2010 (2) TMI 1298 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the acquittal of the partners of the partnership firm.
2. Alleged willful concealment of income by the partnership firm.
3. Maintainability of the criminal appeal against the order of acquittal.
4. Application of penal provisions u/s 276C, 277, and 278 of the Income Tax Act.

Summary:

1. Legality of the Acquittal:
The Union of India appealed against the acquittal of the partners of M/s. Jiwan Lal Chironji Lal by the IVth Additional District Judge, Gwalior, who had set aside the conviction order passed by the IInd Additional Chief Judicial Magistrate, Gwalior. The partners were initially convicted u/s 276C, 277, and 278 of the Income Tax Act.

2. Alleged Willful Concealment of Income:
The firm filed its Income Tax Return for the Assessment Year 1980-81, disclosing an income of Rs. 73,050/-, which was accepted by the Income Tax Officer. During the assessment for the Financial Year 1981-82, it was found that the firm received a refund of Rs. 28,297/- from the Sales Tax Department, which was not disclosed in the return. A notice u/s 147(A) was issued, and the firm submitted a revised return including the refund amount. The Income Tax Officer imposed a penalty of Rs. 20,000/- for concealment of income. The Appellate Tribunal upheld the penalty. However, the IVth Additional Sessions Judge found no deliberate concealment as the refund amount was adjusted against the firm's existing tax liability and acquitted the partners.

3. Maintainability of the Criminal Appeal:
The counsel for the respondents argued that no second appeal is provided either in the Income Tax Act or the Code of Criminal Procedure after an acquittal by the Sessions Court. However, the court found that the criminal appeal against an order of acquittal passed in appeal is maintainable at the instance of the Central Government or State Government, as per the amendment in Section 378(4) of Cr.P.C. in 2005.

4. Application of Penal Provisions u/s 276C, 277, and 278:
The court examined the evidence and found that the firm disclosed the pendency of the assessment proceedings before the Sales Tax Department and included the refund amount in the revised return upon receiving the refund order. The court concluded that there was no willful concealment or deliberate attempt to conceal income. The Supreme Court's judgment in Prem Dass v. Income Tax Officer was cited, emphasizing that a wilful attempt to evade tax requires a positive act and mens rea, which were not established in this case. The court also referred to other judgments supporting the view that without deliberate intention, conviction u/s 276C could not be sustained.

Conclusion:
The appeal by the Union of India was dismissed, affirming the acquittal of the partners of the firm, with no orders as to costs. The court found no error in the appellate court's judgment, which was based on a detailed evaluation of the facts and evidence, concluding that there was no willful concealment of income.