1981 (10) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Quashing of complaint and proceedings under Section 277 of the Income Tax Act.
2. Discrepancies in the lists of raw materials.
3. Findings of the Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and Income Tax Appellate Tribunal (ITAT).
4. Relevance of appellate findings in criminal proceedings.
5. Applicability of Section 277 of the Income Tax Act after amendment.
6. Relationship between penalty proceedings under Section 271 and prosecution under Section 277.
7. Inherent powers of the High Court under Section 482 of the Criminal Procedure Code (CrPC).

Detailed Analysis:

1. Quashing of Complaint and Proceedings under Section 277 of the Income Tax Act:
The petitioner filed an application under Section 482, CrPC, to quash the complaint and proceedings initiated by respondent No. 1 under Section 277 of the Income Tax Act. The petitioner argued that the cause of action for prosecution had vanished as the orders of the ITO were overturned by the AAC and the ITAT.

2. Discrepancies in the Lists of Raw Materials:
The case revolved around two lists of raw materials submitted by the assessee for the assessment year 1973-74. List 'A' was submitted initially, while List 'B' was provided later. The ITO found material discrepancies between these lists and suspected concealment of income. The petitioner explained that the discrepancies arose due to the accountant's mistake and that List 'A' was accurate.

3. Findings of the Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and Income Tax Appellate Tribunal (ITAT):
The ITO added Rs. 34,102 to the taxable income of the assessee, suspecting concealment. The AAC, upon appeal, scrutinized both lists and concluded that List 'A' was correct, as the machine components purchased were sold within the financial year and could not be part of the closing stock. The ITAT upheld the AAC's findings, dismissing the revenue's appeal.

4. Relevance of Appellate Findings in Criminal Proceedings:
The respondents argued that the findings of the appellate authorities were not binding on the criminal court, which must independently assess the evidence. However, the petitioner cited the Supreme Court's decision in Uttam Chand v. ITO, where it was held that if the appellate authorities found no concealment, the prosecution under Section 277 could not be sustained.

5. Applicability of Section 277 of the Income Tax Act after Amendment:
Section 277, as amended by the Taxation Laws (Amendment) Act, 1975, imposes penalties for false statements in verifications or accounts. Since the appellate authorities accepted List 'A' as genuine and found no concealment, the prosecution under this section was deemed unwarranted. The court noted that the ITO initiated prosecution without waiting for the AAC's decision.

6. Relationship between Penalty Proceedings under Section 271 and Prosecution under Section 277:
The petitioner argued that the absence of penalty proceedings under Section 271 indicated that prosecution under Section 277 was improper. The court, however, clarified that initiation of penalty proceedings is not a prerequisite for prosecution under Section 277. Nonetheless, the court found that the continuation of the criminal trial would be an abuse of the process of law given the appellate findings.

7. Inherent Powers of the High Court under Section 482 of the Criminal Procedure Code (CrPC):
The respondents contended that the petitioner should have sought revision under Section 397, CrPC, rather than invoking Section 482. The court, however, exercised its inherent powers under Section 482, citing the need to prevent abuse of the process of law and to secure the ends of justice, as upheld in the Supreme Court's decisions in Madhu Limaye v. State of Maharashtra and Raj Kapoor v. State (Delhi Administration).

Conclusion:
The High Court quashed the complaint and proceedings under Section 277 of the Income Tax Act, finding that the appellate authorities' conclusions negated the basis for prosecution. The court emphasized that the continuation of the criminal trial would amount to an abuse of the process of law, invoking its inherent powers under Section 482, CrPC, to prevent such abuse and secure the ends of justice.