Case: K C Builders  Vs. The Asstt Commnr Of Income Tax

2. The appellant is a partnership firm engaged in the business of construction and sale of flats. The construction of some of the projects started in the year 1981-82 and was completed in the year 1986-87. The appellants filed the returns of income disclosing the assessed income as the income. The cost of construction was shown as under:-Assessment Year 1983-84 - Rs. 4,72,860/-Assessment year 1984-85 - Rs. 5,77,590/-Assessment year 1985-86 - Rs. 7,28,531/-Assessment year 1986-87 - Rs. 7,03,002/-3. The appellants filed revised returns as per the approval valuers report for assessment years 1983-84 to 1986-87 on 04.11.1987 in the following manner as the earlier returns were found to be defective with regard to cost of construction.Assessment year 1983-84 - Rs. 8,76,000/-Assessment year 1984-85 - Rs. 5,42,000/-Assessment year 1985-86 - Rs. 13,47,229/-Assessment year 1986-87 - Rs. 10,37,920/-4. The revised returns were accepted by the Department and assessments were completed.5. The respondent/assessing authority treated the difference between the income as per original return and revised income as concealed income. The Assistant Commissioner of Income-Tax levied penalties under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act) for all the aforesaid four assessment years. Accordingly, penalty proceedings were initiated. The first appeal against the order of penalties levied for concealment of income against the appellants were confirmed by the C.I.T.(Appeals). As per the directions of the Chief Commissioner of Income Tax, four complaints were filed in the Court of Additional Chief Metropolitan Magistrate. Egmore, Chennai for offences under Sections 276C (2), 278B of the Act and Sections 120B, 34, 193, 196 and 420 of the Indian Penal Code.6. The gist of the prosecution case was that a conspiracy was entered into between the accused /appellants and they filed false returns of income before the Department which led to concealment of income to evade tax. On 24.10.1996, the appellants had preferred an appeal before the Income-Tax Appellate Tribunal against the consolidated order passed by C.I.T. (Appeals) on 18.7.1990 for assessment years 1983-84 to 1986 -87. It was contended that the Assessing Officer referred the matter relating to valuation of the Department Valuation Cell which reportedly estimated the cost of construction at Rs. 50,96,750/-. If that were to be adopted then the income would result in a loss. It was contended that the Department has not brought out any material to show that there was concealment of income. The Tribunal, after verifying the records, found that the additions were on the basis of settlement between the assessees and the Department and represents voluntary offer made by the assessee and, therefore, in such circumstances the Tribunal applying the principles laid down by this Court in the Case of Sir Shadilal Sugar and General Mills Ltd. and Anr. vs. C.I.T., Delhi (1987) 168 I.T.R. 705 held that there was no concealment of income by the assessee and accordingly the penalties were cancelled and allowed the appeals. The appellants thereupon moved an application before the Additional Chief Metropolitan Magistrate, (E.O.II), Egmore, Chennai by filing M.P. No. 614 of 1996 in C.C. No. 425 of 1990 praying the Court for adjourning the proceedings in the above case to enable them to move the necessary petition and to file the copy of the order of the Tribunal dated 24.10.1996 which allowed the appeals preferred by the 1st accused against the levy of penalty upon them. However, the learned Magistrate permitted the appellants to mark the order of the Tribunal in evidence at the appropriate stage of trial for which prosecution has no objection.7. Giving effect to the Income Tax Appellate Tribunals order in I.T.A. Nos. 3129-3132, the penalties levied under Section 271(1)(c) of the Act were cancelled by the respondent on 27.1.1997. In the meanwhile, the Revenue Department filed an application under Section 256(1) of the Act for reference to the question of law which had arisen out of Income Tax Appellate Tribunals Order dated 24.10.1996. The application of the Revenue Department was rejected. Thereupon, the appellants preferred a Criminal Revision under Sections 397 and 401 of the Criminal Procedure Code, 1973 before the High Court for setting aside the order passed by the Additional Chief Metropolitan Magistrate dated 21.7.1997. The learned Single Judge of the Madras High Court rejected the criminal revision vide his impugned order holding that the Income Tax Appellate Tribunals order was not applicable since it was not marked as defence document whereas the fact remains that the order was passed at a subsequent date. Before the High Court, the decision of this Court in K.T.M.s. Mohammed and Anr. vs. Union of India, (1992) 197 I.T.R. 196 was cited. The High Court Court after observing that the observation in the case of K.T.M.S. Mohammed and Anr. (supra) helps the appellants to the extent that the trial Court should have given due regard to the Tribunals order but clearly made an error by distinguishing the said judgment on the ground that the Tribunals order was marked as a defence document whereas in the instant case it was not marked as a defence document. Whereas the fact remains that the defence documents were marked earlier to the order dated 24.10.1996 passed by the Appellate Tribunal which was immediately thereafter brought to the notice of the trial Court even by the prosecution in their own application.

Reasoning: 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 the 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 appellate Tribunals order, no offence survives under the Income Tax Act and thus quashing of prosecution is automatic.Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276C is automatic.29. In our opinion, the appellants cannot be made to suffer and face the rigorous of 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 further cross-examination and, 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 Section 120-B ofhis 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