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TMI Blog1995 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was completed under section 143(3) of the Act determining the total income at nil. Two additions, the first one of Rs. 74,850 on account of discrepancy in stock and the second one of Rs. 1,25,000 on account of disallowances of motor car expenses, were made. Before making these additions, sufficient opportunity was given to the assessee-company but it did not offer any satisfactory explanation in this regard, the order of assessment was upheld in the appeal by the Commissioner of Income-tax (Appeals), Jamshedpur, on November 7, 1991. The penalty proceeding was also initiated under section 271(1)(c) of the Act and the same was also confirmed by the Commissioner of Income-tax (Appeals), Jamshedpur. In view of the finding arrived at in the assessment order it is manifest that the accused company and its directors had wilfully and deliberately attempted to evade the tax liability by furnishing inaccurate particulars of income-tax and making false verifications in the return. Thus, they committed the offence punishable under sections 276C and 277 of the Act. It was further alleged in the complaint petition that after grant of sanction under section 279 of the Act by the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsible to the company for the conduct of its business and in the absence of the aforesaid averment in the complaint they cannot be prosecuted in view of the specific provisions contained under section 278B of the Income-tax Act. Learned counsel appearing for the Department, on the other hand, contended that the complaint has been filed in view of the specific finding given by the Assessing Officer that the petitioners had wilfully attempted to evade the tax and also submitted false statements in verification and thus committed offence under sections 276C and 277 of the Act. The modification of the order by the appellate authority is no ground to quash the prosecution. It is not the case of the petitioners that the finding arrived at by the assessing authority with regard to concealment of income has been set aside by the superior authority but, on the other hand, an addition on account of motor vehicle disallowance to the extent of Rs. 25,000 was added by the appellate authority also and the matter with regard to addition on account of discrepancy in stock was remanded only. He also contended that there is a clear averment in the complaint petition that the petitioners, who are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade thereunder or if a person delivers an account or statement which is false and which he either knows or believes to be false, or does not believe to be true he commits an offence under section 277 of the Act. In this case the allegation is that the return filed did not contain the correct and true statements and according to the finding of the assessing authority the false statements were made in the return with the object of evading tax liability and thus a prima facie case under sections 276C and 277 of the Act is made out. The first question which is to be determined is as to whether when a complaint petition is filed for the offence under sections 276C and 277 of the Act on the basis of the finding given by the assessing authority the prosecution of the petitioner should be quashed on the ground that subsequently the order of the assessing authority has been modified by the appellate court. In the case of Uttam Chand v. ITO [1982] 133 ITR 909 (SC) a firm was granted registration by the Income-tax Officer. Later on, at the instance of one of the so-called partners, the Income-tax Officer proceeded to examine the genuineness of the firm and came to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is pending. Though, as held in Jayappan's case [1984] 149 ITR 696 (SC), a criminal court has to judge the case before it independently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under the Income-tax Act, 1961." Thus, the criminal court while deciding the criminal proceeding with regard to the relevant assessment year has to take into consideration the result of the proceeding under the Income-tax Act and the resultant finding in the said proceeding has to be given due regard in deciding the criminal prosecution. But that does not mean that if an order of assessment, on the basis of which a complaint has been filed, has been modified by the superior authority or the matter is pending before the lower authority on remand and there is a chance of success in the proceeding pending under the Act the criminal prosecution with regard to the relevant assessment year should be quashed. In the present case, as stated above, the finding of the Assessing Officer has been upheld with regard to one item of addition of income-tax with modification and it was remanded with regard to the other item of addition. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm and according to the Explanation in the Act in question as well as under the Essential Commodities Act, the company includes a firm also. Dealing with the aforesaid aspect their Lordships have held as follows in paragraphs 8 and 9 (at page 4 of 67 Comp Cas) : " But we are concerned with a criminal liability under a penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not. It is, therefore, necessary to add an emphatic note of caution in this regard. More often, it is common that some of the partners of a firm may not even be knowing of what is going on day-to-day in the firm. There may be partners, better known as sleeping partners, who are not required to take any part in the business of the firm. There may be ladies and minors who were admitted only for the benefits of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 154 ITR 227 (P H), a learned single judge of the Punjab and Haryana High Court dealing with the provisions of section 278B of the Act held that in case an offence is committed by the firm the partner who was in charge of and responsible to the firm for the conduct of the business at the relevant time only will be prosecuted. A similar view has been expressed by the same High Court in the case of Puran Devi v. Z. S. Klar, ITO [1988] 169 ITR 608 (P H). Thus, the law on the subject is well settled that in case of prosecution under the Act with regard to an offence alleged to have been committed by a firm or company there should be a specific averment in the complaint that the directors or the partners were in charge of and responsible to the conduct of the business of the firm or the company at the time of the alleged offence. In the absence of such an averment, their prosecution is not sustainable in law. So far as the allegation in the present complaint is concerned, as stated above, apart from the company, six directors have been made accused in the case. Regarding the directors the only averment in the complaint is that they wilfully and deliberately attempted to evade ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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