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TMI Blog1990 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... n case that in the normal course of business transactions, the first accused, Muruga Steel Corporation, which is the petitioner in Criminal M. P. No. 9495 of 1986, purchased iron and steel materials from Iron and Steel Traders, 77, Sembudoss Street, Madras-600 001. Enquiry and investigation made in the case of Muruga Steel Corporation revealed that the demand drafts mentioned in the complaint had been purchased by K. Thavamani alias Mani, employee of the first accused, in favour of one E. Muthu, an employee of Iron and Steel Traders, 77, Sembudoss Street, Madras-600 001. In the course of the sworn statement recorded from K. Thavamani alias Mani, it Was admitted by him that the purchases of the demand drafts were made by him as directed by S. P. Murugappan, the petitioner, in Criminal M. P. No. 9493 of 1986 or the third accused S. P. Chokkalingam or on the directions of both. He also admitted that he had handed over the drafts to one or other of the above two accused who had given the money for the purchase of those drafts. In the complaint, it has been stated that the above financial transactions have not found a place in the account books maintained by Muruga Steel Corporation. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the prosecution cannot allege that the petitioner had concealed his income. The non-disclosure, according to learned counsel, of the expenses would only inflate the income and if that be so, obviously, the prosecution was totally misconceived. To impress upon the court the scope of "income", learned counsel referred to section 28 of the Income-tax Act, which, under the head "Profits and gains of business or profession", states the categories of income detailed therein, as chargeable to income-tax. He reiterated that the term "funds" cannot be equated with the term "income". He then referred to the view of the authors, N. A. Palkhivala and B. A. Palkhivala on The Law and Practice of Income Tax (Eighth edition), at page 455, wherein section 2(24), defining income, had been taken note of. The word "income" includes profits and gains. The charge was not on gross receipts but on profits and gains properly so called. Gross receipts or sale proceeds, however, include profits if the business of the year ends in profit, and, therefore, profits would be received at the time and place at which the gross receipts or sale proceeds are received. He invited my attention to section 69C o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provision and unless the discretion vested in the Income-tax Officer was exhausted, the prosecution cannot be maintained. He urged that the complaint does not state either about concealment of income or about nondisclosure of income and, therefore, on the totality of his arguments, the law laid down by David Annoussamy J., in S. Vaidyanathan, ITO v. Dr. B. Mathuram and Sons [1989] 179 ITR 463 (Mad) should be made applicable. Per contra, Mr. K. Ramaswami, appearing on behalf of the respondent in each one of these petitions, took me through paragraphs 5 and 8 of the complaint to contend that the transactions which form part of the earlier paragraphs did not find a place in the account books maintained by the first accused. He pointedly referred to paragraph 8 which shows that the income-tax assessment was made on the basis of the figures mentioned in the day book and ledger which did not record the demand drafts mentioned in the earlier part of the complaint. According to learned counsel, there was a deliberate concealment of income and the volume of transactions had been reduced purposely to avoid getting into the net of taxation. He contended that under section 276C, Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by either counsel will have to be scrutinised. At this stage, I do not think it is necessary that hair-splitting distinction has to be drawn to differentiate between "funds" which can be treated as income and "funds" which need not necessarily be christened as income. The allegations in the complaint, taken as a whole, show that the petitioners had business transactions with Iron and Steel Traders, 77, Sembudoss Street, Madras-600 001. It is only in the normal course of business transactions that certain demand drafts detailed in the complaint have been utilised for the purpose of the trade carried on by Muruga Steel Corporation and those transactions, in terms of the complaint, have not found a place in the account books maintained by the first accused. It cannot be overlooked at this stage that the second accused had also admitted the purchase of M. S. sheets from Iron and Steel Traders during the normal course of business, though he had denied that the demand drafts were purchased by Thavamani alias Mani out of the funds advanced on behalf of the first accused. The evidentiary value that could be attached to the words used in paragraph 7 of the complaint, that the demand drafts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that certain procedure has to be adopted by the authority concerned before the unexplained expenditure vis-a-vis the source of expenditure can be deemed to be the income of the assessee for the financial year concerned. I am unable to comprehend as to how this procedure under section 69C would affect the institution of this prosecution. As rightly contended by Mr. K. Ramaswami, the provisions of section 69C of the Act may be available during the assessment proceedings. On facts found in the complaint, if the prosecution can certainly be sustained, recourse to section 69C of the Act will not help the petitioners at this stage. I am unable to hold that the prosecution is premature. Section 271 (1) (c) of the Income-tax Act does indicate the recommended changes in the Act by the Wanchoo Committee. However, this prosecution initiated for totally different offences inclusive of conspiracy to cheat cannot be thrown out by a reference to section 271(1)(c) of the Income-tax Act. The decision of David Annoussamy J. in S. Vaidyanathan, ITO v. Dr. B. Mathuram and Sons [1989] 179 ITR 463 (Mad) is distinguishable on facts. In that case, the reassessment order was set aside and the matter was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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