2021 (1) TMI 483 - HC - Income Tax

Prosecution launched for the alleged offence under Section 276C and 277 of IT Act - Whether no materials unearthed by the searching officer or the Deputy Director? - search said to have taken place in third party premises and statements recorded from 3rd parties the prosecution - HELD THAT - Admittedly, Returns have been filed before the Assessing Officer. Merely because search has been conducted and some third parties statements were recorded and further they have also not been examined, this Court is of the view that unless a finding recorded by the Assessing Officer as to wilful attempt to evade tax or filing false verification, the complaint filed by the Deputy Director is not maintainable. Only the Assessment Officer shall reassess the total income of six Assessment year, then Assessing Authority take note of the income disclosed in the earlier report any undisclosed income found during the search and find out what is the total income each year and pass an Assessment Order. The very object of the statute as could be discernible under Section 276 is that to maintain such complaint by the Deputy Director of Income Tax Act, the materials seized or collected during search should unerringly pointing towards the accused, not mere statemenst of some third parties and some entries made by them. To attract the offence the assessee did not do any of the act required to constitute the offence of 277 of Income Tax Act before the Deputy Director of the Income Tax Department . Whereas it is admitted that the Returns were filed before the Assessing Officer by the Assessee and the verification is also done by them while fling the return. Whether such verification are false or not has to be decided by the Assessing Officer before whom such verification has filed. Mere showing ignorance by one of the assessees by maintaining that only her husband is aware of the return such conduct cannot be construed as abetment to atrract the offence under Section 278 of the Incomt Tax Act. To attract the offence of abetment there must be materials to show that she has instigated or invites her husband to commit offence. Therefore, this court is of the view that the offence under Section 278 not at all attracted against accused. Prosecution contention is that merely because the accused signed the statement while recording statement under Section 131 of the Income Tax Act, such statement can be construed as verification. No false statement whatsoever given before the Deputy Director to contend that he is competent to launch the complaint. Mere keeping silent does not amount to giving a false evidence, merely the accused or assessees did not accept every accusation made against them such conduct cannot be taken by the Department to contend that they committed an offence. If the contention of the prosecution that when the accused confronted with the statement of third parties they did not explain properly such conduct amounts to false statement before the Deputy Director, therefore the complaint is maintainable is accepted the same will lead to serious consequences. If such contention is accepted by the Court of Law, it is easy for the authorities to summon any assessee under section 131 of the Income Tax Act and make accusations against them when accused or assessee denies, then it is easy for the authorities for launching prosecution against anybody as per their like and dislike. Therefore, such contention by the prosecution that false statement made while recording statement under Section 131 of the Income Tax Act also amounts to false evidence, therefore, complaint is maintainable, at no stretch of imagination can be countenanced. Merely because the power vested to lodge a complaint by the Deputy Director every case the prospection cannot be launched merely on the conferment of such power without any material. Only in the cases where incriminating materials seized from the possession of the assessee and any statements which incriminate themselves recorded under 132 (4) of the Income tax Act or any incriminating evidence collected clinchingly establishes complicity of the accused with the crime, prosecution can be initiated without waiting for the assessment or reassessment proceedings. Otherwise when materials collected are weak and prosecution itself rely them only as corroborative evidence then Department has to wait till the finding recorded by Assessing Officer. When the very complaint itself launched on the basis of the opinion formed by the Deputy Director of Income Tax Department based on some materials according to them it is only helpful for corroboration, prosecution has to fail and the court has to conclude that such prosecution is without any materials. In such view of the matter this Court is of the view that the complaint filed by the Deputy Director of Income Tax is premature at this stage. Accordingly this submission is answered against the Respondent. Admissibility of Electronic Evidence - This Court is of the view that such contention become insignificance since this court has already concluded the very launching of the prosecution is not proper and the Deputy Director of prosecution is incompetent to file the complaint in a given set of facts. Though the certificate can be produced at appropriate stage as per the dictum laid down by the Apex Court in Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal and others 2020 (7) TMI 740 - SUPREME COURT this court is of the view that since this Court has already held that the very complaint is not maintainable restrain itself to further discussion with regard to the validity and admissibility of those documents, if any finding is recorded by this Court as to the admissibility of Electronic Evidence, same will have impact on the prosecution if any lodged at later stage by the Assessing Officer as indicated. In fine the Revision Petitions allowed. The prosecution launched by the Deputy Director is not maintainable and as discussed above the present complaint lodged by the prosecution is premature one. If the Assessing Officer comes to the conclusion in a proceedings under Section 153 of the Income Tax Act, it is open to the Department to initiate penal action as per law.

Summary

Issues Involved:
1. Competency of the Deputy Director of Income Tax to file a complaint.
2. Admissibility of electronic evidence.
3. Premature prosecution without assessment or reassessment findings.
4. Reliance on third-party statements and materials.

Issue-wise Analysis:

1. Competency of the Deputy Director of Income Tax to File a Complaint:
The court examined whether the Deputy Director of Income Tax was competent to file the complaint against the petitioners for alleged offences under Sections 276C(1), 277, and 278 of the Income Tax Act. The court noted that all proceedings before the Income Tax Officer are deemed to be civil proceedings as per Section 136 of the Income Tax Act. This implies that any false declaration or return filed before the Assessing Officer is punishable under Section 193 of the Indian Penal Code (IPC). The court held that without a finding recorded by the Assessing Officer regarding the false statement, the prosecution cannot be launched merely based on third-party statements. The court cited the Supreme Court's decision in Babita Lila and Another vs. Union of India [(2016) 9 SCC 647], which held that the Deputy Director of Income Tax is not competent to lodge a complaint for false statements made during income tax search proceedings.

2. Admissibility of Electronic Evidence:
The court addressed the issue of the admissibility of electronic evidence, particularly the printouts allegedly taken from cloned copies of hard disks. The court noted that the original owners of the hard disks were not examined, and no certificate as required under Section 65B of the Indian Evidence Act was appended to those documents. The court referenced the Supreme Court's decision in Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal and others [C.A.Nos.20825-20826 of 2017], which allows the certificate to be produced at an appropriate stage. However, since the court found the prosecution itself to be premature, it refrained from further discussing the validity and admissibility of these documents.

3. Premature Prosecution Without Assessment or Reassessment Findings:
The court emphasized that prosecution must await the outcome of assessment or reassessment proceedings. It referenced the Supreme Court's decision in P. Jayappan vs. S.K. Perumal [1984 (Supp) SCC 437], which held that prosecution is permissible during assessment or reassessment proceedings, but noted that the prosecution must be based on strong incriminating materials unearthed from the accused. In this case, the court found that no such incriminating materials were seized from the accused, and the prosecution was based merely on the opinion of the Deputy Director. The court also highlighted Circular No. 24/2019 and Circular No. 5/2020 from the Government of India, which state that prosecution under Section 276(C)(1) should be launched only after confirmation of the order imposing penalty by the Income Tax Appellate Tribunal.

4. Reliance on Third-Party Statements and Materials:
The court found that the prosecution relied heavily on statements and materials from third parties, which were not substantiated by the original owners or corroborated by strong evidence. The court held that mere denial of prosecution's version by the accused cannot be construed as incriminating evidence. The court cited Basir-Ul-Huq and others vs. The State of West Bengal [1953 AIR 293], which held that the provisions of Section 195 of the Cr.P.C. cannot be evaded by misdescribing the offence or by putting a wrong label on it.

Conclusion:
The court concluded that the prosecution launched by the Deputy Director of Income Tax was premature and not maintainable. It held that the complaint should be filed by the Assessing Officer or any other officer authorized by that officer, based on concrete findings of wilful suppression or false declaration. The court allowed the revision petitions and closed the connected miscellaneous petitions, stating that if the Assessing Officer comes to a conclusion in proceedings under Section 153 of the Income Tax Act, it is open to the Department to initiate penal action as per law.