tax Department, filed complaints against the respondent for wilful attempt to evade income-tax for the assessment years 1984-85, 1985-86, and 1986-87. The complaints alleged that the respondent had filed false returns of income.

2. Filing of False Return of Income (Section 277 of the Income-tax Act, 1961):
The respondent was accused of filing false returns of income with false statements of accounts. The Economic Offences Court took cognizance of these complaints, and penalties were initially levied under section 271(1)(c) of the Income-tax Act. However, the Income-tax Appellate Tribunal later cancelled these penalties, which formed the basis of the respondent's petitions for discharge.

3. Fabricating False Evidence (Section 193 of the Indian Penal Code):
The respondent was also accused of fabricating false evidence. The petitioner sought to issue process to witnesses under section 244(2) of the Code of Criminal Procedure, 1973, based on a direction from the court in a previous decision (K. M. Mohamed Ali v. Asst. CIT [1996] 217 ITR 839).

4. Using False Evidence in Judicial Proceedings (Section 196 of the Indian Penal Code):
The complaints included allegations that the respondent used fabricated evidence in judicial proceedings before the Income-tax Officer, constituting an offense under section 196 of the Indian Penal Code.

5. Cheating the Income-tax Officer (Section 420 of the Indian Penal Code):
The respondent was also charged with cheating the Income-tax Officer under section 420 of the Indian Penal Code.

6. Maintainability of Discharge Petition (Section 245(2) of the Code of Criminal Procedure, 1973):
The court examined whether a petition for discharge under section 245(2) of the Code of Criminal Procedure, 1973, could be maintained before recording evidence under section 244. The court referred to the apex court's decision in Ajoy Kumar Ghose v. State of Jharkhand, AIR 2009 SC 2282, which established that a discharge petition could be considered at any stage if the charge was deemed groundless.

7. Binding Nature of the Income-tax Appellate Tribunal's Order:
The court deliberated on whether the order of the Income-tax Appellate Tribunal, which cancelled the penalties, would render the criminal complaints groundless. The respondent's counsel argued that the Tribunal's order should be binding, citing K. C. Builders v. Asst. CIT [2004] 265 ITR 562 (SC), where it was held that quashing of prosecution under section 276C of the Income-tax Act was automatic if penalties were cancelled. However, the court distinguished this case by referring to Standard Chartered Bank v. Directorate of Enforcement [2006] 130 Comp Cas 341 (SC), which clarified that adjudication and prosecution are distinct and separate.

Conclusion:
1. The petition for discharge under section 245(2) of the Code of Criminal Procedure, 1973, is maintainable before recording evidence under section 244.
2. The lower court must first dispose of the respondent's discharge petition under section 245(2) before proceeding with the petitioner's request to issue process to witnesses under section 244(2).
3. The order of the Income-tax Appellate Tribunal does not bind the criminal court proceedings, as the complaints also involve offenses under the Indian Penal Code.
4. The lower court is directed to complete the proceedings within six months from the date of receipt of this order.

These criminal original petitions are disposed of with the above directions, and the connected miscellaneous petitions are closed.

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