1989 (7) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Prematurity of the complaint.
2. Application of mind by the Commissioner for prosecution.
3. Alleged fabrication of the agreement of sale.
4. Applicability of Section 276C(1) of the Income-tax Act.
5. Compliance with Section 279(1) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Prematurity of the Complaint:
The court examined whether the complaint filed by the Income-tax Officer was premature. The search was conducted on September 26, 1986, and the order under section 132(5) was passed on January 22, 1987. The complaint was filed on March 31, 1987. The respondents had until July 31, 1987, to file their return for the assessment year 1987-88. The court noted that the respondents had ample time to file the return and that the Commissioner of Income-tax had directed that the issues, including the genuineness of the agreement, be decided during the regular assessment proceedings. Therefore, the court concluded that the prosecution was premature.

2. Application of Mind by the Commissioner for Prosecution:
The court scrutinized whether the Commissioner applied his mind while directing the prosecution under section 279(1) of the Income-tax Act. The Commissioner's order stated that the assessment records for the year 1987-88 were perused, but no return had been filed for that year. The court held that the Commissioner did not apply his mind properly, as there was no assessment record for the year 1987-88. Thus, the court found non-compliance with section 279(1) of the Income-tax Act.

3. Alleged Fabrication of the Agreement of Sale:
The Income-tax Officer alleged that the xerox copy of the agreement of sale was fabricated, showing a correction of the date from September 29, 1986, to September 25, 1986. The court noted that the original document was not produced and that the Commissioner had directed that all objections be raised during the regular assessment. Therefore, the court concluded that there could be no proceedings against the respondents based on the alleged fabrication of the document.

4. Applicability of Section 276C(1) of the Income-tax Act:
The court examined whether the respondents committed an offence under section 276C(1) of the Income-tax Act, which penalizes willful attempts to evade tax, penalty, or interest. The court held that since the respondents had time to file their return and the regular assessment proceedings were yet to be completed, it could not be concluded that there was an attempt to evade tax. The court emphasized that the wilful attempt to evade tax must be established through an assessment of the return filed.

5. Compliance with Section 279(1) of the Income-tax Act:
The court analyzed whether the prosecution was initiated "at the instance" of the Commissioner, as required by section 279(1) of the Income-tax Act. The court interpreted the term "at the instance" to mean "on the authority" of the Commissioner, which necessitates an application of mind. The court found that the Commissioner's order was based on non-existent assessment records, indicating a lack of proper application of mind. Therefore, the court concluded that there was no compliance with section 279(1) of the Income-tax Act.

Conclusion:
The court dismissed the criminal revision case, upholding the lower court's decision to discharge the respondents under section 245(2) of the Criminal Procedure Code. The court found that the complaint was premature, the Commissioner did not apply his mind properly, and there was no final decision on the alleged fabrication of the agreement. Additionally, the court held that the respondents did not commit an offence under section 276C(1) of the Income-tax Act, as the regular assessment proceedings were yet to be completed.