2006 (11) TMI 133 - HC - Income Tax

Prosecution for failure to file the return as required u/s139 (1) in time - petitioners were no more partners in the firm - it is not indicated as to how and in what manner the petitioners were in-charge of the affairs of the firm - it is accused No. 8(another partner) who was controlling the affairs of the firm and it was he who was corresponding with the income-tax authorities - summoning orders issued against other partners (petitioners) are quashed, so petitioners are discharged

Issues Involved:
1. Failure to file income tax returns for AY 1988-89.
2. Responsibility of partners after the dissolution of the partnership firm.
3. Legality of prosecution under sections 276CC, 276D, and 278B of the Income-tax Act.
4. Framing of charges based on prima facie evidence.
5. Applicability of CBDT guidelines regarding prosecution of elderly individuals.
6. Impact of charging interest under section 139(8) on prosecution.
7. Effect of setting aside penalty under section 271(1)(c) by appellate authority on prosecution.

Detailed Analysis:

1. Failure to file income tax returns for AY 1988-89:
The complaint filed by the Deputy Commissioner of Income-tax alleges that M/s. Dayagen and its partners failed to file the return for the assessment year 1988-89 as required under section 139(1) of the Income-tax Act. The firm requested an extension, which was denied, and despite subsequent notices under sections 139(2) and 142(1), no return was filed. The assessment was eventually completed under section 144, with the firm's income assessed at Rs. 9 lakhs.

2. Responsibility of partners after the dissolution of the partnership firm:
The petitioners argued that they ceased to be partners of M/s. Dayagen after August 7, 1987, due to an arbitration award that dissolved the partnership and converted it into a sole proprietorship under Mr. V. P. Punj. The learned ACMM and ASJ rejected this contention, stating that the petitioners were still shown as partners for the relevant assessment years and were therefore responsible for filing the returns.

3. Legality of prosecution under sections 276CC, 276D, and 278B of the Income-tax Act:
The ASJ noted that under sections 276CC and 276D, a person can be punished for willfully failing to furnish the return of income or produce accounts/documents. The ASJ emphasized that at the stage of framing charges, the court must presume the accused might have committed the offense based on the materials presented.

4. Framing of charges based on prima facie evidence:
The ASJ, citing various Supreme Court judgments, stated that if there is a ground for presuming the accused has committed the offense, a prima facie case exists for framing charges. The ASJ found that the material on record indicated the petitioners were in charge of the firm's affairs and could be charged under the relevant sections of the Income-tax Act.

5. Applicability of CBDT guidelines regarding prosecution of elderly individuals:
Accused No. 8 argued that he was over 70 years old and should not be prosecuted per CBDT guidelines. The ASJ dismissed this argument, focusing on the prima facie evidence of the petitioners' involvement in the firm's affairs.

6. Impact of charging interest under section 139(8) on prosecution:
The petitioners contended that charging interest under section 139(8) implied an extension of time for filing the return, thus negating the grounds for prosecution. They cited Supreme Court and Calcutta High Court judgments supporting this view. However, this argument was not addressed in detail by the ASJ.

7. Effect of setting aside penalty under section 271(1)(c) by appellate authority on prosecution:
The petitioners argued that the setting aside of a penalty by the Commissioner of Income-tax (Appeals) should lead to the withdrawal of prosecution per CBDT guidelines. This argument was also not specifically addressed by the ASJ.

Conclusion:
The High Court allowed the petitions, quashing the summoning orders and discharging the petitioners. The court emphasized that the complaint lacked specific allegations indicating how the petitioners were in charge of the firm's affairs. The court relied on a previous Division Bench judgment, which held that mere reproduction of statutory language without specific allegations is insufficient for prosecution. The complaint was dismissed against the petitioners on these grounds.

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