1989 (3) TMI 105 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the notice under Section 148 of the Income-tax Act.
2. Allegations of understatement of income and falsification of accounts.
3. Impact of quashing of the assessment order on criminal proceedings.
4. Independent evidence of attempted tax evasion.
5. Jurisdiction of the High Court under Section 482 of the Criminal Procedure Code to quash criminal proceedings.

Issue-wise Detailed Analysis:

1. Legality of the notice under Section 148 of the Income-tax Act:
The petitioners argued that the notice issued under Section 148 of the Income-tax Act was illegal, as determined by the Commissioner of Income-tax (Appeals). Consequently, the assessments made pursuant to this notice were quashed. The petitioners contended that since the notice was invalid, the returns filed in response to it should be treated as non-existent, thereby nullifying the basis for prosecution.

2. Allegations of understatement of income and falsification of accounts:
The Income-tax Officer alleged that the assessee had understated its income in the returns filed for the years 1980-81 and 1981-82, based on incriminating documents seized during a search operation. The allegations included possession of books of account and other documents containing false entries and statements, and the use of these falsified documents in assessment proceedings, making the accused liable under Sections 276C and 277 of the Income-tax Act and Sections 193 and 196 of the Indian Penal Code.

3. Impact of quashing of the assessment order on criminal proceedings:
The Additional Chief Metropolitan Magistrate rejected the petitioners' applications to drop the proceedings, stating that the quashing of the assessment order by the Commissioner of Income-tax (Appeals) did not impact the criminal proceedings. The court held that the criminal complaint is to be decided independently based on the evidence presented before it. This view was supported by the Supreme Court in P. Jayappan v. S. K. Perumal, where it was held that the result of proceedings under the Income-tax Act is not binding on the criminal court, which must judge the case independently.

4. Independent evidence of attempted tax evasion:
The respondent argued that the prosecution was not solely based on the quashed assessment orders but also on independent incriminating material discovered during the search operation. This included documents and books of account containing false entries, as well as a certificate from the chartered accountant revealing discrepancies in the sales figures. The existence of such independent evidence justified the continuation of criminal proceedings, irrespective of the quashing of the assessment orders.

5. Jurisdiction of the High Court under Section 482 of the Criminal Procedure Code to quash criminal proceedings:
The High Court emphasized that its inherent jurisdiction under Section 482 should be exercised sparingly and only when it is manifest that the allegations do not constitute an offence or the proceedings amount to an abuse of the court's process. The court cited Supreme Court judgments, including State of Bihar v. Murad Ali Khan and J. P. Sharma v. Vinod Kumar Jain, to support the view that the criminal proceedings should not be quashed merely because of subsequent developments in the assessment proceedings. The allegations in the complaint, if they make out a prima facie case, warrant the continuation of the criminal proceedings.

Conclusion:
The High Court dismissed the petitions, affirming that the criminal proceedings should continue independently of the quashed assessment orders. The court found that there was sufficient independent evidence of attempted tax evasion to proceed with the criminal complaints. The applications to quash the proceedings were deemed misconceived and rightly dismissed by the Additional Chief Metropolitan Magistrate. The stay of proceedings in the lower court was vacated, and a copy of the order was directed to be sent to the concerned Additional Chief Metropolitan Magistrate.