1990 (3) TMI 380 - HC - Income Tax

Summary

Issues Involved:
1. Quashing of prosecution under sections 276C(1), 277 read with section 278-B of the Income Tax Act, 1961.
2. Impact of the appellate order setting aside the original assessment on the criminal proceedings.
3. Discretion of the criminal court to adjourn or postpone proceedings pending reassessment.

Detailed Analysis:

1. Quashing of Prosecution:
The petitioners sought quashing of their prosecution under sections 276C(1) and 277 read with section 278-B of the Income Tax Act, 1961, initiated on a criminal complaint filed by the Income Tax Officer. The complaint alleged that the petitioners, being responsible for the conduct of the firm's business, filed a false return showing a total loss, while scrutiny revealed fictitious entries amounting to Rs. 3,46,480 in the books of accounts. The prosecution was based on the assertion that the accused willfully attempted to evade tax, penalty, or interest, and submitted false statements in the verification of the return of income.

2. Impact of Appellate Order:
The petitioners argued that the criminal complaint should be quashed because the Commissioner of Income Tax (Appeals) had set aside the original assessment order and remanded the case for reassessment. They contended that since the criminal complaint was based on the findings of the now-set-aside assessment order, there was no basis left for prosecution. The Department countered that the reassessment did not bar the continuation of criminal proceedings, citing the Supreme Court judgment in P. Jayappan v. S. K. Perumal, which held that reassessment proceedings do not preclude criminal prosecution.

3. Discretion to Adjourn or Postpone:
The High Court noted that while the pendency of reassessment proceedings does not automatically quash criminal proceedings, each case must be evaluated on its facts. The Court referenced the Supreme Court's guidance in P. Jayappan, which allows criminal courts to adjourn or postpone hearings if the outcome of reassessment proceedings is imminent and may impact the criminal case. The Court emphasized that this discretion should be exercised judicially and not to frustrate the criminal proceedings' objectives.

Conclusion:
The High Court dismissed the petition for quashing the criminal complaint, finding that the reassessment order did not nullify the basis for prosecution, especially given the statement made by one of the partners during assessment proceedings. However, the Court left open the option for the petitioners to request the criminal court to adjourn or postpone the hearing of the criminal complaint if the reassessment proceedings were not yet finalized. The trial court was instructed to consider any such application judiciously, ensuring that the objective of the criminal proceedings was not frustrated. The petitioners were directed to appear before the Additional Chief Metropolitan Magistrate on the specified date.

Orders:
The petition was dismissed, and the trial court records were ordered to be sent back for further action. The petitioners were instructed to appear before the Additional Chief Metropolitan Magistrate as scheduled.