1992 (4) TMI 6 - SC - Income Tax

Section 277 - Conspiracy - False Statement in Verification by enforcement officer under provisions of Foreign Exchange Regulation - income tax authorities are not allowed to start prosecution proceedings

Summary

Issues Involved:
1. Sufficiency of evidence for charges.
2. Impact of Income-tax Appellate Tribunal's findings.
3. Validity of prosecution notice.
4. Use of statements under Foreign Exchange Regulation Act (FERA).
5. Use of statements by Income-tax Officer.
6. Potential criminal proceedings under FERA.
7. Liability of the third appellant.
8. Acceptance of third appellant's income-tax return.
9. Joint trial of third appellant with other appellants.
10. Limitation period for cognizance of offences.

Detailed Analysis:

1. Sufficiency of Evidence for Charges:
The appellants argued that the evidence produced did not constitute the requisite ingredients to make out a case punishable under the charges. The court noted that the prosecution's case was based on the statements recorded by the Enforcement Directorate and subsequent retractions. The trial court accepted the evidence and convicted the appellants, but the Supreme Court found that the statements were recorded under section 39 of FERA, which does not qualify as a judicial proceeding under sections 193 and 228 of the Indian Penal Code.

2. Impact of Income-tax Appellate Tribunal's Findings:
The Tribunal had found that the first appellant was not the owner of the money and was merely a distributor. This finding was significant as it nullified the basis of the prosecution under section 277 of the Income-tax Act. The Supreme Court held that the convictions under sections 120B read with section 277 and section 277 of the Income-tax Act could not be sustained in light of the Tribunal's findings.

3. Validity of Prosecution Notice:
The prosecution notice alleged that the first appellant admitted ownership of the amount to the Enforcement Directorate but later denied it before the Income-tax authorities. The Supreme Court found that the first appellant had never admitted ownership, as evidenced by the Tribunal's findings, making the basis of the notice unsustainable.

4. Use of Statements under FERA:
The statements recorded under section 39 of FERA were not deemed to be judicial proceedings. The court emphasized that such statements could not be used to prosecute for perjury under sections 193 and 228 of the Indian Penal Code. The statements lacked the sanctity of judicial proceedings and were recorded without the safeguards provided under section 40 of FERA.

5. Use of Statements by Income-tax Officer:
The Income-tax Officer could not use the statements recorded by the Enforcement Directorate under FERA for prosecuting the appellants under the Income-tax Act. The court held that the two Acts operate in different fields and the statements recorded under one cannot be used as a basis for prosecution under the other.

6. Potential Criminal Proceedings under FERA:
If criminal proceedings were initiated under FERA, the appellants would become accused of an indictable offence. The court noted that the appellants should not face charges of perjury based on mere denials unless warranted by serious evidence.

7. Liability of the Third Appellant:
The third appellant claimed ownership of the seized amount, stating it was from the sale of his mother's jewels. The court found that the prosecution did not establish a conspiracy involving the third appellant with the other appellants. The third appellant's consistent claim and lack of evidence of conspiracy led to his acquittal on conspiracy charges.

8. Acceptance of Third Appellant's Income-tax Return:
The third appellant's income-tax return was initially accepted and later reopened. The court noted that the prosecution did not prove the amount as taxable income in the hands of the third appellant, further weakening the charges against him.

9. Joint Trial of Third Appellant with Other Appellants:
The court found a misjoinder of charges and parties, as the third appellant was tried jointly with the other appellants without specific allegations or evidence connecting him to their activities. This misjoinder led to the conclusion that the joint trial was improper and resulted in a failure of justice.

10. Limitation Period for Cognizance of Offences:
The appellants contended that the cognizance of the offence under sections 120B read with section 193 and section 193 (simpliciter) was taken beyond the prescribed limitation period. The court did not specifically address this issue, as the appeals were allowed on other grounds.

Conclusion:
The Supreme Court allowed the appeals, setting aside the convictions and sentences. The court directed the refund of the fine amounts if already paid, emphasizing that the prosecution's case was fundamentally flawed due to the improper use of statements and lack of evidence to support the charges.