1985 (1) TMI 37 - HC - Income Tax

Summary

Issues:
1. Quashing of a complaint filed under s. 276C of the I.T. Act, 1961.
2. Interpretation of s. 278B of the I.T. Act regarding criminal liability of individuals in a firm.

Analysis:

The judgment pertains to a petition filed under s. 482 of the Code of Criminal Procedure seeking the quashing of a complaint filed under s. 276C of the I.T. Act, 1961. The petitioners were partners of a firm accused of attempting to evade tax by preparing false books of account. The firm declared an income in its return but was found to have discrepancies in stock valuation, leading to suspicion of tax evasion. The petitioners allegedly added false entries to conceal actual income, thereby evading tax, penalty, or interest chargeable under the Act. The ITO impounded the books of account and initiated proceedings based on the discrepancies found during a survey of the business premises. The court analyzed the actions of the petitioners in manipulating stock values and concluded that they had willfully attempted to evade taxes, constituting an offense under s. 276C of the I.T. Act.

The counsel for the petitioners argued that criminal liability could not be fixed on all partners as only one partner was directly involved in filing the return and conducting the business. The counsel relied on s. 278B of the I.T. Act, which states that in case of an offense by a company, individuals responsible for the conduct of the business shall be deemed guilty. The court agreed with the counsel's interpretation and held that only the partner directly involved in submitting the return could be held liable. The court found that the other partners were not in charge of the business at the time of the offense and quashed the complaint against them. However, the partner who submitted the return was not granted complete relief; the court allowed him to raise other defenses before the trial magistrate. The judgment clarified the distinction in criminal liability among partners in a firm under the provisions of the I.T. Act, ensuring that only those directly responsible for the offense could be held accountable.