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TMI Blog1996 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... an frequently and was known to Essar and Company in Iran. She was the director of the appellant-company but resigned in 1977. She had set up her own marketing consultancy service as a proprietary concern. She charged commission at the rate of three per cent, for procuring the contract. Out of this three per cent., she paid one per cent. to Jupiter Trading Corporation because the said Jupiter Trading Corporation helped her in procuring the contract in Iran. She also obtained a contract for the appellant company from the Indian Railway Authority with the help of Essar and Co. The Assessing Officer, inspite of this information, disallowed the entire commission amounting to Rs. 2,74,617. He held it to be for non-business purposes. The appellant-company preferred an appeal. The Commissioner of Income-tax (Appeals), allowed deduction of 1 per cent. commission paid by Smt. Ritu Nanda to Jupiter Trading Corporation. Against this order both the parties, i.e., the assessee as well as the Revenue Authority, filed an appeal before the Tribunal. The order of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal thereby allowing the deduction of one per cent. commission paid by Rit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , placed reliance on the decision of the Supreme Court in the case of Uttam Chand v. ITO [1982] 133 ITR 909. In that case the Supreme Court has 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. It has been further observed that the finding of the Tribunal on the question of facts is final. Once the Tribunal quashed proceedings which formed the basis of the complaint before the criminal court, then such a criminal prosecution based on those facts cannot survive. To the same effect is the observation of the Supreme Court in the case of S. P. Sales Corporation v. S. R. Sikdar [1993] 113 Taxation 203. In this case also the apex court observed that after the prosecution has been launched under the Income-tax Act, the Tribunal having cancelled the penalty holding that there was no concealment and quashed the penalty, in view of the Tribunal's decision, the complaint against the assessee no longer survives. Reliance was also placed on the decision of the Supreme Court in the case of P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 ; AIR 1984 SC 1693. Relying on this judgment, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be quashed. On the merits, besides disallowing commission to Ritu Nanda, other amounts have also been disallowed by the Revenue authority for which the evidence has to be led before the criminal court. Moreover, the quashing of penalty proceedings by the Tribunal has no bearing on the criminal trial. To support his argument he placed reliance on the following decisions, Ashok Biscuit Works v. ITO [1988] 171 ITR 300 (AP), Dharma Pratishthan v. Miss B. Mandal, IAC a I.T. [1988] 173 ITR 487 (Delhi), General Sales P. Ltd. v. Gopal Mukherjee, ITO [1987] 166 ITR 77 (Delhi), General Sales Pvt. Ltd. v. Gopal Mukherjee, ITO [1987] 166 ITR 87 (SC) and Kejriwal Iron Stores v. CIT [1988] 169 ITR 12 (Raj). Admittedly, for the assessment year 1979-80 in the return filed by the appellant, all income including the expenditure on the commission paid to Smt. Ritu Nanda had been declared. The first appeal preferred by the appellants on the assessment side was decided against the appellant. After that decision of the Tribunal, the Revenue authority imposed penalty on the appellant on the ground that there was a concealment of income and filing of inaccurate statements. That the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same was recognised by the Department as well as by the then Tribunal. Paras 12 and 15 of the order of the Tribunal are reproduced as under : " 12. The above approach cannot be criticised or adversely commented upon because it was entirely for the appellant-company to adduce unrebuttable evidence to justify the disputed claim of expenditure, but when it came to levy of penalty, the very fact that commission payment came for review and the claim was not held to be bogus, but termed as excessive, diluted the Revenue's allegation of any concealment of charge. At the cost of repetition, it must be observed that though Mrs. Ritu Nanda's role for obtaining the Iranian Railway contract has been accepted inasmuch as the entire amount paid by her to Jupiter Trading Company has been held to be an allowable deduction, her services are held to be free in respect of the assessment year under reference, though she had resigned as director of the company some time after 1976, i.e., in 1977, but before the contract was obtained and much before the start of the relevant accounting period in which commission was paid, there being no dispute regarding the period of services. 15. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . (1A) A person shall not be proceeded against for an offence under section 276C or section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him under clause (iii) of sub-section (1) of section 271 has been reduced or waived by an order under section 273A." The apex court in P. Jayappan's case, [1984] 149 ITR 696, has even gone to the extent of saying that in appropriate cases the criminal court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under section 309 of the Code of Criminal Procedure if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may also take into consideration the order to be passed therein. In P. Jayappan's case, [1984] 149 ITR 696 (SC), since the decision of the Tribunal was awaited and the appellant expected that the decision of the Tribunal would be in his favour, therefore, wanted quashing of the criminal proceedings, it was in this background that the apex court observed that the prosecution in such circumstances cannot be quashed on the ground of expectation that the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that where the imposition of penalty has faltered, there does not survive a case to launch criminal prosecution against the assessee. Further held, that once the case for sustenance of penalty is not made out it equally would not be a case for criminal prosecution. With these observations the criminal proceedings against the assessee were quashed. These observations are on all fours apply to the facts of the case in hand. Mr. Jolly, on the other hand, contended that in Uttam Chand's case, [1982] 133 ITR 909 (SC), the court was not dealing with the question of concealment, but was considering the question of genuineness of a partner ship firm. I am afraid this contention has no substance. In that case criminal prosecution had been launched because of the filing of a false return showing the existence of a genuine partnership firm. The Tribunal gave a finding that the partnership firm was genuine. The Supreme Court held that in view of the finding recorded by the Tribunal, the criminal prosecution on the same facts cannot survive and thus the prosecution was quashed. We have to see the law laid down in this case and not the facts. The facts in each case can differ, but the ratio of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement and verification made in the original return filed by the assessee. That again is not the case in hand. In view of the above discussion, it can safely be concluded that since the penalty proceedings in this case have been cancelled/quashed by the final fact-finding authority under the Act by holding that there was a complete satisfactory explanation offered by the assessee and that there was no concealment of fact and cancelled the penalty. In view of these facts, I see no justification for the criminal proceedings to continue. Prosecution cannot be allowed to continue after the penalty proceedings have been finally quashed. The reason is obvious ; once the basis and foundation of the criminal complaint under sections 276C(1) and 277 read with section 278 of the Act is knocked out it would serve no useful purpose to permit the criminal proceedings to go on. When the penalty order has been cancelled by the Tribunal the question of proceeding further with the criminal court, to my mind, would not be justified. The Income-tax Appellate Tribunal under the Act is the final fact-finding authority and, unless its decision suffers from any error of law, the finding of fact recor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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