Case: K.C. Builders &amp; Another Vs. The Assistant Commissioner of Income Tax

addition was deleted by the Tribunal:Held, that it was evident from the material on record that the penalty had been imposed solely on the basis of the additional of Rs. 4 lakhs to the assessee’s income. If the addition was deleted, the charge of concealment of income could not be sustained. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, was, therefore, not valid.” 4. Commissioner of Income-Tax v. Madanlal Sohanlal , 1989 (176) I.T.R. 189. “Penalty cannot stand on its own independently of the assessment.Where, in an appeal against the assessment reopened under Section 147 of the Income-tax Act, 1961, the Appellate Tribunal deleted the addition on account of deemed dividend under Section 12(1B) read with section 2(6A)(e) of the Indian Income-tax Act, 1922, the deemed dividend which had been deleted could not from the subject-matter of imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961, because, the basis for imposition of penalty had ceased to exist. Therefore, the Tribunal was co rrect in cancelling the penalty imposed on account of the addition.” 5. Commissioner of Income-Tax v. Bedi and Co. (P) Ltd. , 1990 (183) I.T.R. 59. “Held, that in view, of the conclusion reached by the High Court that the amount in question was not assessable, there was no basis for the imposition of penalty. The cancellation of penalty was valid.(The Supreme Court has dismissed the special petition filed by the Department against this judgment of the High Court in relation to penalty under section 271(1)(c) arising out of an assessment, wherein the addition of a loan has been cancelled by the High Court as reported in 1983 (144) ITR 352 : See 1990 (181) ITR (St.) 19-Ed.)" 6. Commissioner of Income-Tax v. Agarwalla Brothers , 1991 (189) I.T.R. 786. “Held, (i) that the fact a particular construction had not been shown in the accounts of the assessee was not relevant since this circumstance had not been recorded as one of the reasons for initiating the proceedings under section 147(a);(ii) that the Tribunal had found, after examining the entire record, that there had been no failure to disclose primary facts on the part of the assessee. The reassessment was, therefore, not valid;(iii) that penalty had been imposed consequential to the re-assessment Since the reassessment had been set aside, the order of the Tribunal cancelling the penalty levied under Section 271(1)(c) of the Act was also legal.” 7. Additional Commissioner of Income-Tax v. Badri Prasad Kashi Prasad , 1993 (200) I.T.R. 206. “Held, that the levy of penalty was based on the addition to income made by the Income-tax Officer. The addition was deleted by the Tribunal. Hence, the Tribunal was justified in cancelling the penalty.” 8. Commissioner of Income-Tax v. Roy Durlabhji , 1995 (211) ITR. 470. “Held, dismissing the application for reference, that the Tribunal had set aside the penalty on the ground that the additions to income had already been deleted. Since there was no liability to tax, no penalty could be levied. The Tribunal was justified in cancelling the penalty and no question of law arose from its order.” 32. The very recent judgment in the case of Hira Lal Hari Lal Bhagwati v. C.B.I. New Delhi , JT 2003 (4) SC 381 , in which one of us (Dr. AR. Lakshmanan, J.) was a member, this Court while considering the scope of the immunity granted under the Kar Vivad Scheme - Whether criminal proceedings could be initiated in respect of declaration filed under the Scheme and accepted by the Excise Department can proceed further with the prosecution and criminal conspiracy and cheating against the appellants therein. Allowing the appeals, this Court held that since the alleged criminal liability stood compound on settlement with respect of the civil issues, the FIR was erroneous and unwarranted and, therefore, the continuation of the proceedings would tantamount to double jeopardy. This Court further held that the Collector of Customs had exonerated the appellants there was no warrant for any fresh investigation and prosecution on a matter which stood settled. Further since no prima facie case of cheating and criminal conspiracy was made out the process issued is liable to be quashed. It is to be noticed that as per the Kar Vivad Samadhan Scheme, 1998 whoever is granted the benefit under the said Scheme is granted immunity from prosecution from any offence under the Customs Act, 1962 including the offence of evasion of duty. In the circumstances, the complaint filed against the appellants is unsustainable. This Court further held that under the penal law, there is no concept of vicarious liability unless the said statute covers the same within its ambit. In that case, the appellants have been wholly discharged under the Customs Act, 1962 and the GCS granted immunity from prosecution. 33. In this instant case, the charge of conspiracy has not been proved to bring home the charge of conspiracy within the ambit of Section 120-B of I.P.C. It is also settled law that for establishing the offence of cheating, the complainant is required to show that the accused had fraudulent or or dishonest intention at the time of making promise or misrepresentation. From his making failure to keep up promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed. As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the I.P.C. does not arise.34. The High Court without adverting to the above important questions of law involved in this case and examined them in the proper perspective disposed of the revisions in a summary manner and hence the impugned orders passed by the High Court and the learned Magistrate warrant interference.35. It is a well-established principle that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal Courts unless and until the act of the appellants could have described as culpable.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]27. The above judgment squarely applies to the facts and circumstances of the case on hand. In this case also, similarly, the application was moved by the assessee before the Magistrate to drop the criminal proceedings which were dismissed by the Magistrate and the High Court also on a petition filed under Sections 397 and 401 of the Code of Criminal Procedure, 1973 to revise the order of the Additional Chief Metropolitan Magistrate has also dismissed the same and refused to refer to the order passed by th e competent Tribunal. As held by this Court, the High Court is not justified in dismissing the criminal revision vide its judgment ignoring the settled law as laid down by this Court that the finding of the appellate Tribunal was conclusive and the prosecution cannot be sustained since the penalty after having been cancelled by the complainant following the appellateorder, no offence survives under the Income Tax Act and thus quashing of prosecution is automatic.28. In the instant case, the penalties levied under Section 271(1)(c) were cancelled by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in I.T.A. Nos.It is settled law that levy of penalties and prosecution under Sectionare simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Sectionis automatic.29. In our opinion, the appellants cannot be made to suffer and face the rigorous criminal trial when the same cannot be sustained in the eyes of law because the entire prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of the Appellate Tribunal supercedes the order of the Assessing Officer under Section 143(3) more so when the Assessing Officer cancelled the penalty levied.30. In our view, once the finding of concealment and subsequent levy of penalties under Section 271(1)(c) of the Act has been struck down by the Tribunal, the Assessing Officer has no other alternative except to correct his order under Section 154 of the Act as per the directions of the Tribunal. As already noticed, the subject matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the Assessing Officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. The Assistant Commissioner of Income Tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of furtherand, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned Magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.In this instant case, the charge of conspiracy has not been proved to bring home the charge of conspiracy within the ambit of Sectionof I.P.C. It is also settled law that for establishing the offence of cheating, the complainant is required to show that the accused had fraudulent or or dishonest intention at the time of making promise or misrepresentation. From his making failure to keep up promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed. As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the I.P.C. does not arise.34. The High Court without adverting to the above important questions of law involved in this case and examined them in the proper perspective disposed of the revisions in a summary manner and hence the impugned orders passed by the High Court and the learned Magistrate warrant interference.35. It is aprinciple that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal Courts unless and until the act of the appellants could have described as culpable.