2009 (3) TMI 509 - HC - Income Tax

Offences and prosecution- Evasion of tax- The petitioner is the Managing Director of the company. The company was engaged in the business of manufacture and sale of carbon steel strips. It filed its return by showing nil income. The return of income as well as verification signed by MD. Company shown heavy expenses. The company was asked to explain why there was steep increase in the expenses. The company explained that it had paid Rs. 29, 46, 422 to HSP towards the work of annealing and pickling of steel slabs at the rate of Rs 2500 per metric tonn. The assessing officer held that company could not have paid more than 500 per metric tonn to HSP for the processing work done by latter. The Commissioner (Appeal) upheld this order. Tribunal dismiss the revenue appeal and partly allow assessee s appeal. Held that- if the issue whether the amount paid by the company to HSP was reasonable or not admitted of more than one point of view as was evident from the orders of the Assessing Officer and the Tribunal then certainly the essential ingredient of section 276C(1) of the Act of a deliberate intent on the part of the company to evade the payment of income tax could not be said to exist in the present case.

Summary

Issues:
Quashing of Complaint Case under section 482 of the Code of Criminal Procedure, 1973.

Detailed Analysis:

Issue 1: Quashing of Complaint Case
The petitioner sought the quashing of Complaint Case No. 827 of 1994 under section 276C(1) of the Income-tax Act, 1961. The complaint alleged deliberate inflation of expenses by the accused company, leading to evasion of income tax. The petitioner, accused No. 2, was the managing director of the company. The Assessing Officer disallowed certain expenditures claimed by the company, which led to a series of appeals and tribunal proceedings. The Income-tax Appellate Tribunal partly allowed the company's appeal, reducing the disallowance amount. However, the learned ACMM found a prima facie case against the petitioner and the company for the offence under section 276C(1) of the Act. The petitioner challenged this decision through various legal avenues, ultimately filing a petition under section 482 of the Criminal Procedure Code seeking quashing of the complaint against him.

Analysis:
The court examined the entire sequence of events, including the assessments, appeals, and tribunal orders. It noted that the Income-tax Appellate Tribunal had disagreed with the Assessing Officer's determination of the reasonable rate for services provided by a related company. The tribunal reduced the disallowance amount, indicating a debatable issue regarding the reasonableness of the payments made by the company. The court observed that if the issue admitted more than one point of view, as evident from the tribunal's orders, the essential ingredient of deliberate intent to evade income tax, as required under section 276C(1) of the Act, could not be established. The court highlighted that the ACMM's order did not discuss the specific findings of the tribunal, leading to an erroneous conclusion of a prima facie case against the petitioner. Therefore, the court exercised its power under section 482 of the Criminal Procedure Code to prevent a miscarriage of justice and directed the discharge of the petitioner from the complaint case.

Conclusion:
The court allowed the petition, quashing the complaint against the petitioner and directing the proceedings to continue only against the company. The decision emphasized the importance of considering all relevant findings and evidence before determining the existence of a prima facie case in matters involving alleged tax evasion.