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TMI Blog2004 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant is a partnership firm engaged in the business of construction and sale of flats. The construction of some of the projects started in the year 1981-82 and was completed in the year 1986-87. The appellants filed the returns of income disclosing the assessed income as the income. The cost of construction was shown as under: Assessment year 1983-84 Rs. 4,72,860 Assessment year 1984-85 Rs. 5,77,590 Assessment year 1985-86 Rs. 7,28,531 Assessment year 1986-87 Rs. 7,03,002 The appellants filed revised returns as per the approved valuer's report for assessment years 1983-84 to 1986-87 on November 4, 1987 in the following manner as the earlier returns were found to be defective with regard to cost of construction. Assessment year 1983-84 Rs. 8,76,000 Assessment year 1984-85 Rs. 5,42,000 Assessment year 1985-86 Rs. 13,47,229 Assessment year 1986-87 Rs. 10,37,920 The revised returns were accepted by the Department and assessments were completed. The respondent/assessing authority treated the difference between the income as per origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal dated October 24, 1996, which allowed the appeals preferred by the first accused against the levy of penalty upon them. However, the learned Magistrate permitted the appellants to mark the order of the Tribunal in evidence at the appropriate stage of trial for which the prosecution has no objection. Giving effect to the Income-tax Appellate Tribunal's order in I.T.A. Nos. 3129-3132, the penalties levied under section 271(1)(c) of the Act were cancelled by the respondent on January 27, 1997. In the meanwhile, the Revenue Department filed an application under section 256(1) of the Act for reference of the question of law which had arisen out of the Income-tax Appellate Tribunal's order dated October 24, 1996. The application of the Revenue Department was rejected. Thereupon, the appellants preferred a criminal revision under sections 397 and 401 of the Criminal Procedure Code, 1973, before the High Court for setting aside the order passed by the Additional Chief Metropolitan Magistrate dated July 21, 1997. The learned single judge of the Madras High Court rejected the criminal revision vide his impugned order holding that the Income-tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n petition vide its impugned order ignoring the settled law as laid down by this court that the finding of the Appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been cancelled by the complainant following the Income-tax Appellate Tribunal's order no offence survives under the Income-tax Act and thus the quashing of the prosecution is automatic? (d) Whether the finding of the Income-tax Appellate Tribunal is binding upon the criminal court in view of the fact that the Chief Commissioner and the Assessing Officer who initiated the prosecution under section 276C(1) had no right to overrule the order of the Income-tax Appellate Tribunal. More so, when the Income-tax Officer giving effect to the order cancelled the penalty levied under section 271(1)(c)? (e) Whether the High Court's order is liable to be set aside in view of the errors apparent on record? We heard Mr. Ajit Kumar Sinha, learned counsel appearing for the appellants and Mr. R.P. Bhatt, learned senior counsel appearing for the respondent. Learned counsel appearing for the appellants submitted that the learned single judge of the High Court has failed to apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opping the prosecution proceedings and, therefore, the High Court was justified in dismissing the petition of the appellants on the facts and circumstances of the case. It was further submitted that the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings and, therefore, the High Court is justified in dismissing the petition of the appellants. Concluding his submissions, learned senior counsel submitted that on the facts and circumstances of the case, the order of the High Court is neither erroneous nor against the principles of law. Before proceeding to consider the rival submissions, it is beneficial to refer to some important provisions of the Act under which the proceedings have been initiated: Section 147 of the Act deals with income escaping assessment. Section 148 deals with issue of notice where income has escaped assessment. Section 254 deals with orders of the Appellate Tribunal. Section 256 deals with statement of case to the High Court (reference). Section 271(1)(c) reads as follows: "271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Assessing Officer or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities. Section 276C of the Act deals with wilful attempt to evade tax, etc. Section 277 deals with false statement in verification, etc., and section 278B deals with the offences by companies. Four complaints were filed by the Assistant Commissioner of Income-tax, Central Circle III(1) against the appellants on the basis of the sanction ordered by the Commissioner of Income-tax under section 279(1) of the Act for the prosecution of the accused/appellants for the offences punishable under sections 276C(1), 277 and 278B of the Act. It is stated in the complaint that the accounts and documents seized during the course of search showed that the accused had suppressed the true receipts from sale of flats, action under section 148 of the Act was taken and in response to the said notice, the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeals before the Income-tax Appellate Tribunal, Madras, in I.T.A. Nos. 3129 to 3132/Mds of 1990. Before the Tribunal, it was pointed out that since there were defects in the books of account with regard to the cost of construction, the assessee voluntarily referred the matter to the approved valuer and has revised the returns accordingly. All this was done with a view to buy peace with the Department and the returned income does not represent any concealed income. It was also pointed out by learned counsel that the Department has not made any addition beyond what has been returned by the assessee. In other words, it was pointed out that the returned income has been accepted by the Department and there is no concealment of any income. It was stressed by counsel that the returns were revised in pursuance of the settlement with the Department only to buy peace. Learned counsel appearing for the Department, on the other hand, strongly supported the imposition of penalty in the facts and circumstances of the case. The Tribunal allowed the appeal and cancelled the penalty. It is useful to reproduce the concluding part of the order passed by the Tribunal which is as under: "We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras, Dated, the 24th October, 1996." The above order of the Tribunal was not appealed against and thus has become final and conclusive. The Additional Chief Metropolitan Magistrate, on an application moved by the appellants, permitted the appellants to mark the copy of the order of the Tribunal, dated October 24, 1996, in evidence at the appropriate stage of trial. It is also very useful, in the present context, to refer to the proceedings of the Income-tax Officer, City Ward-II (2), Chennai, cancelling the penalty. One sample order reads thus: "GIR. No: 279-K/CW.II(2) of 1983-84 Dated: 27-1-1997 Sub: Penalty under section 271(1)(c)--Assessment year 1983-84--in the case of M/s. K.C. Builders, 26, Nynar Nadar Road, Chennai 600 004--reg. Ref: I.T.A.T's Order in I.T.A. No: 3129 to 3132/Mds of 1990 dated October 24, 1996. ORDER Giving effect to the Income-tax Appellate Tribunal's Order in I.T.A. No: 3129 to 3132, the penalty levied under section 271(1)(c) is hereby cancelled. Under section 271(1)(c), Rs. 1,43,181 is hereby cancelled." Learned counsel appearing for the appellants cited the following decisions in support of his submissions at the time of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Code of Criminal Procedure, 1973, to revise the order of the Additional Chief Metropolitan Magistrate has also dismissed the same and refused to refer to the order passed by the competent Tribunal. As held by this court, the High Court is not justified in dismissing the criminal revision vide its judgment ignoring the settled law as laid down by this court that the finding of the Appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been cancelled by the complainant following the Appellate Tribunal's order, no offence survives under the Income-tax Act and thus quashing of prosecution is automatic. In the instant case, the penalties levied under section 271(1)(c), were cancelled by the respondent by giving effect to the order of the Income-tax Appellate Tribunal, in I.T.A. Nos. 3129-3132. It is settled law that levy of penalties and prosecution under section 276C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under section 276C is automatic. In our opinion, the appellants cannot be made to suffer and face the rigorous of criminal trial when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside and the cash credits deleted from the assessment, the consequent order of penalty had been rightly cancelled." 2. CIT v. Bhagwan Ltd. [1987] 168 ITR 846 (Cal): "Held, that the orders of reassessment on the basis of which penalties were levied had been set aside by the Tribunal. Hence, the order of penalty could not stand by itself. The cancellation of penalty was justified." 3. CIT v. Bengal Jute Mills Co. Ltd. [1988] 174 ITR 402 (Cal): "Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs to the assessee's total income and the addition was deleted by the Tribunal: Held, that it was evident from the material on record that the penalty had been imposed solely on the basis of the addition of Rs. 4 lakhs to the assessee's income. If the addition was deleted, the charge of concealment of income could not be sustained. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, was, therefore, not valid." 4. CIT v. Madanlal Sohanlal [1989] 176 ITR 189 (Cal): "Penalty cannot stand on its own independently of the assessment. Where, in an appeal against the assessment reopened under section 147 of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law arose from its order." The very recent judgment in the case of Hira Lal Hari Lal Bhagwati v. C.B.I. [2003] 262 ITR 466 (SC); JT 2003 (4) SC 381, in which one of us (Dr. AR. Lakshmanan J.) was a member, this court while considering the scope of the immunity granted under the Kar Vivad Samadhan Scheme--Whether criminal proceedings initiated in respect of declaration filed under the Scheme and accepted by the Excise Department can proceed further with the prosecution for criminal conspiracy and cheating against the appellants therein. Allowing the appeals, this court held that since the alleged criminal liability stood compounded on settlement with respect to the civil issues, the FIR was erroneous and unwarranted and, therefore, the continuation of the proceedings would tantamount to double jeopardy. This court further held that as the Collector of Customs had exonerated the appellants there was no warrant for any fresh investigation and prosecution on a matter which stood settled. Further since no prima facie case of cheating and criminal conspiracy was made out the process issued is liable to be quashed. It is to be noticed that as per the Kar Vivad Samadhan Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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