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Incometax Officer v. Abdul Majeed
Structured Summary of the Opinion
Factual and Procedural Background
The Income-tax Officer (ITO), Ernakulam filed a complaint against the respondent for offences under Sections 276-C(1) and 277 of the Income-tax Act, 1961. The Chief Judicial Magistrate, Ernakulam tried the case and acquitted the respondent, prompting the ITO to file the present appeal.
The respondent is a wholesale textile dealer and proprietor of "Textile Centre, Broadway, Ernakulam." For assessment year 1977-78 the respondent filed returns showing closing stock as on 31-12-1976 at Rs. 10,36,384.75.
The ITO alleged that the return contained incorrect and untrue statements, and that by filing a false return the respondent wilfully attempted to evade tax. The basis for the allegation was an inventory obtained during a search on 12-1-1977 from Exts. P2 and P3 showing closing stock (as on 30-12-1976) of Rs. 12,17,725.72, whereas the returned figure was lower. The ITO recorded the respondent's statement (Ext P1), adjusted the assessment by adding Rs. 1,71,341 as value of undisclosed closing stock and imposed a penalty of Rs. 1,20,000.
The trial Magistrate acquitted the respondent primarily on two grounds: (1) the complainant did not formally prove that sanction to prosecute had been accorded by the Commissioner of Income-tax under Section 279(1) of the Act; and (2) the penalty order had been set aside by the Commissioner on appeal, a result confirmed by the Income-tax Appellate Tribunal, undermining the ITO's contention that the respondent furnished an incorrect or false return.
Legal Issues Presented
- Whether the prosecution was properly instituted "at the instance of the Commissioner" as required by Section 279(1) of the Income-tax Act, 1961, when the proceedings of the Commissioner were produced with the complaint but the complainant did not formally give oral proof of the sanction at trial.
- Whether the entries in account books seized during search (Exts. P2 and P3) and the respondent's recorded statement (Ext P1) permit the criminal court to draw the statutory presumption under Section 132(4A) and proceed to convict for filing a false return under Ss. 276-C(1) and 277.
- What is the effect, if any, of the Commissioner of Income-tax's order setting aside the penalty (confirmed by the Income-tax Appellate Tribunal) on the maintainability of criminal prosecution for filing false or incorrect returns.
Arguments of the Parties
Appellant's (Income-tax Officer) Arguments
- The accounts seized (Exts. P2 and P3) and the respondent's statement (Ext P1) demonstrate that the respondent's returned stock figure was false; accordingly the respondent wilfully attempted to evade tax.
- Section 132(4A) allows the contents of books of account found during a search to be presumed true, and Section 278D(1) permits the criminal court to act on that presumption in prosecutions founded on seized books.
- The order setting aside the penalty by the Commissioner/Tribunal does not necessarily preclude prosecution; precedents show that criminal courts may proceed notwithstanding pendency or results of proceedings under the Act.
Respondent's Arguments
- The trial court should accept the closing stock figure shown in the returns (Exts. P4 and P5) because Exts. P2 and P3 contained duplications and included damaged goods; after re-checking the respondent found the lower figure to be correct.
- The respondent was not estopped from explaining that his earlier statement (Ext P1) was vitiated by mistakes; the presence of the seized books in custody when returns were filed indicates the ITO had access to those entries and thus concealment is not shown.
- The Commissioner of Income-tax quashed the penalty and the Appellate Tribunal confirmed that order (Ext D1), finding that the assessee did not conceal income or intend to furnish inaccurate particulars, supporting the respondent's position that no offence was committed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Income-tax Officer, Hassan v. Dharmchand Multanmul (1972 (Vol. 86) I.T.R 70) | Magistrate may look into proceedings of the Commissioner produced with the complaint; formal oral proof (recalling witness) to prove sanction is not necessary when the sanction document is produced. | The court agreed with that reasoning and held that acquittal on the ground of absence of formal proof of sanction cannot be sustained, because proceedings of the Commissioner are public documents and judicial notice can be taken when produced with the complaint. |
| Dr. D.N. Munshi v. N.B. Singh (1976 Tax L.R. 677) | A decision of the Tribunal setting aside penalty may be used as evidence to show absence of offence, though it may not by itself be sufficient to dismiss a complaint. | Cited to show that an order under the Act can be relevant evidence; the opinion notes a single Judge's view that such an order is utilizable as evidence that no offence was committed. |
| Tela Ram Raungi Ram v. Income-tax Officer, Hoshiarpur (1984 (Vol. 145) I.T.R 111) | Mere expectation of other proceedings should not prevent the criminal court from proceeding with a prosecution. | Cited by the appellant to argue that pendency or expectation of proceedings under the Act should not bar criminal prosecution; the opinion records this precedent but does not adopt it as conclusive in this case. |
| P. Jayappan v. S.K. Perianal (1984 Supp SCC 437 : AIR 1984 S.C. 1963) | The criminal court must give due regard to results of proceedings under the Act; it is not bound by them but may in an appropriate case adjourn or drop proceedings in light of such orders. | The opinion quotes the Supreme Court's guidance that criminal courts should consider orders under the Act and may in an appropriate case postpone or drop prosecution; this principle informed the court's consideration of the Tribunal's order in the present case. |
| Uttam Chand v. Income-tax Officer, Central Circle, Amritsar (1982 (Vol. 133) I.T.R 909) | Where the Appellate Tribunal has conclusively found facts negating the commission of the alleged offence (on appraisal of the entire material), prosecution may be quashed. | The opinion notes that this decision was strongly relied upon by the respondent; the court referred to it as an example where the Supreme Court quashed prosecution because the Tribunal's finding made prosecution untenable. |
Court's Reasoning and Analysis
The court proceeded in distinct analytical steps, grounding each step in the record and legal provisions reproduced in the opinion:
- Sanction under Section 279(1): The court examined whether formal oral proof of the Commissioner's sanction was necessary. It observed that proceedings under Section 279(1) are official acts and the document evidencing such proceedings is a public document. Production of that document with the complaint would be sufficient for the Magistrate to take judicial notice. The court relied on the reasoning in Income-tax Officer, Hassan v. Dharmchand Multanmul to conclude that recalling a witness to formally prove sanction was unnecessary and that a criminal court may look into the sanction produced by the prosecution. Accordingly, the court held that the acquittal based on an alleged absence of formal proof of sanction could not stand.
- Presumption from seized books (Sections 132(4A) and 278D(1)): The court analysed the submission that entries in Exts. P2 and P3 (books seized during search) and Ext P1 (respondent's statement) entitled the criminal court to draw the statutory presumption that the entries were true. The court emphasised that Section 132(4A) creates only a factual, rebuttable presumption: the statute uses the phrase "may be presumed," which mirrors the language of Section 114 of the Evidence Act. Thus the presumption is discretionary and can be displaced by other factors; it is not a mandatory rule requiring the court always to draw the presumption.
- Evaluation of competing factual explanations: The court considered the respondent's explanation that Exts. P2 and P3 contained duplications and included damaged goods, and that upon re-checking the correct (lower) stock figure was shown in returns (Exts. P4 and P5). The opinion noted that when the respondent filed those returns, the seized books were already in the custody of Income-tax officials, showing that the ITO had knowledge of the entries. The court observed that P.W.2 admitted not having checked the correctness of entries in Exts. P2 and P3. The court found these facts relevant in assessing whether the ITO had proved knowledge of falsity on the part of the respondent.
- Effect of orders under the Act (penalty quashed and Tribunal confirmation): The court placed weight on the fact that penalty proceedings initiated against the respondent were quashed by the Commissioner and that the Appellate Tribunal confirmed that order (Ext D1). The Tribunal had explicitly found that "it cannot be said that by filing the return showing a stock of a smaller value, the assessee concealed any income or intended to furnish inaccurate particulars thereof." The court treated this as a pertinent finding of fact by a competent Tribunal in respect of the same assessment proceedings.
- Reconciliation with precedents: The court canvassed authorities cited by both sides. It recorded the principle from P. Jayappan that a criminal court must give due regard to proceedings under the Act and may, in an appropriate case, drop or adjourn criminal proceedings so that it can consider orders passed under the Act. It also noted divergent authorities about whether Tribunal findings are binding on the criminal court but observed that in the present record even apart from the Tribunal order, the evidence did not establish that the respondent filed a false or incorrect return to his knowledge.
- Conclusion on sufficiency of evidence: Synthesising the discretionary nature of the statutory presumption, the respondent's plausible factual explanation regarding duplication and damaged goods, admissions by prosecution witnesses about lack of verification, and the Tribunal's express finding in Ext D1, the court concluded that the prosecution had not established that the respondent knowingly filed a false return. On that basis the court upheld the acquittal.
Holding and Implications
Holding: The court dismissed the appeal and upheld the trial court's acquittal. The core ruling is emphasised as follows:
DISMISSED
Implications:
- Direct effect: The respondent remains acquitted of the offences under Sections 276-C(1) and 277 of the Income-tax Act for the facts and evidence presented; the appeal by the Income-tax Officer is dismissed.
- On broader impact: The opinion does not purport to lay down any novel general rule; it applies established principles regarding (a) the sufficiency of production of official sanction documents with a complaint, (b) the rebuttable and discretionary nature of the presumption under Section 132(4A), and (c) the relevance of orders under the Act (including Tribunal findings) in criminal prosecutions. The opinion therefore addresses the direct dispute between the parties without announcing a new precedent beyond applying these principles.
This summary is strictly based on the content of the provided opinion. No additional facts or inferences beyond the opinion text have been introduced.
1. The Income-tax Officer, Ernakulam filed a complaint against the respondent for offences under Ss. 276-C (1) and 277 of the Income Tax Act, 1961 (for short ‘the Act’). The Chief Judicial Magistrate, Ernakulam who tried the case, acquitted the respondent. Hence the Income-tax Officer filed this appeal.
2. The respondent is a wholesale dealer in textiles.
3. The respondent is the proprietor of the shop by name Textile Centre, Broadway, Ernakulam. For the assessment year 1977-78, he filed his returns in which he had shown the closing stock as on 31-12-1976 as Rs. 10,36,384.75. According to the Income-tax Officer, the aforesaid return contained incorrect and untrue statement and by filing a false return of income, the respondent wilfully attempted to evade the tax payable by him under the Act. The basis for the said allegation is that when a search was conducted by the Income-tax authorities on 12-1-1977, the inventory of the stock as on 30-12-1976 was obtained from Exts. P2 and P3 books of account. The inventory revealed the closing stock as on 30-12-1976 as Rs. 12,17,725.72. The Income-tax officer who conducted the search, recorded the statement of the respondent which is matked in this case as Ext: P1. On the strength of the closing stock found in the inventory, the Income-tax officer made the assessment by adding Rs. 1,71,341/- to the income returned by the respondent as value of the undisclosed closing stock. Consequently, a penalty of Rs. 1,20,000/- was levied on the respondent. Therefore, the respondent, according to the Income-tax Officer who filed the complaint, committed the offences mentioned above.
4. The Chief Judicial Magistrate acquitted the respondent mainly on two grounds. The first is that the complainant has not proved that sanction was accorded by the Commissioner of Income-tax under S. 279(1) of the Act, and hence the institution of the prosecution proceedings was without authority. The second ground is that the order imposing penalty on the respondent was set aside by the Commissioner of Income-tax on appeal filed by the respondent which was confirmed by the Income-tax Appellate Tribunal and hence the stand of the Income-tax Officer that the respondent furnished incorrect or false returo is not sustainable. It in also found that mere seizure of Exts. P2 and P3 and the statement alleged to have been given by the respondent on the date of seizure are not sure grounds to conclude that the income returned by the respondent is false to his knowledge.
5. The complainant had filed along with the complaint the proceeding passed by the Commissioner of Income-tax under S. 279(1) of the Act-authorising and directing the complainant to proceed against the respondent for the offences. But the trial Magistrate was not prepared to act on the said proceeding as the complainant has not gone to the witness box to swear about the complaint and to prove the sanction accorded by the Commissioner of Income-tax. As per S. 279(1) “a person shall not be proceeded against for the said offences except at the instance of the Commissioner”. The Chief Judicial Magistrate, who received the complaint on file would naturally have verified whether the complaint was at the Instance of the Commissioner. The, proceedings of the Commissioner of Income-tax had been produced along with she complaint and the same would have reached the notice of the Magistrate who received the complaint and took cognizance of the offence. Process would have been issued to the respondent only on such satisfaction. Proceedings under S. 279(1) of the Act are official acts and the document evidencing the proceedings of the Commissioner is a public document, the production of which would be sufficient to enable the court to take judicial notice thereof. Even if the document containing the proceedings of the Commissioner has not been formally marked as an exhibit, the document cannot be overlooked by the Criminal Court. No formal proof through oral evidence is required for a public document. In Income-tax Officer, Hassan v. Dharmchand Multanmul (1972 (Vol. 86) I.T.R 70) a similar situation arose. In that case the causael for the accused pointed cut at the time of argument that there was no sanction to prosecute him and hence the complaint was liable to be dismissed. At that stage, the Income-tax Officer filed an application for recalling the first witness for the purpose of formally proving the proceedings by which sanction was accorded. As the Magistrate did not accede to the request, the matter was taken up before the High Court of Mysore. It was observed by the High Court that recalling of the witness for the purpose of proving the sanction was not necessary “as it would be open to the Magistrate to look into the sanction produced by the prosecution”. I respectfully agree with the aforesaid reasoning of the learned single Judge of the Mysore High Court. I therefore hold that the acquittal, on the ground that there was no formal proof of sanction, cannot be sustained.
6. The contention of the learned counsel for the respondent is that the trial court should have acted on the closing stock as revealed from Exts. P2 and P3 account books seized from the shop of the respondent as there is a presumption of truth of the entries therein. He also pointed out that the presumption of truth drawable from those entries is fortified by Ext. P1 statement given by the respondent to the Income-tax Officer who made the search. The learned counsel tried to draw support from S. 132(4A) of the Act wherein it is provided that the contents of the books of account found in the possession of any person in the course of a search may be presumed to be true. The learned counsel also relied on S. 278D (1) of the Act which enables the criminal court to act on the presumption in a prosecution launched against the person from whose possession such account books have been seized. It is true that S. 132(4A) of the Act enables the court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. More over the presumption envisaged thereon is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is “may be presumed” as is used in S. 114 of the Evidence Act. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so.
7. It was contended by the learned counsel for the appellant that the respondent had admitted the correctness of the entries in Exts. P2 and P3 account books, as he has given a statement to that effect in Exts. P1 and hence the stock returned by him as per Exts. P4 and P5 must be false. On the other hand, the stand of the respondent is that there were duplications in Exts. P2 and P3 inventories prepared by hisi staff, the damaged goods were also included in the inventories and it was only on re-checking and re-verification that the respondeat found that the value of the stock was only the amount which he has shown in the return. It must be borne in mind that when the respondent filed Exts. P4 and P5 returns, the account books seized from him earlier were in the custody of the Income-tax officials. That shows that P.W I had knowledge about the stock as per the entries in those account books and hence it cannot be said that true state of affairs was kept concealed by the respondent. Simply because the respondent gave a statement in Ext. P1 admitting the correctness of the entries in Exts. P2 and P3, it cannot be said that the respondent is estopped from informing the income-tax officials that his earlier statement was vitiated by mistakes. P.W 2 admitted that he has not checked the correctness of the entries contained in Exts. P2 and P3.
8. There is yet another circumstance which shows that the respondent's contention is more probable. The peanalty proceedings initiated against him by the Income-tax Officer were quashed by the Commissioner of Income-tax. Ext. D1 is the copy of the order passed by the Income-tax Appellate Tribunal on 22-12-1983 confirming the order of the Commissioner of Income-tax. The Tribunal found that “it cannot be said that by filing the return showing a stock of a smaller value, the assessee concealed any income or intended to furnish inaccurate particulars thereof.” It is a finding of fact by a competent Tribunal in respect of the very same assessment proceedings.
9. The learned counsel for the appellant contended that the finding of the Appellate Tribunal is not a bar for initiating prosecution proceedings for ??? returns containing false or incorrect statements. Reference was made to Dr. Dr. D.N Munshi v. N.B Singh (1976 Tax L.R 677), Tela Ram Raungi Ram v. Income-tax Officer, Hoshiarpur (1984 (Vol. 145) I.T.R 111) and P. Jayappan v. S.K Perianal (1984 Supp SCC 437 : AIR 1984 S.C 1963). In the last mentioned case mere pendency of the reassessment proceedings was found to be not a ground for quashing prosecution proceedings. Even so, the Supreme Court made the observation that “the criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case it may drop the proceedings in the light of an order passed under the Act.” Of course, the Supreme Court pointed out that it does not mean that the result of a proceeding under the Act would be binding on the criminal court, as the criminal court has to judge the case independently on the evidence placed before it. At the same time a sound rule of procedure is indicated in the said judgment that “it may be that in an appropriate case the criminal court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under S. 309 of Cr. P.C if the disposal of any proceeding under the Act which has a bsanig on the proceedings before it is imminent so that it may take also into consideration the order to be passed therein.” A learned single Judge of the Allahabad High Court in Dr. D.N Munshi's case (cited supra) observed that the order of the Tribunal setting aside the penalty may be utilised as a piece of evidence to show that there was no offence committed by the accused, although that by itself is aot sufficient to direct the dismissal of the complaint. In Tela Ram's case (cited supra) the accused filed a petition in the High Court for quashing the criminal complaint against him on the ground that a reference was pending in the High Court against the order of the Income-tax Tribunal. It was held that mere expectancies of such proceedings should not stand in the way of the criminal court from proceeding in the matter. In this context it is useful to refer to Uttam Chand v. Income-tax Officer, Central Circle, Amristar (1982 (Vol. 133) I.T.R 909). In that case an Income-tax Officer passed orders holding that a particular firm was not a genuine one and hence he cancelled the registration of that form. The assessee's appeal before the Appellate Asst. Commissioner was dismissed. But the Appellate Tribunal set aside the order in second appeal. In the meanwhile a criminal prosecution was launched agaiast the assessee who raised the preliminary objection before the criminal court that since the assessment proceedings are yet to be finalised, the criminal court has no jurisdiction to proceed. The preliminary objection was overruled by the Magistrate and that order was confirmed by the Punjab and Haryana High Court. It was held by the High Court that the findings of the Income-tax Appellate Tribunal are not binding on the criminal court. But the Supreme Court reversed the judgment of the High Court. In the short judgment passed by the Supreme Court Their Lordships observed as follows: “In view of the finding recorded by the Income-tax Appellate Tribunal that it was clear on the appraisal of the entire materials on the record that Shrimati Janak Rani was a partner of the assessese-firm and that the firm was a genuine firm, we do not see how the assessee can be prosecuted for filing false returns. We, accordingly, allow this appeal and quash the prosecution.” Strong reliance was placed on the above decision by the learned counsel for the respondeat.
10. In this case, even apart from Ext. D1 order of the Appellate Tribunal, the evidence does not show that the respondent filed a return which is false and incorrect to his knowledge. Therefore, I agree with the learned Chief Judicial Magistrate that the respondent is not liable to be convicted. In the result I dismiss this appeal.
M.MDismissed.
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