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TMI Blog2007 (1) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... Builders v. Asst. CIT [2004] 265 ITR 562 (SC). He also took into consideration the case of G. L. Didwania v. ITO [1997] 224 ITR 687 (SC). After referring to these decisions, the learned Additional Sessions Judge observed as under: "Keeping in view the decision of the apex court on this point, once the penalty has been deleted by the orders of the Commissioner of Income-tax (Appeals) and by the Income-tax Appellate Tribunal, it will not be appropriate in the eyes of law to let the criminal prosecution continue in the case." After further reference to the provisions of sections 276C(1) and 277 of the Income-tax Act, the learned Additional Sessions Judge observed as under: "It may be noted that mens rea is absolutely essential in such like cases and once the penalty has been deleted by the final fact-finding body, the element of mens rea attributable on the part of the accused company is not sustainable in the eyes of law. Once the penalty levied by the lower authority has been struck down and knocked off by the order of the highest fact finding body, no purpose would be served to let the criminal prosecution go on. Keeping in view the entire conspectus of facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition in the trading account was concerned, the same was set aside in its entirety and the issue was remanded to the Assessing Officer with some directions. In other words, the Income-tax Appellate Tribunal did not maintain the addition in so far as the trading account was concerned. The addition of the disallowed commission was maintained in terms of the assessment order. This finding is final because neither party preferred any appeal with regard to the same before the High Court. The penalty proceedings initiated under section 271(1)(c) of the said Act culminated in the order dated September 28, 1999, passed by the Assessing Officer whereby penalty was imposed on account of both the additions, i.e., the addition in the trading account as well as the addition resultant on the disallowance of commission. Being aggrieved by this order the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) which was disposed of by an order dated April 4, 2002. The Commissioner of Income-tax (Appeals) deleted the penalty pertaining to the addition in the trading account. However, he upheld the penalty with regard to the disallowance of commission of Rs. 40,630. The exact w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not have been initiated. The conclusion arrived at by the Tribunal was as under: "Therefore, in view of these facts and circumstances, and in view of the decision of the jurisdictional High Court in the case of Ram Commercial, Enterprises Ltd. [2000] 246 ITR 568, we hold that without recording satisfaction as contemplated under section 271(1)(c), penalty levied and confirmed by the lower authorities was not justified. Therefore, the same is cancelled." It is based on this order passed by the Tribunal that the learned Additional Sessions Judge reached the conclusion that the respondents were entitled to be discharged. He did so on the ground that as the penalty has been deleted, the prosecution cannot be continued. He placed reliance on K. C. Builders [2004] 265 ITR 562 (SC). Mr. Jolly appearing on behalf of the petitioner submitted that he too is relying on K. C. Builders [2004] 265 ITR 562 (SC) and, in particular, he referred to the following passage: "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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Jolly also referred to the provisions of section 278E of the said Act to show that a presumption is raised as to the culpable state of mind and that presumption can only be rebutted in the course of trial by leading evidence and the burden of doing so has to be discharged by the accused. Therefore, he submitted, before that stage is reached, the respondents ought not to have been discharged. Mr. Monga, who appeared on behalf of all the respondents submitted that the present case was clearly covered by the decisions in K. C. Builders [2004] 265 ITR 562 (SC) and Bandhu Machinery P. Ltd. v. Asst. CIT (passed in Criminal Appeal No. 368 of 2003 dated March 10, 2003). Mr. Monga submitted that once the penalty is deleted then prosecution cannot be sustained any further. He submitted that this is clearly stated in K. C. Builders [2004] 265 ITR 562 (SC). He also submitted that in Bandhu Machinery P. Ltd., the following order was passed: "Order Leave granted. The question raised in this case for consideration is when penalty levied under section 271(1)(c) of the Income-tax Act, for concealment of income has been cancelled by the appellate authority whether a prosecution can be cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 696 (SC), in my view, does not contain anything that would militate against the respondents. In Jayappan's case [1984] 149 ITR 696, the Supreme Court had observed that a mere expectation of success in some proceedings in an appeal under the Act would not come in the way of institution of the criminal proceedings under sections 276C and 277 of the Act. In the present case, the criminal proceedings have not been set aside on the ground that the respondents had an expectation of success in a proceeding under the Act. The learned Additional Sessions Judge had, relying upon the decision of the Tribunal in deleting the penalty, set aside the criminal proceedings on the ground that once penalty proceedings have been set aside by the final fact--finding authority then no case was made out for continuing the criminal proceedings. This is entirely different from the situation contemplated in Jayappan's case [1984] 149 ITR 696 (SC). Reverting to the discussion of the Supreme Court decision in K. C. Builders [2004] 265 ITR 562 and Bandhu Machinery, it must be noted that the Supreme Court had categorically stated in K. C. Builders [2004] 265 ITR 562 that the levy of penalties and prosecut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made no such indication, as is clear from the above reproduced relevant portion of the order of the Assessing Officer. 5. We find no merit in this appeal as it raises no question of law, much less a substantial question of law, as such an interpretation is clear from the bare reading of the provisions and it has already been the subject-matter of pronouncements by various courts. The view consistently is in the above terms. Thus, in view of the judgment of this court in CIT v. S. R. Fragnances Ltd. [2004] 270 ITR 560, this appeal is dismissed, while leaving the parties to bear their own costs." The aforesaid judgment delivered by a Division Bench of this court has come subsequent to the order passed by the learned Additional Sessions Judge and, it, in my view, amounts to the final nail in the coffin of the petitioner's case. It is evident that a Division Bench of this court upheld the deletion of the penalty by the Income-tax Appellate Tribunal after considering all the relevant circumstances. A finding has been recorded by the Division Bench that in the present case the Assessing Officer had not recorded any satisfaction with regard to the penalty associated with the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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