2007 (12) TMI 168 - HC - Income Tax

ITAT has already held that it was not a case of concealment of income and penalty imposed for concealment has been cancelled - When the matter has been adjudicated and settled by Tribunal, then petitioners need not be dragged into criminal court unless their act could have been described as culpable assessee s petition allowed - impugned orders passed by trial court as well as by revisional court are hereby set aside and prosecution of the petitioners pending is also quashed

Summary

Issues:
Challenge to order in criminal case under Income Tax Act for concealment of income; Quashing of penalty and prosecution by ITAT; Validity of prosecution under different sections of the Income Tax Act; Consideration of false verification charge; Previous rounds of litigation and court orders; Application for quashing prosecution dismissed by trial court and revisional court; Interpretation of relevant legal provisions and judgments; Quashing of prosecution based on ITAT's decision.

Analysis:
The case involved a petition filed under S. 482 of the Code of Criminal Procedure challenging the orders passed in a criminal case under the Income Tax Act for alleged concealment of income. The petitioners, partners in a timber business, were accused of suppressing the value of closing stock, leading to penal proceedings and prosecution. The ITAT had earlier set aside the penalty imposed, stating it was not a case of concealment. The petitioners argued that based on the ITAT's decision, the prosecution should be quashed, citing the precedent set by the Apex Court in a similar case.

The respondent contended that despite the penalty cancellation, the prosecution could continue due to a charge of false verification of Income Tax Return under a different section of the Act. The court considered arguments from both sides and reviewed the record. It agreed with the petitioners, relying on the Apex Court's decision in a similar case, and held that the prosecution should be quashed based on the ITAT's findings.

The court highlighted previous rounds of litigation involving the same matter, indicating the history of the case. Despite the trial court and revisional court dismissing the petitioners' application for quashing the prosecution, the High Court found that the lower courts did not properly consider the effect of the ITAT's decision in quashing the penalty. The court emphasized that once the ITAT had ruled on the concealment issue, further criminal proceedings would be unjustified.

Citing previous judgments and legal provisions, the court reiterated that when penalties are canceled due to no concealment, prosecution under the Income Tax Act becomes invalid. The court referenced specific sections of the Act and emphasized that the findings of the ITAT should supersede earlier orders. In line with established legal principles, the court ultimately allowed the petition, set aside the lower courts' orders, and quashed the prosecution against the petitioners in the pending criminal case.