IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Criminal Appeal No. 730-SBA of 1997 Date of decision: 15th February, 2010 The Income Tax Officer, Ward-I, Phagwara … Appellant Versus M/s Gian Chand Darshan Kumar and others … Respondents CORAM: HON'BLE MR. JUSTICE KANWALJIT SINGH AHLUWALIA Present: Mr. Vivek Sethi, Advocate for the appellant. Mr. B.S. Sangha, Advocate for respondents No.1 and 2. Mr. B.S. Bali, Advocate for respondent No.3. KANWALJIT SINGH AHLUWALIA, J. (ORAL) The Income Tax Officer, Ward-I, Phagwara launched prosecution against partnership firm M/s Gian Chand Darshan Kumar, G.T. Road, Goraya and two of its partners namely Gian Chand and Darshan Kumar were also impleaded as accused. The complaint was tried by the Court of Chief Judicial Magistrate, Jalandhar, who vide his judgment and order dated 17th May, 1997, recorded acquittal of the accused. Aggrieved against the same, present appeal has been filed. On 30th March, 1989, the complaint was presented by Income Tax Officer, Ward-I, Phagwara against the accused. An averment was made in the complaint that complaint has been filed at the instance of G.S.Sidhu, Commissioner, Income Tax, Jalandhar, who in exercise of powers vested in him under Section 279(1) of the Income Tax Act, 1961 (hereinafter Criminal Appeal No.730-SBA of 1997 referred to as, ‘the Act’), decided to initiate prosecution. Accused No.1 M/s Gian Chand Darshan Kumar, partnership firm was assessee of income tax in Ward No.1, Phagwara. The accused firm being a registered firm, filed income tax return declaring income of Rs.95,090/- for the assessment year 1977-78. The verification portion of the income tax return was signed by Darshan Kumar partner, who was arrayed as accused No.3. During the assessment proceedings, account books and other documents filed with the return were examined by the Income Tax Officer and during assessment, it surfaced that two persons Surinderpal and Sumer Chand were paid commission amounting to Rs.4,235/- and Rs.8,829/- respectively. The accused assessees were called upon to produce documentary evidence to show that the payments were genuinely made to the agents. The accused assessees replied that the agents were old ones and the conditions for payment of commission were same as were in the earlier years. In 1976-77, payment of commission to these very persons was disallowed on the ground that they were close relatives of Gian Chand partner of the firm. The accused had filed an appeal, which was accepted by Assistant Appellate Commissioner. However, the Income Tax Appellate Tribunal had set aside the order passed by the Assistant Appellate Commissioner and had confirmed the disallowance of the commission paid to the alleged agents. During the assessment proceedings for year 1977-78, no books of account reflecting commission account were maintained, therefore, claim of the accused for deduction of Rs.13,064/- from the income was disallowed and this was added to taxable income. Assessment was completed and non-taxable income of the accused assessees was determined as Rs.1,11,112/- by the Income Tax Officer on 18th October, 1979. A penalty of Rs.8,495/- was imposed upon the accused assessees by the Income Tax Officer under Section 270 2 Criminal Appeal No.730-SBA of 1997 (1)(c) of the Act vide order dated 22nd March, 1982. This was done after the accused were afforded reasonable opportunity of being heard. The appeal filed by the accused assessees was dismissed by the Commissioner of Income Tax (Appeals) vide its order dated 16th December, 1988. A grievance was made in the complaint that the accused assessees willfully attempted to evade tax/penalty/interest chargeable and thereby committed offence under Section 276(c)/277 of the Act and they had also falsely verified the return and thereby committed offence under Section 278(b) of the Act. In the above said complaint, accused were summoned to stand trial. On 18th October, 1994, charges were framed against the accused. The charge stated that M/s Gian Chand Darshan Kumar, registered firm and assessee of Income Tax Ward-1, Phagwara for year 1977-78 filed an income tax return declaring income of Rs.95,090/- and during assessment proceedings, it was found that for payment of commission to Surinderpal and Sumer Chand amounting to Rs.4,235/- and Rs.8,829/- respectively, there was no documentary proof. At the time of assessment proceedings, the net taxable income of the firm was assessed and determined as Rs.1,11,112/- and a penalty was imposed upon the firm and partners under Section 271(1)(c) of the Act. The appeal filed to higher authorities was dismissed, and thereby they had committed offence under Section 276(c) and 277 of the Act. They had also verified the return wrongly, as such committed an offence punishable under Section 278(b) of the Act. The accused pleaded not guilty and claimed trial. Prosecution examined Balbir Singh, Income Tax Officer as PW-1. He stated that during his tenure, he had filed complaint. He was authorized to file the complaint by Commissioner of Income Tax, G.S. 3 Criminal Appeal No.730-SBA of 1997 Sidhu. In cross examination, this witness stated that he had not made any assessment or passed any order of penalty against the accused. He further stated that he had prepared the draft of authorization letter Ex.P1 and had sent it to the Commissioner of Income Tax, Jalandhar. D.S. Walia appeared as PW-2. He stated that in year 1977- 78, he was posted as Income Tax Officer in Ward-I, Phagwara. He gave the details, which have been enumerated in the complaint and reproduced above. Thereafter, statements of the accused were recorded under Section 313 Cr.P.C. and all incriminating evidence was put to them. They denied the same and pleaded innocence. In defence, accused examined Surinderpal. He stated that he had received the amount of commission from the accused firm. Similarly, Sumer Chand DW-2 also reiterated that he had also received amount of commission. The trial Court recorded acquittal of the accused, firstly on the ground that it was incumbent upon the authorities to issue a show cause notice to the accused before filing complaint and principles of natural justice ought to be, adhered to, before launching the prosecution. Mr.B.S. Sangha, appearing for respondents No.1 and 2, has very fairly stated that in ‘Union of India v. Banwari Lal’ 1998 (147) Supreme Court (Taxation) 743, this legal position has been reversed and it is no longer necessary that the notice should be served upon the accused. Counsel has further submitted that when the acquittal of the accused was recorded on 17th May, 1997, judicial pronouncement in Banwari Lal’s case (supra) had not come and the view taken by the trial Court was in consonance with the law prevailing at that time. A perusal of the impugned judgment reveals that the trial Court had relied upon the statement made 4 Criminal Appeal No.730-SBA of 1997 by Balbir Singh PW-1 in the cross examination, where he stated that he had prepared the draft of authorization letter Ex.P1 and had sent it to the Commissioner of Income Tax, Jalandhar. He signed the same and returned it for filing the complaint. Counsel has submitted that the Income Tax Commissioner has not been examined and from the record, application of mind of the Commissioner of Income Tax is not apparent. He had merely signed the authorization letter sent to him and thus he acted in a mechanical manner. To support this contention, counsel has relied upon a judgment rendered by Andhra Pradesh High Court in ‘Income Tax Officer v. Abdul Razack and others’ 1990 (181) IT Reports 414, wherein it was held that in order to find whether the complaint is filed at the instance of Commissioner, mere signatures of the authority vested with the power to prosecute are not sufficient, there must be application of mind discernible on the file when order for the prosecution is passed. Counsel has submitted that the fact that Commissioner had not applied its mind, is also apparent from the fact that the Board of Direct Taxes had issued a circular on 7th September, 1995 taking a conscious decision that those persons who have concealed income less than Rs.25,000/-, they are not to be subjected to the prosecution. To fortify this submission, counsel has relied upon ‘M/s New Fields Advertising (P) Ltd. & Anr. V. O.D. Sharma’ (2007) 197 Taxation 124 (Del.), wherein Delhi High Court, taking the circular into consideration, had quashed the proceedings. Learned counsel has further submitted that prosecution against the accused was to be launched at district Kapurthala and not at Jalandhar, therefore, there is an error of jurisdiction. I have heard counsel for the parties. The accused had filed assessment for the year 1977-78. A period of more than 32 years is going to elapse. They had shown the 5 Criminal Appeal No.730-SBA of 1997 payment of commission amounting to Rs.4,235/- and Rs.8,829/- to two persons, namely Surinderpal and Sumer Chand. The payment of commission was disallowed and the total income of the firm was assessed at Rs.1,11,112/- instead of declared income of Rs.95,090/-. The accused firm had already paid the penalty. One of the grounds of acquittal that before launching of prosecution, accused were not afforded opportunity of hearing, has already been made not available to the accused in view of the judgment rendered in Banwari Lal’s case (supra). However, for wrong deduction of Rs.13,064/- which was later disallowed and wrong verification, accused have already suffered mental pain and agony of protracted trial for more than 20 years. The view formulated by the trial Court that Mr.G.S. Sidhu, Commissioner of Income Tax had only signed the draft of authorization letter Ex.P1 and application of mind on the file is not apparent, is one view which cannot be held as perverse. Furthermore, the circular issued by Board of Direct Taxes relied in M/s New Fields Advertising (P) Ltd.’s case (supra) had also escaped notice of the Income Tax Commissioner. Thus, taking overall view, no interference is warranted in present appeal against acquittal and the same is dismissed. [KANWALJIT SINGH AHLUWALIA] JUDGE February 15, 2010 rps 6