2011 (2) TMI 954 - HC - Income Tax

Special Court of Economic Offences - Despite granting several indulgence the accused persons did not produce the books of accounts and on the contrary the accused asked for the certified copies of trading and profit & loss account filed alongwith the original return on the ground that the original copy was misplaced - Held that - Since in the petition there is no specific averment of commission of any of the offences by the petitioner nos. 2 to 4 they cannot be prosecuted is concerned the court is of the opinion that this submission is simply required to be noticed for its rejection - Section 278B makes it clear that onus lies on the Partners or Directors to prove that they are not responsible for any of the offence committed by a firm / company In the present case allegation was made by the complainant that false return was filed clubbing the income of M/s Deepak Electricals with the income of petitioner no. 1 M/s Deepak Engineering Works on 1.9.1989 i.e. on the date of filing of the return - The court is in agreement with the submission advanced by Smt. Archana Sinha learned counsel appearing on behalf of the Income Tax Department that at initial stage of a criminal proceeding this court should refrain from interfering - It is made clear that whatever observation has been made by this court in the present case has been observed for just decision in the present case and the learned court below may not be prejudiced or influenced by this order in proceeding with the case - Petition is rejected

Issues Involved:
1. Quashing of criminal proceedings.
2. Alleged offenses under Sections 276C, 276D, and 277 of the Income Tax Act.
3. Responsibility of partners under Section 278B of the Income Tax Act.
4. Impact of reassessment and reduction of income on criminal proceedings.
5. Non-initiation of penalty proceedings.

Detailed Analysis:

1. Quashing of Criminal Proceedings:
The petitioners sought to quash the criminal proceedings in Complaint Case No. 47(C) of 1992/569 of 1993, pending before the Special Court of Economic Offences, Patna. The petition was filed under Section 482 of the Code of Criminal Procedure. The court noted that the petitioners did not mention when the case was transferred to the Special Judge, Economic Offences, Patna, or whether they had appeared before the court.

2. Alleged Offenses under Sections 276C, 276D, and 277 of the Income Tax Act:
The complaint was filed after obtaining sanction from the Commissioner of Income Tax under Section 279(1) of the Income Tax Act. The complaint alleged that the petitioners, partners of an unregistered firm, had committed offenses under Sections 276C, 276D, and 277 of the Income Tax Act by filing false returns, concealing true income, and failing to produce books of accounts. The firm's income was reassessed, and it was found that the income declared was significantly lower than the actual income.

3. Responsibility of Partners under Section 278B of the Income Tax Act:
The court emphasized that under Section 278B of the Income Tax Act, all partners of a firm are equally responsible for any offenses committed by the firm. The complaint specifically mentioned that the partners were responsible for the firm's acts of omission and commission. The court rejected the petitioners' argument that there was no specific averment against them, stating that the onus was on the partners to prove their lack of involvement.

4. Impact of Reassessment and Reduction of Income on Criminal Proceedings:
The petitioners argued that the reassessment by the Income Tax Appellate Tribunal, which reduced the firm's income from Rs. 4,69,090/- to Rs. 88,510/-, nullified the basis for the criminal proceedings. The court disagreed, noting that the return initially filed was still incorrect and significantly understated the income. The court also pointed out that the benefit given under the Voluntary Disclosure of Income Scheme did not absolve the petitioners from the charges for the period between 1989 to 1997.

5. Non-initiation of Penalty Proceedings:
The petitioners contended that the absence of penalty proceedings invalidated the criminal prosecution. The court found this argument contrary to the facts, noting that penalty proceedings under Section 271(1)(C) of the Income Tax Act had already been initiated.

Conclusion:
The court rejected the petition, stating that the petitioners could not be absolved of the charges based on subsequent reassessment and voluntary disclosure. The court emphasized that the partners were responsible for the firm's actions and that the criminal proceedings were justified. The court also noted that it is not advisable to interfere with the order of cognizance or criminal proceedings at an initial stage, except in exceptional cases, which this was not. The interim stay was vacated, and the court directed that the proceedings in the lower court continue without being influenced by its observations.

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