2012 (2) TMI 216 - HC - Income Tax

Evasion of income tax abnormal dealings search conducted - donations collected in the names of approved trusts and institutions without authority and scrupulously aiding the donors in siphoning off the donated money back to them in dubious ways, after retaining a part of the alleged donation as commission - respondents prima facie seem to have caused circumstances for enabling evasion of income tax penalty or interest chargeable/ imposable - Held that - Present case was at the stage of framing of charges, both the courts below have erred in discharging the respondents based on wrong interpretation of provisions of section 276 C (ii). Consequently, both the orders are hereby set aside and matter is remanded back to the Court of CMM, Delhi with direction to assign it to the court of competent jurisdiction.

Issues Involved:

1. Maintainability of the petition under Section 482 CrPC.
2. Allegations of tax evasion through fraudulent donations.
3. Interpretation of provisions under Section 276-C of the Income Tax Act.
4. Evaluation of evidence and entries in books of accounts.
5. The role of inherent powers of the High Court under Section 482 CrPC.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition under Section 482 CrPC:

The respondents objected to the maintainability of the petition, arguing that it was essentially a second revision against the order of MM discharging the respondents under Section 276-C of the Income Tax Act, which is barred under Section 397(3) CrPC. The court acknowledged that there is a statutory bar under Section 397(3) CrPC against a second revision petition. However, it noted that the High Court retains inherent powers under Section 482 CrPC to entertain petitions, but such power is to be exercised sparingly and with caution, particularly when the petitioner has already availed the remedy of the first revision in the Sessions Court. The court cited various judgments, including Madhu Limaye Vs. State of Maharashtra and others, to support this position.

2. Allegations of Tax Evasion through Fraudulent Donations:

The case involved allegations that certain individuals were collecting donations in the names of approved trusts and institutions without authority, aiding donors in siphoning off the donated money back to them after retaining a part as commission. The investigation revealed that the accused company issued cheques totaling Rs. 25 lakhs to two approved trusts, Hastimal Sancheti Memorial Trust (HSMT) and Poona Medical Foundation (PMF), and subsequently got the cheques encashed through bogus accounts. The modus operandi included issuing special crossed cheques, which were later turned into simple crossed cheques and endorsed to third parties, who then withdrew the amounts through bearer cheques.

3. Interpretation of Provisions under Section 276-C of the Income Tax Act:

The court examined whether the acts of the respondents constituted a willful attempt to evade tax under Section 276-C of the Income Tax Act. The respondents argued that the amount was shown as recoverable in their income tax returns and that the assessment was made by the Department, with penalty proceedings under Section 271 C being deleted. However, the court found that the respondents' actions fell within the explanations to Section 276-C(2), which include causing circumstances to exist that enable tax evasion and making false entries in books of accounts. The court held that the findings of the learned ASJ that it was only a preparation were incorrect and that the respondents' conduct indicated a prima facie case of tax evasion.

4. Evaluation of Evidence and Entries in Books of Accounts:

The respondents contended that entries in the books of accounts alone were insufficient to charge any person under Section 34 of the Evidence Act and that their actions amounted to preparation, not an attempt to commit an offense. The court rejected these contentions, emphasizing that the provisions of the Income Tax Act have an overriding effect over general criminal law and that the explanations to Section 276-C(ii) were sufficient for continuing prosecution against the respondents.

5. The Role of Inherent Powers of the High Court under Section 482 CrPC:

The court reiterated that while the High Court has inherent powers under Section 482 CrPC, these should be exercised sparingly. The court found that the orders of the lower courts had led to a miscarriage of justice by discharging the respondents based on an incorrect interpretation of Section 276-C(ii) of the Income Tax Act. Consequently, the court set aside the orders of the lower courts and remanded the matter back to the Court of CMM, Delhi, directing the trial court to expedite the conclusion of the trial.

Conclusion:

The petition was disposed of with directions to the trial court to expedite the trial, and the court clarified that nothing in the judgment should be taken as an expression of opinion on the merits of the case.

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