1993 (4) TMI 63 - HC - Income Tax

Issues Involved:
1. Quashing of proceedings under Section 482 of the Code of Criminal Procedure.
2. Allegations of false claims for depreciation and installation allowances.
3. Application of inherent powers of the High Court under Section 482.
4. Interlocutory orders and their challengeability under Section 397(2) of the Code.
5. Precedents and their applicability to the present case.

Detailed Analysis:

1. Quashing of Proceedings under Section 482 of the Code of Criminal Procedure:
The petitioners sought to quash proceedings initiated based on a complaint filed by the Assistant Commissioner of Income-tax, alleging offences under Sections 276C(1), 277 read with Section 278B of the Income-tax Act. The complaint was related to the income-tax return filed for the assessment year 1985-86, where the petitioners allegedly made false claims for depreciation and installation allowances.

2. Allegations of False Claims for Depreciation and Installation Allowances:
The complaint alleged that the petitioners, a company and its managing directors, falsely claimed depreciation of Rs. 5,07,59,917 and installation allowances of Rs. 3,72,697 for a plant and machinery purportedly installed in the Padam Polyester Division. However, enquiries revealed that no such installation or production occurred during the relevant period. The assessment order dated March 28, 1988, confirmed these findings, and the company's appeal was dismissed by the Commissioner of Income-tax (Appeals). The complaint accused the petitioners of wilful attempts to evade tax by making false statements and entries in their accounts.

3. Application of Inherent Powers of the High Court under Section 482:
The petitioners contended that even if the allegations were taken as correct, no case of tax evasion was made out. The court examined precedents, including Madhu Limaye v. State of Maharashtra, AIR 1978 SC 47, which outlined principles for exercising inherent powers under Section 482. These principles include:
- The power should not be used if there is a specific provision in the Code for redress.
- It should be exercised sparingly to prevent abuse of process or to secure justice.
- It should not be used against an express bar of law.

4. Interlocutory Orders and Their Challengeability under Section 397(2) of the Code:
The court noted that the order of summoning by a Magistrate is an interlocutory order and cannot be challenged directly under Section 482 due to the bar imposed by Section 397(2). The petitioners had not challenged the summoning order before the Magistrate. The court referenced K. M. Mathew v. State of Kerala, AIR 1992 SC 2206, which held that an accused could request the Magistrate to recall or rescind a summoning order. If such a request is denied, the order can then be challenged under Section 482.

5. Precedents and Their Applicability to the Present Case:
The court reviewed several precedents, including:
- State of U. P. through C. B. I S. P. E. v. R. K. Srivastava, AIR 1989 SC 2222, where proceedings were quashed due to lack of wrongful intent.
- Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre [1988] 1 SCC 692; AIR 1988 SC 709, which allowed quashing of proceedings in rare cases of oblique prosecution.

The court concluded that the present case involved serious allegations of false claims for tax benefits, and quashing the proceedings at this stage would be unjust. The petitioners should first seek redress before the Magistrate. Only if their request is declined can they challenge the order under Section 482.

Conclusion:
The petition was dismissed, with the court emphasizing that the petitioners should challenge the summoning order before the Magistrate first. The inherent powers under Section 482 could not be invoked directly against an interlocutory order without exhausting other remedies.

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