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TMI Blog1997 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Limited. Madras, and Teatex Private Limited, Madras, with its directors and employees for the offences committed by them under section 120B read with sections 193, 420, 511 and 34, Indian Penal Code, 1860, and sections 276C, 277 and 278 of the Income-tax Act, 1961, by the Assistant Commissioner of Income-tax, Madras---34, as complainant. It is alleged in the complaint that the premises of one H. C. Kothari were searched during August, 1981, and on the basis of the seized materials, it came to light that certain amounts were claimed to have been paid to the several employees of the companies but, however, which were not actually meant for the employees and that the monies were gone in the guise of pay and allowances to the employees and the said employees were paid only some portion of the amounts mentioned in the seized document dated July 30, 1981, that too only for signing the slips and not for any services rendered and that there was an attempt to evade tax, falsification of accounts on the part of the companies and filing of false return with false verification and the false returns submitted related to the assessment year 1980-81. However, the cases were stayed by the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies of this group and that a part of the same was paid to various persons for signing false vouchers and the balance amount were shared by D. C. Kothari and H. C. Kothari and thereby, the accused company deliberately understated the income under the head of salary and, as such, the seized documents and evidence are to be placed before the court necessarily to appreciate the commission of offences. On hearing the further contentions and counter arguments placed on behalf of the respective parties, after a full consideration of the whole matter, the learned magistrate, by quoting a passage of a ruling held by this court, has concluded as follows : "A reading of the above decision will clearly indicate that in a private warrant procedure case, the petition for discharge under section 245(2), Criminal Procedure Code cannot be entertained unless the prosecution is allowed to adduce evidence under section 244, Criminal Procedure Code. Therefore, considering the circumstances of the case, I feel that the prosecution should be given an opportunity to adduce evidence in the first instance before considering the petition filed by the accused for dismissal of complaints and dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 200 of the Code of Criminal Procedure and issuing process to the accused is empowered to issue subpoenas for the examination of the witnesses on behalf of the complainant, is involved in these two revisions, the narration of the factual aspects of the instant case in all details has become unnecessary and certain facts which are relevant for the issue alone are adverted to. The individual persons as accused in both these revisions are the directors and employees of the two companies by name Kothari and Sons (Industries) Private Limited and Teatex Private Limited, Madras, is not in controversy. So also, the fact that a search was made by the Income-tax Department in the premises of one H. C. Kothari during the month of August, 1981, and during the said search some materials were claimed to have been seized were also not in dispute among the parties herein. However, it was alleged that certain amounts were said to have been paid to several employees of the companies which were not actually meant for the employees and that the monies were gone in the guise and pretext of pay and allowances to the employees and that only some portion of the amounts mentioned in the seized doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment of the directors of the company by name (1) Kothari and Sons (Agencies) Private Ltd.; (2) Kothari Mehta and Co. (P.) Ltd.; (3) Kothari and Sons (Industries) P. Ltd.; (4) Kothari and Sons (Nominees) P. Ltd.; (5) Investment and Finance Corporation P. Ltd.; (6) Underwriters and Financiers P. Ltd. and (7) Planting and Agencies Private Ltd. In paragraph 5.4 of the said order, the following has been held by the Settlement Commission : "On a perusal of the copies of the seized documents we find that the employees, whose names were indicated therein, were not fictitious persons, but were actually working with the group companies and there is no evidence to show that no payment was made to them as indicated in the seized documents. In the circumstances, the offer of additional income made by the four lady directors is accepted. This income will be added under the head 'Income from other sources'. The manner of distribution of the amounts going to each member of the two groups has been indicated by the applicant in the paper book filed on January 19, 1993." In paragraphs 10 and 11 of the order, it was also observed as follows : "As regards immunity from prosecution, Shri V. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expenditure in the hands of the assessee-company and for the said reasoning, the orders passed by the authorities below were set aside and the entire matter was restored to the Assessing Officer to make fresh assessment after taking into account the order of the Settlement Commission. It is also noticed that on getting the report of the Commissioner of Income-tax, under section 245D(4) of the Income-tax Act, 1961, the Settlement Commission has passed the order and it was followed by the order passed by the Income-tax Appellate Tribunal as above referred to. It is in this context, it has to be necessarily held that there was no scope for initiating the prosecution for all the offences against the revision petitioners in both these cases for the very basic reasoning that all the seized documents by the income-tax authorities have been considered by the Settlement Commission and the Appellate Tribunal and, as such, the order of the Tribunal as above referred to has become final and binding on both the parties. In the light of the above binding nature of the order passed by the Tribunal, it has become highly doubtful that the very complaints in original are maintainable as there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to be passed therein. Even here the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes it necessary for a criminal court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only because some proceeding which may have some bearing on it is pending elsewhere.' The above principle of law laid down by this court gives an indication that the result of the proceedings under the Income-tax Act, 1961, is one of the major factors to be considered and the resultant finding in the said proceeding will have some bearing in deciding the criminal prosecution in appropriate cases. It may not be out of place to refer to an observation of this court in Uttam Chand v. ITO [1982] 133 ITR 909, wherein it was observed that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings. But, in P. Jayappan's case [1984] 149 ITR 696 (SC), it has been held that the decision in Uttam Chand's case [1982] 133 ITR 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any does not belong to him and that he made a false verification to that effect and the income of Young India and Transport Company does not belong to him and failing to include the said income of Young India and Transport Company in his income amounted to suppression and thus he was liable under section 277 of the Income-tax Act and that in view of the fact that in the order of the Appellate Tribunal those conclusions reached by the assessing authority have been set aside; consequently, the very basis of the complaint is knocked out and, therefore, in the interest of justice the proceedings ought to have been quashed by the High Court. In support of his submission, he also relied on a judgment of this court in Uttam Chand v. ITO [1982] 133 ITR 909, wherein this court quashed the prosecution. It was observed in that decision that it would be clear from the order of the Tribunal that the assessee was a partner of the firm and the firm was a genuine firm. There is a reference to this judgment in another decision of this court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC). In the instant case, the crux of the matter is attracted and whether the prosecution can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osecution. On the other hand, due regard must be given and in appropriate cases, the criminal prosecution has to be dropped. Therefore, in the deserving cases, the criminal court has to give weight to the findings of the authorities under the Income-tax Act and it is not in all cases to ignore the conclusion of the Tribunal. (page 203 of 213 ITR) The Supreme Court has accepted that the findings of the Income-tax Appellate Tribunal on the facts are final and the court had no jurisdiction to go behind the statements of fact made by the Tribunal. Therefore, the criminal court is bound to accept the findings of the Tribunal on the questions of fact. (page 204 of 213 ITR) In the considered view of the court, as the Tribunal has concluded that the mistake was not known to the partners, this finding of fact has to be accepted by the court which deals with the criminal prosecution of the petitioners. (page 204 of 213 ITR) In the result, the proceedings in C. C. Nos. 143 to 145 of 1991, before the Additional Chief Metropolitan Magistrate (E.O.II), Madras, are quashed (page 205 of 213 ITR)." To substantiate the contention of non-maintainability of the prosecution by the respondent, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily recorded by the learned magistrate. That act of the learned magistrate is held mandatory and not directory or obligatory. Even though his duty to take all such evidence produced by the prosecution is clearly mandatory in this provision, it is quite a pity and rather unfortunate that the learned magistrate has failed to perform the same and also ignored it as if he is not aware of the said provision of law. This section is further qualified by sub-section (2) in the context that for the said purpose, enjoined in sub-section (1), on the application made by the prosecution, the magistrate may issue the process to all such persons to attend and produce any document or other witness before him as required by the prosecution. Therefore, a combined reading of both sub-sections (1) and (2) of section 244 of the Criminal Procedure Code makes it clear, rather mandatory, that the magistrate shall necessarily record all the evidence both oral and documentary adduced by the prosecution on instituting a case as contemplated under this section. Then coming to section 245(1) of the Criminal Procedure Code, the very object and scheme provided under section 244(1) and (2) of the Criminal Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge is exercisable under section 245(1) when the magistrate considers, for reasons to be recorded, that no case against the accused has been made out which, if unrebutted, would warrant his conviction....' It is a fact that sections 227 and 239 provide for discharge being ordered before the recording of evidence and the consideration as to whether charge has to be framed or not is required to be made on the basis of the record of the case, including documents and oral hearing of the accused and the prosecution or the police report, the documents sent along with it and examination of the accused and after affording an opportunity to the two parties to be heard. The stage for discharge under section 245, on the other hand, is reached only after the evidence referred to in section 244 has been taken. Notwithstanding this difference in the position there is no scope for doubt that the stage at which the magistrate is required to consider the question of framing of charge under section 245(1) is a preliminary one and the test of 'prima facie' case has to be applied. In spite of the difference in the language of the three sections the legal position is that if the trial court is satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner pending and has not even looked into it. It is thus that the procedure adopted by the learned magistrate has become quite unknown to procedural law and practice, which in my considered view not only amounts to a denial of fair justice but also protracting the proceedings for any length of time." The above view and finding of mine, perhaps was taken as the only ground and very basis for the contentions very strenously being made on behalf of the respondent/complainant that once the complaint has been filed under section 200 of the Code of Criminal Procedure and the cognizance has been taken and after having been satisfied, process has been issued under section 204 of the Code, Mr. K. Ramasamy, learned special public prosecutor, appearing for the Income-tax Department, urged before me that I have held in the above ruling that without recording of the evidence produced by and on behalf of the complainant, no discharge can be done at this stage, which argument, in my considered view, is not on par with the findings given by me in the above case. In short to say, my findings given in the above case have been totally misconstrued, to make it clear, on identical facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, clear that I had clearly given a finding that in the second stage, under section 245(2), a magistrate has been given a still wider power to halt the prosecution at any stage of the case if he is satisfied that the recorded evidence or for other reasons he considers that the taking cognizance of the charge was found to be groundless and that the intention of the Legislature in providing such wider power to the magistrate is quite obvious, in order not only to render justice in its proper perspective but also on the principle of fair play and equity. It is, therefore, under such circumstances, the power vested with the magistrate under the earlier section seems to have been regulated and confined by the two grounds specifically spelt out in the subsequent sections to discharge in the middle. It is quite apt to quote at this stage what I had observed : "If the accused wants to get the discharge in middle, he could approach the court of law only in accordance with the above sections of law (i.e., sub-section (2) of section 245 of the Code) and it is imperative on the part of the magistrate to exercise his power in accordance with the same". Though the two findings of mine in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court and if it is done, there is no concealment of any income or the fictitious company and so on. It is also noticed that the further excess amount was the additional amount due to the women directors of the company. The order passed by the Settlement Commission as well as the Income-tax Officer had thus been set aside (sic). In this context, it is not justifiable and safe to hold that the Income-tax Department is entitled to continue the prosecution further. A long catena of case-law : 1. Dhanalakshmi v. Prasanna Kumar (R.) [1990] AIR 1990 SC 494; 2. Chand Dhawan v. Jawahar Lal [1992] AIR 1992 SC 1379; 3. State of U. P. v. Man Mohan [1986] AIR 1986 SC 1652; 4. Madras Vanaspati Ltd. v. Subramanian (S.), ITO [1989] 175 ITR 172 (Mad); 5. Krishnamurthi (G. S. R.) v. Govindaswamy (M.), ITO [1992] 195 ITR 137 (Mad); 6. Tip Top Plastic Industries P. Ltd. v. ITO [1995] 214 ITR 778 (Mad); 7. Geethanjali Mills Ltd. v. Thiruvengadathan (V.) [1989] 179 ITR 558 (Mad); 8. Telu Ram Raunqi Ram v. ITO [1984] 145 ITR 111 (P H); 9. Dharma Pratishthan v. Mandal (B.), IAC of IT [1988] 173 ITR 487 (Delhi); 10. Jayappan (P.) v. Perumal (S. K.), First ITO [1984] 149 ITR 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commission and that the Tribunal has observed further that the said amounts may be admissible as business expenditure in the hands of the assessee-company and that in that event, the whole complexion of the case is bound to change when assessments are to be completed in the light of the Settlement Commission's findings and that the Settlement Commission as well as the Commissioner of Income-tax (Appeals) has held that the amounts were paid to the employees as remuneration but in the complaint it was alleged that the amounts were paid for signing slips and not for service rendered. However, taking an overall picture of the entire case records and the materials available it can be said that with every definiteness that the prosecution launched by the respondent has been nullified as the order passed by the Income-tax Appellate Tribunal set aside the assessment in the face of the Settlement Commission's order and directed for the reassessment. In the result, for all the said detailed reasonings and observations, both the revisions succeed and stand allowed. Accordingly, the impugned order passed by the learned Additional Chief Metropolitan Magistrate (E.O. II), Madras, in M. P. No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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