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R. Bharathan v. Income Tax Officer & Others

Kerala High Court
Jun 22, 1989
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

Crl. M.C No. 423 of 1988

Attorney(S)

For the Appellant: N. Dharmadan G. Krishnakumari, Advocates.

For the Respondent: K.K. Abdulla, Advocate.

JUDGES

K. Sreedharan, J.

ACTS

u/s. 132 of the Income Tax Act, 1961, hereinafter referred to as the Act,

Section 195(1)(b) of the Code of Criminal Procedure,

Section 195 of the Code of Criminal Procedure.

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Structured Summary of the Opinion

Factual and Procedural Background

The petitioner, an abkari contractor operating arrack and toddy shops in the Kazhakkoottam Excise Range, Trivandrum district, filed a return of income on 6-12-1983 before the Income-Tax Officer, D-Ward, Quilon, declaring an income of Rs. 4,64,845/-. A search under Section 132 of the Income Tax Act, 1961 was conducted at the petitioner's arrack depot and residence on 5-3-1985, during which original books of account showing sales of arrack at different rates were allegedly discovered.

The income-tax authorities alleged that the return filed on 6-12-1983 was incorrect and that the petitioner had fabricated and manipulated false accounts. A criminal complaint (marked Annexure-5) was filed before the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam, charging offences under Sections 276C(1) and 277(1) of the Income Tax Act and Sections 193, 196 and 415 of the Indian Penal Code. That complaint was registered as C.C. 34/87 and summons were issued to the petitioner.

The petitioner moved to quash the proceedings on two principal grounds: (1) that the complaint was incompetent because it was filed by the Income Tax Officer, B-Ward, Trivandrum rather than by the Income Tax Officer, D-Ward, Quilon (before whom the return and assessment proceedings took place), and (2) that subsequent appellate orders (the Income Tax Appellate Tribunal, Cochin Bench in I.T.A. No. 320/87 and the Commissioner of Income Tax (Appeals)) demonstrate that the petitioner did not file a false return or fabricate accounts and therefore prosecution cannot be sustained.

Legal Issues Presented

  1. Whether the complaint alleging offences under Sections 193 and 196 IPC is maintainable when it was filed by an Income Tax Officer (B-Ward, Trivandrum) who is not shown to be a superior or the officer before whom the relevant income-tax proceedings (D-Ward, Quilon) took place, in light of Section 136 of the Income Tax Act and Section 195(1)(b) of the Code of Criminal Procedure.
  2. Whether the appellate orders of the Income Tax Appellate Tribunal (I.T.A. No. 320/87) and the Commissioner of Income Tax (Appeals) — which led to an estimated addition of Rs. 5 lakhs and cancellation of penalty under Section 271(1)(c) respectively — preclude or otherwise bar criminal prosecution for offences under the Income Tax Act (Sections 276C(1) and 277(1)) or render allegations of fabricated/manipulated accounts unsustainable.

Arguments of the Parties

Petitioner's Arguments

  • The return of income for the assessment year 1983-84 was filed before the Income Tax Officer, D-Ward, Quilon, and that officer passed the assessment on 28-2-1986; hence, any offences under Sections 193 and 196 IPC were committed before that officer and only that officer (or a superior to whom that officer is subordinate) could file a complaint under Section 195 Cr.P.C. The complaint filed by the Income Tax Officer, B-Ward, Trivandrum is therefore incompetent.
  • The appellate orders (Tribunal and Commissioner (Appeals)) show that the Tribunal made only an estimated addition of Rs. 5 lakhs and the Commissioner (Appeals) cancelled the penalty under Section 271(1)(c); accordingly, the allegations of fabrication and manipulation of accounts cannot stand and prosecution should not be sustained.

Revenue's Arguments

  • The complaint with respect to offences under the Income Tax Act (Sections 276C(1) and 277(1)) is maintainable because it was filed with the previous sanction of the Commissioner of Income Tax, Trivandrum (proceedings No. 898.ADI/87-88 dated 18-1-1988), and the restrictions on initiating prosecution under the Act relate to obtaining such sanction.
  • The Tribunal's order demonstrates that the books of account produced by the petitioner were rejected; the Tribunal accepted a concession made by the petitioner's counsel that books would not be pressed and proceeded to make an estimated addition under the proviso to Section 145. Thus, the Tribunal did not hold that the accounts were genuine and the appellate decisions do not preclude criminal proceedings.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Income Tax Officer, Special Circle v. Kerala Oil Mills (1986 K.L.T. 947) Supports the proposition that the income-tax authority before whom the alleged offence under judicial proceedings occurred is the competent authority to initiate complaint proceedings under Section 195 Cr.P.C. The court relied on this decision to support the view that the complaint alleging offences under Sections 193 and 196 IPC (which relate to judicial proceedings) was incompetent when filed by an Income Tax Officer who was not the officer before whom the proceedings in question had been conducted and who was not shown to be a superior officer.
P. Jayappan v. S.K. Perumal, First Income Tax Officer, Tuticorin (1984 Supp SCC 437 : AIR 1984 SC 1693) Establishes that criminal courts are not bound by the result of proceedings under the Income Tax Act; criminal courts must independently evaluate all ingredients of the offence and the evidence before them. The court quoted this authority to emphasise that the Tribunal's and the Commissioner (Appeals)'s orders are not binding on the criminal court; hence, the criminal court must independently examine whether the offences under the Act and relevant IPC provisions are made out.

Court's Reasoning and Analysis

The court proceeded in a structured manner, applying statutory provisions and appellate authorities precisely as they appear in the record.

  1. Character of the relevant proceedings and competence to file complaint:

    Section 136 of the Income Tax Act treats proceedings before income-tax authorities as judicial proceedings for the purpose of Section 196 IPC and deems every income-tax authority to be a civil court for the purposes of Section 195 Cr.P.C. The court reasoned that where offences under Sections 193 and 196 IPC arise in relation to proceedings before a particular income-tax authority, the competent authority to institute complaint proceedings under Section 195 Cr.P.C. is that income-tax authority (or a superior officer to whom that authority is subordinate). Here, the return was filed before and assessed by the Income Tax Officer, D-Ward, Quilon; the complaint, however, was filed by the Income Tax Officer, B-Ward, Trivandrum, who was not shown to be a superior officer. Applying Section 195(1)(b) Cr.P.C. and the authority in Income Tax Officer, Special Circle v. Kerala Oil Mills, the court concluded that the complainant was incompetent to file the complaint insofar as it prosecuted offences under Sections 193 and 196 IPC.

  2. Maintainability of prosecution under the Income Tax Act (Sections 276C(1) and 277(1)):

    The court treated prosecutions under the Income Tax Act as independent of offences under Sections 193 and 196 IPC. The statutory restriction on initiating prosecution under the Act (the need for the previous sanction of the Commissioner of Income Tax) was satisfied: the complaint was filed at the instance of the Commissioner of Income Tax, Trivandrum, with proceedings dated 18-1-1988. Consequently, the complaint was maintainable to the extent that it related to offences under the Income Tax Act.

  3. Effect of appellate orders (Tribunal and Commissioner (Appeals)) on criminal prosecution:

    The Tribunal (I.T.A. No. 320/87, order dated 9-9-1988) made an estimated addition of Rs. 5 lakhs to the petitioner's disclosed income, describing the addition as an estimate "and not on the basis of any suppressed income in the books of accounts maintained by the assessee." The court analysed the Tribunal's order and noted that the Tribunal rejected the accounts produced by the petitioner and accepted the concession of the petitioner's counsel (that books would not be pressed), treating the case under the proviso to Section 145. Thus, the Tribunal did not find the petitioner’s accounts to be correct or to prove absence of fabrication.

    The Commissioner of Income Tax (Appeals) cancelled the penalty imposed under Section 271(1)(c) by observing that the Tribunal's addition was estimated and not based on concealment or suppression of sale proceeds; hence, in the Commissioner's view, "the charge of concealment of income does not survive." The court observed that the Commissioner relied on the Tribunal's order and did not make an independent finding that the return was correct.

    Quoting the Supreme Court in P. Jayappan v. S.K. Perumal, the court stressed that criminal courts must independently evaluate whether the ingredients of criminal offences are established on the evidence before them, and are not bound by departmental or appellate outcomes in revenue proceedings. Therefore, the Tribunal and Commissioner (Appeals) orders do not by themselves preclude trial or amount to a finding that no fabrication occurred.

  4. Final synthesis and direction:

    The court synthesised the above: the counts under Sections 193 and 196 IPC were procedurally unsustainable as the complaint was not filed by the competent income-tax authority, whereas the offences under the Income Tax Act (and other IPC sections alleged apart from 193 and 196) remained maintainable and required a criminal investigation/trial on the evidence. The court therefore quashed only that portion of the complaint relating to Sections 193 and 196 IPC and directed the lower court to inquire into and decide the remaining offences on the evidence, directing expeditious disposal.

Holding and Implications

Holding: The petition is partly allowed: the complaint is quashed insofar as it alleges offences under Sections 193 and 196 of the Indian Penal Code; the remaining offences alleged (including offences under Sections 276C(1) and 277(1) of the Income Tax Act and other IPC counts remaining in the complaint) are to be inquired into and decided by the trial court on the basis of evidence.

Implications and immediate effects:

  • The counts charging the petitioner under Sections 193 and 196 IPC have been held unsustainable and are quashed because the complaint was not instituted by the competent income-tax authority as required by Section 195(1)(b) Cr.P.C., read with Section 136 of the Income Tax Act (and consistent with the court's reading of prior authority).
  • The complaint remains maintainable and actionable in respect of offences under the Income Tax Act (Sections 276C(1) and 277(1)) because the requisite previous sanction of the Commissioner of Income Tax was produced; those charges, together with other IPC counts not quashed, must be tried on their merits by the criminal court.
  • The appellate decisions (Tribunal and Commissioner (Appeals)) do not bind the criminal court; the criminal court must independently evaluate the evidence in accordance with the principle laid down in P. Jayappan v. S.K. Perumal. Hence, the quashing was limited and did not extinguish the Department's ability to prosecute the remaining offences.
  • The Magistrate below was directed to dispose of the criminal complaint registered as C.C. 36/88 (as stated in the opinion) in accordance with law as expeditiously as possible.
  • No novel legal principle was laid down by this opinion; the court applied existing statutory rules and precedents to the facts and limited the quashing to those counts found procedurally defective.

Notes based strictly on the provided opinion text: procedural dates, file numbers, and quotations used above are those contained in the opinion. No information has been added beyond the contents of the opinion.

Show all summary ...

1. Petitioner was an abkari contractor. For the assessment year 1983-1984 (accounting year 1982-1983) he was conducting arrack shops and toddy shops in Kazhakkoottam Excise Range in Trivandrum district. He filed return of income on 6-12-1983 before the Income-Tax Officer, D-Ward, Quilon offering an income of Rs. 4,64,845/-. A search u/s. 132 of the Income Tax Act, 1961, hereinafter referred to as ‘the Act’, was conducted at the arrack depot of the accused at Kazhakoottam and at the residence of the accused on 5-3-1985. In the course of search it is alleged that certain original books of accounts disclosing sale of arrack on different rates were found out. According to the income tax authorities the return of income filed by the petitioner on 6-12-1983 was in correct and it was filed by fabricating and manipulating false accounts. On this allegation a complaint, copy of which is marked in this case as Annexure-5, was filed before the Additional Chief Judicial Magistrate's Court (Economic Offences), Ernakulam, for offences u/ss 276C(1) and 277(i) of the Act and Sections 193, 196 and 415 IPC. That court registered the complaint as C.C 34/87 and has issued summons to the petitioner.

2. Petitioner seeks to quash the proceedings before the court below on two grounds. First ground is as follows. The petitioner filed return of income before the Income Tax Office D-Ward, Quilon, on 6-12-1983. That officer passed the assessment order on 28-2-1986 So the offences u/ss. 193 and 196 IPC if at all committed by the petitioner was to the Court of the Income Tax Officer, D-Ward, Quilon. Only that Officer or superior officer to whom that officer was subordinate could have filed a complaint. The complaint, Annexure-5, was filed by the Income Tax Officer, B-Ward, Trivandrum. That complaint is in-competent. The second ground urged that the allegation regarding fabrication and manipulation of false accounts and other documents cannot stand in view of the decision of the Commissioner of Income Tax (Appeals) in the appeal filed by the petitioner and by virtue of the order passed by the Income Tax Appellate Tribunal, Cochin Bench, in I.T.A No. 320/87. I shah proceed to deal with these grounds in detail. Offences alleged against the petitioner are those u/ss. 276C(1) and 277(1) of the Act and Sections 193, 196 and 415 of the Penal Code. The petitioner filed return of income for the assessment year 1983-1984 on 6-12-1983 before the Income Tax Officer, D-Ward, Quilon. That officer passed a final order of assessment on 28-2-1986. So, it is contended that offences u/ss. 193 and 196 IPC, if at all committed, must be taken to have been committed before the Income Tax Officer, D-Ward, Quilon. Section 136 of the Act provides that any proceeding before the income tax authorities shall be deemed to be a judicial proceeding for the purpose of Section 196 IPC and that every income tax authority shall he a Civil Court for the purposes of Section 195 of the Code of Criminal Procedure. So, if an offence u/s. 193 or 196 IPC has been committed in respect of a proceeding before the income tax authority, that authority alone can file a complaint u/s 195 of the Code of Crl. Procedure. If that authority is not filing complaint then some-other authority to which the first authority is subordinate can initiate proceedings. In the instant Case the alleged false return of income was filed before the Income Tax Officer, D-Ward, Quilon. So, offence u/s. 193 or 196 IPC can be taken to have been committed before that officer or court. Annexure-5 complaint was not filed by that officer. It was filed by the Income Tax Officer, B-Ward, Trivandrum. The learned counsel representing the Revenue has no case that the Income-Tax. Officer, B-Ward, Trivandrum is a superior officer to the Income Tax Officer D-Ward, Quilon. In other words, the Income Tax Officer, D-Ward Quilon, is not subordinate to the Income Tax Officer, B-Ward, Trivandrum. Therefore, as per Section 195(1)(b) of the Code of Criminal Procedure, the complainant is incompetent to file the complaint for prosecuting the petitioner for offences u/ss. 193 and 196 IPC. This view is supported by the decision in Income Tax Officer, Special Circle v. Kerala Oil Mills (1986 K.L.T 947).

3. The learned counsel representing the petitioner contends that the decision in 1986 K.L.T 947 is also authority for the proposition that the Income Tax Officer before whom the offences u/ss. 193 and 196 IPC are committed alone can file a complaint for offences u/s. 277 of the Act. I find it difficult to accept this, argument. In that decision the maintainability of a complaint filed by an officer of the Income Tax Department as per the provisions of the Act for an offence u/s. 277 of the Act was not considered by this court. Independent of the charge u/ss 193 and 196 IPC a prosecution for violation of the provisions of the Act is maintainable. Offences u/ss 276C(1) and 277(i) of the Act are independent of Sections 193 and 196 IPC. The restriction for initiation of prosecution for offence under the Act is that it cannot be initiated except with the previous sanction of the Commissioner of Income Tax. The complaint in this case is one filed at the instance of the Commissioner of Income Tax, Trivandrum, as per his proceedings No. 898.ADI/87-88 dated 18-1-1988. The complaint, which is filed with the previous sanction of the Commissioner, is maintainable in so far as it relates to the offence under the Act.

4. From the above discussion it follows that the complaint against the petitioner for offences u/ss. 193 and 196 IPC alone is unsustainable. The complaint in respect off other offences alleged therein is to be enquired into by the court below. Ground No. 1 raised by the petitioner is answered in this manner.

5. Petitioner challenged the order of assessment passed against him for the assessment year 1983-1984 before the Income Tax Appellate Tribunal, Cochin Bench in I.T.A No. 320/87. That appeal was disposed of by the Tribunal by order dated 9-9-1988 observing:

“We are therefore, left with the payments made to Excise authorities. Police and Politicians. Taking all these things into account, we are of opinion that an addition of Rs. 5 lakhs should be made to the disclosed income as per books. This is merely as a matter of estimate and not on the basis of any suppressed income in the books of accounts maintained by the assessee.”

6. This order, according to the learned counsel appearing for the petitioner, shows that the petitioner did not file any false return of income by fabricating or manipulating false accounts or other documents as alleged in the complaint.

7. Learned counsel representing the Revenue submits that the Tribunal after rejecting the accounts accepted the concession made by the petitioner's counsel, Sri C. Kochunni Nair for adding Rs. 5 lakhs to the income disclosed as per the books. The Tribunal in paragraph-16 of the order (Annexure IX) observed:

“We will, therefore, treat it as an ordinary case and go first into the issue of reasons for rejection of books of accounts. Shri. Nair had fairly accepted before us that he would not press for acceptance of books results and a fair estimate may be made. Therefore, on concession from Shri Nair, we can treat it as a case where the proviso to Section 145 would be applicable.”

8. The learned counsel appearing for the Revenue went on to submit that the order of the Tribunal, Annexure-IX, brings out the fact that the books of accounts produced by the petitioner were rejected. I find much force in this argument. The accounts produced by the petitioner were not acted upon by the Tribunal. The Tribunal accepted the concession made by the learned counsel representing the petitioner. So, it cannot beheld that the decision rendered by the Tribunal has the effect of finding that the accounts were not fabricated or that the petitioner had not manipulated false accounts. Nor has it the effect of stating that the accounts produced by the petitioner are correct.

9. The next argument advanced by the learned counsel appearing for the petitioner is that the penalty imposed by the Income Tax Officer u/s. 271(1)(c) of the Act has been cancelled by the Commissioner of Income Tax (Appeals), Trivandrum, by order dated 31-10-1988 and hence no prosecution for manipulation of accounts of for fabricating accounts be sustained. According to the learned counsel appearing for the. Revenue, the Commissioner of Income Tax (Appeals), interfered with the order imposing penalty solely relying on the Tribunal's order. When the Tribunal refused to accept the books of accounts produced by the petitioner as correct and genuine, the decision on the appeal will not in any way alter the situation.

10. The operative portion of the order of the Commissioner (Appeals) is:

“In the light of the nature of addition made as per the Tribunal's order, it is only a case of estimated addition and even this estimated addition is not based on any concealment or suppression of sale proceeds or any question of facts. In view of the foregoing, the charge of concealment of income does not survive. There is no case for levy of penalty under s. 271(1)(c) of the Act. The penalty order is cancelled accordingly.”

11. From this it is evident that the Commissioner of Income tax (Appeals) was basing his decision solely on the findings of the Tribunal. Therefore, the learned counsel appearing for the Revenue is well within his province when it is argued that the order of the Tribunal or of the Commissioner (Appeals) has not entered a finding that the return of income filed by the petitioner was correct.

12. The question whether prosecution for offences punishable u/ss. 276(1) and 277(i) of the Act and u/ss 193 and 196 IPC instituted by the Department while re-assessment proceedings under the Act are pending are liable to be quashed on the ground that they are not maintainable, came up for consideration before the Supreme Court in P. Jayappan v. S.K Perumal, First Income Tax Officer, Tuticorin (1984 Supp SCC 437 : AIR 1984 SC 1693). Their Lordships observed:

“In the criminal case all the ingredients of the offence in question have to be established in order to secure the conviction of the accused. 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. It does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it. Otherwise there is a danger of a contention being advanced that whenever the assessee or any other person liable under the Act has failed to convince the authorities in the proceedings under the Act that he has not deliberately made any false statement or that he has not fabricated any material evidence, the conviction of such person should invariably follow in the criminal court.”

13. The allegation now made against the petitioner is that he filed false return of income and fabricated and manipulated false accounts and other documents while filing the returns for the assessment year 1983-1984 (accounting year 1982-1983.) The Tribunal's order of the Commissioner (Appeals), as stated earlier, have not gone to state that the accounts produced by the petitioner and the return of income filed by him are correct. So, the criminal court has to go into the question as to whether the complainant succeeds in bringing out the offence charged against the petitioner. The 2nd ground urged by the petitioner is answered accordingly. The Criminal M.C is disposed of by quashing that part of the complaint relating to the offences u/ss. 193 and 196 IPC. The other offences alleged are to be enquired into and decided on the basis of evidence to be let in. The learned Magistrate is directed to dispose of C.C 36/88 in accordance with law as expeditiously as possible.

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