1984 (3) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Alleged suppression of income and false verification in income-tax return.
2. Pendency of appeal and writ petition as a bar to prosecution.
3. Maintainability of revision petition against interlocutory order.
4. Impact of appellate or revisional authority's findings on criminal prosecution.
5. Abuse of process of the court by continuing prosecution during pendency of appeal.

Detailed Analysis:

Alleged Suppression of Income and False Verification:
The first petitioner, a partnership firm, and its partners were accused of suppressing relevant and important information in their income-tax return for the period ending December 21, 1975. The Income Tax Officer (ITO) alleged that the firm did not disclose the proper income earned and one of the accused made a false verification in the return. Consequently, a complaint was filed under sections 276C and 277 of the Income Tax Act, 1961.

Pendency of Appeal and Writ Petition as a Bar to Prosecution:
The accused contended that the prosecution was premature since they had challenged the assessment order in an appeal before the statutory authority and had also filed a writ petition under Article 226 in the High Court of Karnataka, which had granted a stay on the recovery proceedings. They argued that the prosecution should be stayed until the final determination of the appeal and writ petition.

Maintainability of Revision Petition Against Interlocutory Order:
The complainant argued that the revision petition was not maintainable as the order of the Magistrate refusing to discharge the accused was interlocutory. However, the accused requested that if the revision was barred, the petition should be treated under section 482 of the Code of Criminal Procedure for quashing the proceedings.

Impact of Appellate or Revisional Authority's Findings on Criminal Prosecution:
The judgment emphasized that offences under sections 276C and 277 of the Act are non-cognizable and can only be prosecuted at the instance of the Commissioner. The acts or omissions constituting these offences are integrally connected with the assessment process. The Supreme Court's decision in Uttam Chand v. ITO [1982] 133 ITR 909 was cited, where it was held that prosecution for filing false returns should be quashed if the Income-tax Appellate Tribunal finds the returns not false. This principle implies that if the appellate authority exonerates the assessee, the basis for prosecution disappears.

Abuse of Process of the Court by Continuing Prosecution During Pendency of Appeal:
The court held that continuing the prosecution during the pendency of the appeal would amount to an abuse of the process of the court. It would be unfair to prosecute the accused based on uncertain facts, especially when the final determination of the appeal could exonerate them. The court noted that there is no bar of limitation for such prosecutions, and the authorities should streamline their processes to ensure timely disposal of appeals and revisions.

Conclusion:
The court concluded that the continuation of the prosecution against the accused during the pendency of the appeal would be an abuse of the process of the court. Therefore, the prosecution was quashed, reserving the right of the Revenue to take appropriate action at a later stage if necessary. The petition was treated under section 482 of the Code, and the complaint was dismissed.