IN THE COURT OF SH. [ENTITY], ADDITIONAL CHIEF METROPOLITAN MAGISTRATE (SPL. ACTS):CENTRAL:TIS HAZARI COURTS, DELHI ITO vs M/s [ENTITY] and ors. U/[SECTION] & [SECTION] of the [ACT] 1961 JUDGEMENT
(a)Serial no. of the case : 02401R0005651990 (b)Date of commission of offence : Assessment year 198586 (c)Name of complainant : Sh. [ENTITY] Income Tax Officer Ward 14(5), New Delhi (d)Name, parentage, residence: 1)M/s. [ENTITY] [ENTITY] [ENTITY] both partners of M/s. [ENTITY] (e)Offence complained of/ proved : U/[SECTION] & [SECTION] of [ACT] (f)Plea of accused : Pleaded not guilty. (g)Final order : Accused no.1 & 2 convicted Accused no.3 acquitted (h)Date of such order : 05.09.11 Date of Institution of complaint: 20.11.90 Date of Reservation of Judgment : 24.08.11 Date of Pronouncement of Judgment : 05.09.11
Brief statement of the reasons for the decision:
1. This is a complaint filed by the Income Tax Officer against the aforesaid accuseds for the offences u/[SECTION] & [SECTION] read with [SECTION] of [ACT] (hereinafter to be referred as the act). [SECTION] of the Act pertains to punishment for willful attempts to evade tax, penalty or interest chargeable or imposable under the Act and [SECTION] of the Act provides punishment for making any statement in any verification which is false and which a person knows or believes to be false or does not believe to be true. Present complaint pertains to the assessment year 198586.
2. It is alleged in the complaint that accused no.1 is the partnership firm and accused no.2 and 3 are its partners who were looking after the day to day affairs of the business and controlling the affairs of accused no.1 (firm). Accused no.1 (firm) was required to file its return of income on 31.07.1985, however, the accused firm did not file any return. As per [SECTION] of the Act, a person of which total income is assessable under this Act, is under an obligation to file return of his income before the due date. Since accused did not file return of his income, as such, a notice u/[SECTION] of [ACT] was issued to the accuseds and they were asked to file reply to this notice within 30 days. However, return of income was not filed despite service of this notice. Thus, for making the assessment by the complainant u/[SECTION] of the Act certain information was required. Accused neither filed the return of income nor supplied any information in this regard, hence, a notice u/[SECTION] of the Act was issued on 19.10.1987 and 09.11.1987 seeking information from the accused for the purpose of completion of the assessment u/[SECTION] of the Act. During the pendency of the case on 05.02.1988 the authorized representative of the accused informed that the return of income was filed on 23.11.1987 in different ward of District V(18), New Delhi declaring an income of Rs.38,735/. The aforesaid return of income was obtained from the aforesaid ward and authorized representative of the accused was asked to produce the books of accounts of the accused firm. The account books were not produced and on 16.02.88 representative of the accused showed his inability to produce the same.
3. It is further alleged that inquiries were made from Chartered Accountants, M/s Kohli Kumar & Associates, who confirmed that they had audited the books of accounts of the accused firm, however, these audited books of accounts were never produced during inquiry proceedings. Thus, the assessing officer completed the assessment u/[SECTION] of the Act. The assessing officer assessed the total income of the firm at Rs.4,88,833/ against the declared income of Rs.38,735/. The assessment was made in the following manners. The scrutiny of list of sundry creditors revealed the total value of creditors for the current year at Rs.4,71,420/ while in the immediately preceding year, the value of the sundry creditors was shown Rs.1,79,398/. No evidence in support of sundry creditors worth Rs.2,92,022/ was produced by the accused. Thus, in the absence of any evidence, it was held that this income of the accused firm was from undisclosed sources and accordingly this was considered to be the additional income of the accused. Information for purchasing the car was sought, however, no information for purchasing the car was produced. The value of the said car was shown at Rs.52,000/, thus, this amount was also added in the income of the accused as undisclosed investment.
4. It is alleged that for the first time the accused showed the rental income of Rs.9000/ from a godown owned by the accused firm. The value of the godown was shown at Rs.10,854/ which was found to be very low and its value was estimated by the assessing officer at Rs.50,000/. The value of the godown was not shown in assets column of the balance sheet, hence, it was added in the income of accused firm and total income of the accused firm was assessed at Rs.4,88,833/ against the declared income of Rs. 38,735 vide assessment order dated 17.02.1988. Against this assessment order, an appeal was filed by the accused which was dismissed by the Commissioner of Income Tax (Appeals) vide order dated 22.12.1988. Thus, penalty proceedings u/[SECTION] were initiated and total penalty of Rs.1,89,757/ was levied on the accused. Thus, on the aforesaid facts and circumstances it is alleged that accuseds made a willful attempt to evade the tax, penalty chargeable or imposable under the Act and also made and delivered the false statement of accounts which they either knew to be false or did not believe to be true. As such, it is stated that accused may be summoned and punished for the offence punishable u/[SECTION] and [SECTION] of the [ACT] for the assessment year 198586.
5. Accused persons were summoned and thereafter precharge evidence was recorded and charges were framed against the accused persons u/[SECTION] & [SECTION] of [ACT], to which accuseds pleaded not guilty and claimed trial.
6. In order to substantiate the allegations against the accused, the complainant produced and examined three witnesses namely Sh. [ENTITY], retired ITO as PW1, Sh. [ENTITY], ACIT as PW2, Sh. [ENTITY], retired ACIT as PW2. PW1 was the complainant, a formal witness who proved on record the complaint as Ex. PW1/1 and his authorization to file the present complaint as Ex. PW1/2.
7. PW2 [ENTITY], retired ACIT, well supported the prosecution case and proved on record the notice u/[SECTION] of [ACT] issued on 19.10.1987 as Ex. PW2/1 and another notice issued on 27.01.1988 as Ex. PW2/2. This witness deposed that Sh. [ENTITY] attended the inquiry proceedings and informed that return of income had been filed in the different ward. Thus, he called the said return from the other ward, which is Ex. PW2/3. He also deposed that the notice for production of books of accounts remained uncomplied, thus, assessment was completed u/[SECTION] of the Act and assessed the income of the accused firm at Rs. 4,88,833/. He has also proved on record the assessment order as Ex. PW2/4. This witness was cross examined by the Ld. Defence counsel but nothing material has come on record which could impeach the creditworthiness or trustworthiness of this witness.
8. Next witness is Sh. [ENTITY], retired, ACIT, who deposed more or less on the same lines as deposed by PW [ENTITY]. This witness has proved on record the summons issued under his signature to the accused no.1 firm and its partners i.e. accused no.2 and 3 as Ex. PW2/5. He has also proved the order of imposing penalty of Rs.500/ as Ex. PW2/6 and fresh notice issued to the accused with statutory notice as Ex. PW2/7. Thereafter, revised income was filed declaring an income of Rs. 14,230/ which is exhibited as Ex. PW2/8.
9. Statement of both the accused recorded u/[SECTION] [ACT] Accused no.2 [ENTITY] did not dispute that accused no.1 was a partnership firm and he and accused no.3 were its partners. However, he stated that his mother accused no.3 was neither incharge nor responsible for the day to day business of the accused no.1 firm. In regard to failure of disclosure of rent of godown, purchase of the aforesaid car and sundry creditors and the enhanced amount of creditors, he stated that no reasonable opportunity was granted to him for establishing the same. It is stated that he never attempted to evade tax or penalty. The accused [ENTITY] denied that he had filed the false statement of income and made false verification. Thus, in his statement he endeavoured to say that was not given opportunity to establish his case. In her statement, accused no.3 ([ENTITY]) denied that she was incharge or responsible for the day to day affairs of the business of accused no.1 firm or had signed any document pertaining to the business of the firm. She also denied to have signed any return of income.
10.I have heard the arguments on behalf of both the parties and gone through the record of the case. The accuseds have challenged the present complaint mainly on the ground that before passing the assessment order no reasonable opportunity was granted to them to produce the books of accounts and explain the queries. Hence, accused persons have endeavoured to content that the present prosecution is not maintainable against the accused on the basis of the said assessment order. However, qua accused no.3, an additional point has been urged that she is not liable to be prosecuted in the present case as she was neither incharge nor responsible for the day to day affairs of the firm. Thus, she is liable to be acquitted.
11. Before discussing the merits of this case, it is deemed appropriate to first discuss the case of accused no.3. It is argued on her behalf that she ought not to have been prosecuted as neither she was controlling the affairs of the firm nor looking after its day to day affairs. The allegations of the complainant in the complaint has been that accused no.2 and 3 were partners of firm and both were incharge and responsible for the day to day affairs of the accused no.1 firm. As such to prove this particular allegation, the onus was on the complainant to put up on record some concrete evidence. This allegations of the complainant does not find any support from the documents proved by them during their evidence. The complainant was required to establish on record that she was also responsible for the day to day affairs of the firm and was actively participating in the business of accused no.1 firm, only then, she could be held liable for concealment of income and false statement. It was mandatory for the complainant to prove that the return of income of the accused no.1 firm bears her signatures also. The Income Tax Return has been proved as Ex. P2. It is clear from Ex. P2 that the return of income has been signed only by accused no.2 [ENTITY] and not by accused no.3 [ENTITY]. Complainant has not proved on record any other documents to show that accused no.3 ever actively participated in the affairs of the firm or took part in the assessment proceedings. It is further clear from another documents Ex.P4 that a power of attorney was given by the accused no.2 to one Sh. [ENTITY], C.A. to represent the firm before the Income Tax Authority. It is further clear from other documents proved on record that all the notices were issued in the name of partnership firm and it does not bear any acknowledgment of accused no.3. Thus, there is nothing on record to show that accused no.3 ever actively participated in the affairs of firm.
12.During arguments Ld. Counsel for complainant submitted that DW1 has clearly admitted in his evidence that accused no.3 is having 70% shares in the firm which itself shows that she was incharge and responsible for the day to day affairs of the accused no.1 firm. This court is of the opinion that the percentage of shares in the firm, cannot be connected with present prosecution. One could be a sleeping/dormant partner despite having a big share in the firm. Moreover, it is also clear from the statement of accused no.2 recorded u/[SECTION] [ACT] that he took over the entire responsibility of affairs of the partnership firm on his shoulder and stated that his mother was neither incharge nor responsible for the day to day affairs of the accused no.1 firm. He also stated that accused no.3 never appeared before Income Tax Officer and never participated in the assessment proceedings.
13.Present case is a criminal proceedings and criminal responsibility cannot be fastened on a particular partner unless he/she was personally responsible for the acts of the partnership firm. For holding a particular partner liable, it has to be proved on record that he/she was responsible for looking after the day to day affairs of the accused firm and was also liable to file the return of income and in the absence of any such evidence, the complaint has to fail against that particular partner. This court does not find any evidence on record which could to show that accused no.3 was active partner and was responsible for filing return of income on behalf of accused firm.
14.It has been held by the Hon'ble Supreme Court in the following case which was a case u/[SECTION] of [ACT] that in the absence of any proof, no partner can be convicted and in this regard relevant para of the judgment reads as under: [PRECEDENT] "9. It is, therefore, necessary to add an emphatic note 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 part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partners. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to subsection (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the 'offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in subsection (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted".
15.Thus, it is clear that for holding a partner responsible for a criminal offence, it has to be established by the prosecution that he/she was the person incharge for the day to day affairs of the firm during the relevant time. It is also clear from the law laid down by the Hon'ble Supreme Court that a partner cannot be made personally liable for the offences committed on behalf of the firm and the criminal liability cannot be extended to another partner merely by virtue of his being partner in the firm unless something concrete is proved on record to show that he/she was the person incharge and responsible for the conduct of the business of the firm. Thus, in view of the aforesaid discussions, it is held that accused no.3 is not liable for any of the offences allegedly committed by the firm u/[SECTION] and [SECTION] of [ACT]. Since she did not file any return of income, as such, it cannot be said that she had filed any false return or made any false statement through income tax return. Thus, she is liable to be acquitted of both the charges leveled against her. Accordingly accused no.3/Smt. [ENTITY] is hereby acquitted of the charges leveled against her. Her bail bond stands cancelled and surety is discharged. Security, if any be returned back after cancellation of endorsement made thereupon.
16.Now let us examine the case of accused no.1 and 2. There is no dispute that accused no.1 (the firm) was assessed to the [ACT] and was liable to file its annual return of income. It is also not disputed that the firm had filed its return of Income through accused no.2. It is also not disputed that notices u/[SECTION] (for nonfiling of return) and 142(1) (for production of the account books) of the Act were duly served upon the accused firm. It is also clear from the proceedings held prior to passing of the assessment order that accused firm was being represented through their representative and were asked to produce the books of accounts on 16.02.1988. However, their representative did not produce the books of accounts and showed his inability. Thus, in the absence of books of accounts, assessing officer assessed the income of accused firm u/[SECTION] of the Act as detailed in the assessment order Ex. PW2/4. Accused no.2 has stated that he was not given opportunity to produce the books of accounts and explain his case. This court does not find any substance in his plea. The assessing officer, i.e. PW2 [ENTITY] was cross examined on this aspect by the Ld. Defence counsel and witness clarified in his cross examination that ample opportunities were given for production of books of accounts. No plausible reason for non production of books of accounts was given. The accused has challenged the present proceedings only on the basis that they had not been given ample opportunity to produce the books of accounts. However, merits of the assessment order have not been challenged by the accused. There is no challenge to the additions made by the assessing officer during assessment order. During cross examination of this witness not even a single question has been put to this witness to rebut the correctness of the additions made in the assessment order. Thus, it is clear that correctness of the assessment order has not been disputed by the accused either during prosecution evidence or during his defence evidence or in his statement recorded u/[SECTION] [ACT] During his statement accused no.2 has simply stated that he had disclosed all the facts regarding rent of godown, purchase of car and sundry creditors, but it is not clarified as to how and in what manner he had disclosed these facts. Nothing has been proved by the accused to contradict the additions made by assessing officer.
17.Furthermore, the accused had challenged the assessment order before Commissioner of Income Tax (Appeals) but his appeal was dismissed and assessment order was affirmed. The assessment order was not challenged further. Thus, this assessment order has has attained finality. If the accused firm had any grievances regarding additions made by the assessing officer, he ought to have challenged this assessment order. However, nothing has been done and accused persons, after their appeal was dismissed, have kept mum. Thus, it itself clarifies that accused persons had no grievances against the assessment order.
18.Since the accused has failed to put forth any explanation in regard to the additions made by the assessing officer, thus, it is to be assumed that assessment of the income made by the assessing officer during assessment proceedings was correct and accused had concealed their income. Thus, it is clear that accused ought to have themselves originally made the assessment as per the income calculated by the assessing officer in the assessment order, but, accused failed to do so. The accused no.1/2 ought to have shown their actual income at Rs.4,88,833/ instead of Rs. 38,735/. Hence, it is held that accused no.1 and 2 concealed their actual income for the assessment year 198586 and eventually evaded tax, consequently, they are held guilty for the offence punishable u/[SECTION] of [ACT]. Since this return of income was not correct, hence, it is to be held that false statement in regard to their income was made by the accuseds in their return of income. Accordingly accused no.1 and 2 are also held guilty for the offence punishable u/[SECTION] of [ACT].
([ENTITY]) [ACT] Announced in open court on 05.09.11