In the High Court of Judicature at Madras Dated : 02..12..2006 C O R A M The Honourable Mrs. Justice Prabha Sridevan Criminal R.C. Nos.781 to 786 of 2006 and M.P.No.1, 2, 2 and 2 of 2006 J. Jayalalitha .. Petitioner in Crl. R.C. No.781 of 2006(Accused No.2) Sasi Enterprises, Rep. By its Partner V.K. Sasikala, 14, Parsn Manere, .. Petitioner in Crl. R.C. 602, Anna Salai, Chennai-6. No.782 of 2006(Accused No.1) J. Jayalalitha .. Petitioner in Crl. R.C. No.783 of 2006(Accused No.2) Sasi Enterprises, Rep. By its Partner V.K. Sasikala, 14, Parsn Manere, .. Petitioner in Crl. R.C. 602, Anna Salai, Chennai-6. No.784 of 2006(Accused No.1) Selvi J. Jayalalitha .. Petitioner in Crl. R.C. No.785 of 2006(Accused No.1) V.K. Sasikala .. Petitioner in Crl. R.C. No.786 of 2006(Accused No.1) Versus The Asst. Commissioner of Income Tax, Central Circle II(5), Madras. .. Respondent Prayer : Criminal Revisions under Section 397 r/w. 401 of Cr.P.C. against the orders dated 14.6.2006 passed in M.P. No.1784 of 2004 in E.O.C.C. No.202 of 1997, M.P. No.1784 of 2004 in E.O.C.C. No.202 of 1997, M.P. No.1785 of 2004 in E.O.C.C. No.203 of 1997, M.P. No.1785 of 2004 in E.O.C.C. No.203 of 1997, M.P. No.1782 of 2004 in E.O.C.C. No.161 of 1996 and M.P. No.1783 of 2004 in E.O.C.C. No.194 of 1997, on the file of the Additional Chief Metropolitan Magistrate (E.O.I), Chennai. https://hcservices.ecourts.gov.in/hcservices/ For Petitioners: Mr. Guru Krishnakumar and Mr. Subramanium Prasad for Mr. N. Jothi, Assisted by Mr. L.P. Shanmugha Sundaram, Mr. A. Kandasamy and Mr. V. Karthikeyan. For Respondents: Mr. Gopal Subramaniam, Additional Solicitor General of India, Assisted by Mr. K. Ramasamy, Senior Public Prosecutor for I.T. Cases, Mr. S. Rajappa and Mr.P.Wilson,Asst.Solicitor General of India - - - - - O R D E R The petitioners' applications for discharge filed under Section 245 of the Code of Criminal Procedure were dismissed. They have filed these revisions. 2. Briefly stated, the facts of the case are as follows : The petitioner in Crl. R.C. Nos.781, 783 and 785 of 2006 (hereinafter referred to as 'the first petitioner') was required to file return of income for the Assessment Year 1993-94 under Section 139(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') by 31st August, 1993. The first petitioner failed to furnish the return of income. A notice was sent to the first petitioner under Section 142(1) on 18.1.1994, calling upon her to file the return of income within a period of 30 days from the date of service of the notice. This notice was served on the first petitioner on 19.1.1994. The period of 30 days expired, but no return was filed in compliance to the notice. Reminders were sent on 22.8.1994, 10.2.1995 and 23.8.1995, yet the return was not filed. Subsequently, a notice under Section 142(1)(ii) of the Act was issued on 31.7.1995, calling upon the first petitioner to produce the accounts since as per the Act, assessments need to be completed by March 31, 1996. The first petitioner failed to furnish the return of income and also failed to comply with the statutory notice. A best judgment assessment was completed under Section 144 of the Act on 9.2.1996 and penalty proceedings for concealment of income were initiated under Section 271(1)(c) of the Act. Penalty proceedings were also initiated for non-compliance of the notice under Section 271(1)(b) of the Act. A demand inclusive of interest was made. The first petitioner challenged the assessment order before the Commissioner of https://hcservices.ecourts.gov.in/hcservices/ Income Tax (Appeals). This appeal was partly allowed by order dated 28.2.1997. The department has challenged that order in Appeal No.1239 of 1997. The first petitioner has also challenged that order. Both the Appeals are pending. On 14.10.1996, complaints were filed against the first petitioner and the other petitioners for the offence under Section 276CC of the Act. Thereafter, there have been several proceedings initiated at the instance of the first petitioner before the Magistrate's Court and also before the High Court. It is not necessary for the purpose of deciding these revisions to refer to all of them in detail or to refer to the facts in each case, since they are more or less similar. 3. On 12.5.2004, an application under Section 313 of the Code of Criminal Procedure was filed by the respondents for examining the first petitioner. On the same day, the first petitioner filed an application under Section 245 of the Code for discharging her from the prosecution proceedings. Other petitions were also filed. The respondents filed petitions before this Court for a direction to the trial court to frame charges against the petitioners. The petitioners filed application under Section 482 of the Code to quash the proceedings. The petitions filed by the respondents were dismissed by this Court. Against this, the department filed Special Leave Petitions, which were disposed of by the Supreme Court, directing the trial court to consider the matter regarding framing of charge, after hearing the parties on the petition for discharge, within a period of two months. Thereafter, the trial Magistrate dismissed the discharge petitions and fixed the date for commencement of hearing as per the directions of the Supreme Court. The learned Magistrate directed the accused to be present in Court on 25.8.2006. The first petitioner has filed the revision against the dismissal of the discharge petition. She has also filed a writ petition challenging the constitutional validity of Section 278E of the Act. 4. The following grounds have been raised by the revision petitioners : (1) The trial court failed to consider that the ingredients for the offence were not satisfied and the alleged offence is not complete. (2) The determination of the quantum of tax liability and finality of assessment proceedings are important for invoking Section 276CC. (3) Section 276CC(i) and (ii) refer to amount of tax and therefore, without the quantum of tax liability being determined, there can be no proceedings. https://hcservices.ecourts.gov.in/hcservices/ (4) The proviso to Section 276CC excludes the invocation of the Section against persons where tax payable on the total income determined on regular assessment is less than Rs.3,000/-. Regular assessment is defined in Section 240 of the Act and it reads as follows : "Regular Assessment" means the assessment made under sub-section (3) of Section 143 or Section 144." (5) Therefore, since the assessment proceedings have not attained finality, it is a very relevant point which the trial Magistrate ought to have borne in mind. (6) The documents filed would show the factual position as to the filing of appeals against the assessment orders in the context of the quantum of tax liability and non-consideration thereof has resulted in the unjustified order refusing discharge. (7) In particular, it is pointed out by the learned counsel for the petitioners that as regards the firm, the tax liability has been assessed to be 'Nil' and there is no taxable income for the firm to be prosecuted. This has not been countered by the prosecution. (8) As regards the status of the proceedings against the first petitioner, as against the best judgment assessment, the first petitioner preferred an appeal and a substantial relief was granted by the appellate authority by scaling down the tax liability by almost one-third from the original assessment. This has also not been countered by the prosecution. (9) The prosecution acted in an unfair manner as can be seen from the evidence of P.W.3, who is the very complainant in all the four prosecutions and who has said that he is not aware whether any appeal has been filed, though he is the Officer under whose signature the appeal has been preferred. (10) It is not correct to state that the proviso is confined to cases of non-filing of return under Section 139(1)(a). The proviso also gives exception to sub-clause (2) which provides for punishment for non-filing of returns in any other case. Therefore, it would cover all cases of non-filing of returns where the tax amount is less than rupees one lakh. (11) The finality of assessment proceedings would have to be considered while arriving at a decision whether prosecution should be continued. https://hcservices.ecourts.gov.in/hcservices/ (12) The Magistrate has acted as a post office or a mouth piece of the prosecution, contrary to the Supreme Court's dictat in (2002) 2 S.C.C. 135 [Dilawar vs. State]. (13) The Magistrate did not take note of the power available under Section 91 of the Code of Criminal Procedure for production of documents which are necessary or desirable. (14) The Magistrate did not consider from the proper perspective the various submissions with regard to arraying the first petitioner as a co-accused, though she was only a dormant partner of the firm, as evidenced by several exhibits; the department was aware that iot was the other partner who was running the affairs of the firm; the complaint did not set out any averments as to the negligence of the first petitioner in the affairs of the firm except to state that she was in charge and responsible. (15) The department conducted a survey, but took no steps to identify the person in charge, as would be evident from the evidence of P.W.2. (16) The legal position as to the persons who could be held responsible in the context of the business of the company is well settled. Reference is made to (2005) 8 S.C.C. 89 [S.M.S. Pharmaceuticals vs. Neeta Bhalla], wherein it has been held thus : "Every person connected with the company shall not fall within the ambit of the provision. ..... Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action." (17) The trial Magistrate has not considered the validity of the sanction granted under Section 279(1) of the Act. This sanction is a pre-requisite for valid prosecution, as it lifts the bar to a prosecution. The requirements of a valid prosecution have been set out by the Supreme Court in (1997) 7 S.C.C. 622 [Mansukhlal vs. State of Gujarat) Wherein it has been held thus : "Since the validity of sanction depends on the applicability of mind by the sanctioning authority to the facts of the case as also the material and evidence collected during investigation, it necessarily follows that the sanctioning authority has to apply its own independent mind for the generation of genuine satisfaction whether prosecution has to be sanctioned or not. The mind of the sanctioning authority should not be under pressure from any https://hcservices.ecourts.gov.in/hcservices/ quarter nor should any external force be acting upon it to take a decision one way or the other. Since the discretion to grant or not to grant sanction vests absolutely in the sanctioning authority, its discretion should be shown to have not been affected by any extraneous consideration. If it is shown that the sanctioning authority was unable to apply its independent mind for any reason whatsoever or was under an obligation or compulsion or constraint to grant the sanction, the order will be bad for the reason that the discretion of the authority not to sanction was taken away and it was compelled to act mechanically to sanction the prosecution." The sanction in the present case does not meet the requirements of law and has been influenced by the opinions of the Special Public Prosecutor. (18) The sanction is wholly vitiated as it does not take into account the crucial aspects namely stage or status of the assessment proceedings, the prima facie satisfaction of willfulness and other important materials. (19) The impugned order is unsustainable in the light of the status of penalty proceedings, in view of the decision in (2004) 2 S.C.C. 731 [K.C. Builders vs. Assistant Commissioner of Income Tax]. (20) The satisfaction as to the existence of a prima facie case ought and cannot be reached by merely accepting the prosecution case as it is, but by sifting the evidence,albeit for a limited purpose of finding out a prima facie case. 5. In reply, the respondents have contended as under : (1) Section 276CC of the Act seeks to punish the act of wilful failure to furnish in due time a return of income under sub-section (1) of Section 139 or abide by the notice given under Section 142(1) or Section 148 of the Act. The statutory 'due date' was August 31 for the relevant assessment years in all the four cases. (2) The proviso to Section 2786CC postulates that the return would have been filed under Section 139(1), even though it may not have been filed in due time. The said proviso has no relevance where no return had been filed either with reference to Section 139 or with reference to a notice under Section 142(1) or Section 148. The proviso is, therefore, inapplicable. (3) The learned trial Magistrate had formed a prima facie opinion, on examining the documents exhibited by the prosecution and the deposition of the witnesses and found that there were grounds to https://hcservices.ecourts.gov.in/hcservices/ presume that the petitioners have committed the offence under Section 276CC and had, therefore, rightly rejected their applications for discharge, for which reliance is placed on (1986) 2 S.C.C. 587 [State of U.P. vs. Manmohan]. (4) The respondents refer to (2004) 9 S.C.C. 686 [Prakash Nath Khanna v. C.I.T.], where the Supreme Court has held that the question whether there was wilful failure to file the return must be adjudicated factually by the Court which deals with the prosecution case. (5) The assessment of income of an assessee who has failed to furnish an income tax return has no relevance to the initiation or continuation of prosecution, as has been held by the Supreme Court in (1984) Supp. S.C.C. 437 [P. Jayappan vs. S.K. Perumal, 1st I.T.O.], where it was held that mere expectation of success in some other pending proceedings can never bar a criminal prosecution if the ingredients of the offence charged are prima facie fulfilled. (6) In any event, in this case, since no return has been filed till date, the offence still continues as the petitioners have not disclosed their true and correct income in the prescribed form, as required under Section 139(1) of the Act. Reliance is placed on A.I.R. 1986 S.C. 293 [Maya Rani Punj vs. Commissioner of Income Tax], where it was held that the non-complaince with the obligation of making a return is an infraction as long as the default continues and therefore, the fact as to the pendency of the adjudication proceedings will have no bearing on the prosecution proceedings pending against the petitioners herein for non-filing of return. The proviso will only apply in those cases where the assessees have filed their returns voluntarily before detection or before issuance of the statutory notices. (7) As regards the Court's power to discharge the accused, (1977) 4 S.C.C. 39 [State of Bihar vs. Ramesh Singh] is referred to, where it has been held as follows : "The presumption of the guilt of the accused which is to be drawn at the initial stage is not in the sense of the law governing the trial of criminal cases in France where the accused is presumed to be guilty unless the contrary is proved. But it is only for the purpose of deciding prima facie whether the Court should proceed with the trial or not. If the evidence which the Prosecutor proposes to adduce to prove the guilt of the accused, even if fully accepted before it is challenged in cross- examination or rebutted by the defence evidence, if any, cannot show that the accused committed the offence, then there will be no sufficient ground for proceeding with the trial." https://hcservices.ecourts.gov.in/hcservices/ Reliance is also placed on (2000) 6 S.C.C. 338 [State of M.P. vs. Mohanlal Soni], where it has been held thus : "The crystallised judicial view is that at the stage of framing charge, the court has to prima facie consider whether there is sufficient ground for proceeding against the accused. The court is not required to appreciate evidence to conclude whether the materials produced are sufficient or not for convicting the accused." (1989) 1 S.C.C. 715 [Stree Atyachari Virodhi Parishad vs. Dilip Nathumal Chordia] is also relied on, where it has been held thus : "The court, therefore, need not undertake an elaborate enquiry in sifting and weighing the material. Nor is it necessary to delve deep into various aspects. All that the court has to consider is whether the evidentiary material on record, if generally accepted, would reasonably connect the accused with the crime. No more need be enquired into. In the same judgment, it has been further held as follows : "If the Sessions Judge, after hearing the parties, frames a charge and also makes an order in support thereof, the law must be allowed to take its own course. Self-restraint on the part of the High Court should be the rule unless there is a glaring injustice which stares the court in the face. The opinion on any matter may differ depending upon the person who views it. There may be as many opinions on a particular matter as there are courts, but it is no ground for the High Court to interdict the trial. It would be better for the High Court to allow the trial to proceed." (8) In this case, the learned trial Magistrate was satisfied that there was a prima facie case that the petitioners had no intention to file their returns and therefore, he refused to discharge them from the proceedings. (9) The Magistrate also, after going through the deposition of the sanctioning authority, P.W.4 and the documents exhibited by the prosecution, came to the conclusion that the relevant documents had in fact been placed before the sanctioning authority, who on an application made, granted sanction. https://hcservices.ecourts.gov.in/hcservices/ (10) In 1997 (7) S.C.C. 622 [Mansukhlal Vithaldas Chauhan vs. State of Gujarat], while dealing with the issue of judicial review of an order granting sanction, the following observations were made by the Supreme Court : "This principle was reiterated in Tata Cellular v. Union of India (1994) 6 SCC 651 in which it was, inter alia, laid down that the Court does not sit as a court of appeal but merely reviews the manner in which the decision was made particularly as the Court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted, it will be substituting its own decision which itself may be fallible. The Court pointed out that the duty of the Court is to confine itself to the question of legality. Its concern should be : 1. Whether a decision-making authority exceeded its powers?; 2. committed an error of law; 3. committed a breach of the rules of natural justice; 4. reached a decision which no reasonable tribunal would have reached; or 5. abused its powers." Similarly, in 2005 A.I.R. S.C.W. 1684 [C.S. Krishnamurthy vs. State of Karnataka], the Supreme Court has upheld the sanction, since the sanctioning authority deposed about application of mind. In the present case, P.W.4, who is the sanctioning authority, has deposed about the independent application of mind for determining that the case warranted sanction for prosecution. (11) Reliance was also placed on 242 I.T.R. 39 [Sonarome Chemicals Pvt. Ltd. vs. Union of India], where a learned single Judge of the Karnataka High Court has held thus : "The constitutional validity of Section 276C was challenged in the case of Dr. (Mrs.) M.S. Dhowani vs. J. Ranganathan, Second ITO, [1992] 194 ITR 690 (Mad), on the ground of violation of Article 14 of the Constitution, contending that, Section 276C(1) provides for a minimum imprisonment of six months and under clause (2), the minimum sentence prescribed was only three months which is contrary to the concept of equality. The court observed https://hcservices.ecourts.gov.in/hcservices/ that the sub-sections operate in different fields and that there is a rationale behind the classification, the equality contemplated under Article 14 of the Constitution cannot be considered to have been violated. The contention which has been raised is based mainly on the ground that since the respondents have already been compensated, Parliament could not have enacted the provision for prosecution for the same default. There is no illegality or lack of jurisdiction with Parliament in making a provision for prosecution even in a case where the interest is charged which stands on different footing than the offence for which the punishment is provided. In these circumstances, this contention has no force." 6. Mr. Guru Krishnakumar, learned counsel appearing for the petitioners and Mr. Gopal Subramaniam, learned Additional Solicitor General of India appearing for the respondent made detailed submissions and also submitted their written arguments, followed by supplementary arguments. Several decisions were cited by the learned counsel on either side in support their respective submissions and since many of them reiterated the same points, only the important ones will be referred to. 7. The learned trial Magistrate had come to the conclusion that a prima facie case had been made out, largely based on the statutory presumption under Section 278E of the Act, the constitutional validity of which was challenged in Writ Petition Nos.23581 to 23584 of 2006. Those writ petitions have been dismissed today by a separate order. Therefore, the petitioners cannot question in revision, the correctness of the learned Magistrate presuming the culpable mental state of the petitioners, and their challenge as to the correctness of the order passed by the trial Magistrate on other grounds alone has to be examined. 8. The relevant portions of the complaint preferred against the first petitioner read as under : "The accused ought to have filed her Return of Income for the Assessment Year 1993-94 on or before 31.8.1993 as required under Section 139(1) of Income-tax Act, 1961. However, the accused did not file her Return of Income within the due date prescribed by the Statute. Thus, the accused has wilfully and deliberately contravened the provisions of Section 139(1) of Income-tax Act, 1961 by not furnishing her return of income on or before the due date prescribed by the Statute, i.e., 31.8.1993 without any valid reason and thereby committed an offence punishable under Section 276CC of the Income tax Act, 1961." https://hcservices.ecourts.gov.in/hcservices/ "As there was no statutory compliance of filing the return of income within the due date, and as the failure in filing the said return of income still persisted, a notice under Section 142(1) of the Income tax Act, 1961 was issued to the accused on 18.1.94 calling upon her to file the Return of Income within 30 days from the date of receipt of the notice which was served by R.P.A.D. on 19.1.1994. The accused neither sent any reply in response to the said statutory notice issued to her nor filed her return of income. Therefore, a reminder letter dated 22.8.1994 was issued to the accused requesting her to file the return of income at the earliest. Again, there was no response from the accused and not even a reply was sent giving reasons why she is persisting in delaying the filing of the said return of income even after the statutory due date and inspite of receiving the statutory notice u/s.142(1). By another letter dated 10.2.95, the accused was again reminded of her statutory obligation of filing of her Return of Income by requesting her to file the return immediately. Another letter dated 23.8.1995 was issued to the accused informing her that the return was not filed in due time; that there was no compliance to notice u/s.142(1) dated 18.1.94; that reminders were issued on 2.8.1994 and 10.2.1995 and that due to lack of response, a notice u/s.142(1) was issued on 31.7.1995 calling for certain details relevant for assessment. The failure in furnishing the return of income continued even after the receipt of the above mentioned letters. Thus, the accused completely disregarded the statutory requirements by wilfully failing to furnish her return under section 139(1) and also deliberately did not file the