D.N Bhasin And Another v. Union Of India And Others.

Sukhdev Singh Kang, J.:— This judgment will dispose of CWP Nos. 1080, 1528 and 1524 of 1984, filed by D.N Bhasin, pertaining to the assessment years 1979-80, 1980-81 and 1981-82, respectively, and CWP Nos. 1081, 1527 and 1526 of 1984, filed by Smt. Kanta Bhasin, pertaining to assessment years 1979-80, 1980-81 and 1981-82, respectively, as common questions of fact and law are involved.

2. A brief reference to the spinal facts will help to resolve the issues raised in these petitions:

The petitioners are carrying on business in the name and style of M/s. Bhasin Tent House, Sector 27-D, Chandigarh. D.N Bhasin filed income-tax returns for the assessment years 1979-80, 1980-81 and 1981-82 declaring therein total incomes of Rs. 14,990, Rs. 19,180 and Rs. 2,5,140 respectively, while Smt. Kanta Bhasin filed her income-tax returns for the assessment years 1979-80, 1980-81 and 1981-82, declaring therein total incomes of Rs. 20,340, 30,840 and Rs. 30,600, respectively. The assessments for the years 1979-80 and 1980-81 were completed on October 23, 1979, and October 23, 1980, respectively, in the case of D.N Bhasin, whereas assessments for the assessment years 1979-80 and 1980-81 were completed on October 23, 1979, and October 21, 1980, respectively, in the case of Smt. Kanta Bhasin, and the returned incomes were accepted by the Income-tax Officer, Distt. I(1), Chandigarh (respondent No. 4). However, the assessment for the assessment year 1981-82 was not completed.

3. On April 3, 1982, the Income-tax Department searched the business and residential premises of the petitioners and took into possession certain papers, on which certain writings had been made. The statements of the petitioners were recorded by the Income-tax Officer. On December 15, 1982, notices under section 148 of the Income-tax Act were received by the petitioners from the Income-tax Officer proposing to reassess their income for the assessment year 1979-80. Before the petitioners could file the return of income for the assessment year 1979-80 in pursuance of notice under section 148 of the Act, the Commissioner of Income-tax, Patiala, (respondent No. 3), granted sanction under section 279(1) of the Act and authorised the Income-tax Officer, Chandigarh, to file criminal complaints against the petitioners under sections 276C(1) and 277 of the Act.

4. It is pleaded by the petitioners that they had not been given any notice or opportunity of hearing before granting sanction. Similar notices under section 148 were issued to the petitioners for the assessment years 1980-81 and 1981-82, intimating them that the Income-tax Officer proposed to assess their income for these two years. The Commissioner of Income-tax, Patiala, granted sanction under section 279(1) of the Act authorising the Income-tax Officer, Chandigarh, to file a complaint against the petitioners under sections 276C and 277 of the Act for the assessment years 1980-81 and 1981-82. Thereafter, the Income-tax Officer filed complaints against the petitioners which are pending in the court of the Chief Judicial Magistrate, Chandigarh.

5. The Income-tax Officer framed best judgment assessments against the petitioners under section 144 of the Act, in relation to the assessment years 1979-80,1980-81 and 1981-82, and added certain amounts to the income of the petitioners and refrained the assessments on that basis. The petitioners, aggrieved by these orders of the Income-tax Officer, filed appeals before the Commissioner of Income-tax (Appeals), Chandigarh. The petitioners filed the present writ petition in March, 1984 challenging the vires of sections 276C, 277 and 279(1) of the Act and also seeking the quashing of the complaints filed against them in the criminal court.

6. The appeals filed by the petitioners were accepted and the orders of the Income-tax Officer adding certain amounts to the incomes returned by the petitioners in their returns of income were held to be not justified and in accordance with law. The Commissioner of Income-tax (Appeals) ordered that these additions had to be deleted from the incomes of the petitioners relating to the assessment years 1979-80, 1980-81 and 1981-82. The result was that the incomes returned by the petitioners initially were accepted to be correct. Copies of the order passed by the Commissioner of Income-tax (Appeals) have been placed on record with the permission of this court.

7. Mr. Sibal, learned counsel for the petitioners, has contended that the Commissioner of Income-tax (Appeals) had not accepted that the additions of income made by the Income-tax Officer to the incomes returned by the petitioners were justified and he had ordered their deletion. The basis and foundation of the complaints filed against the petitioners under sections 276C and 277 of the Act, that the petitioners had wilfully attempted to evade the tax chargeable under the Act and that they had made statements in their verification of the returns filed by them which were false was the finding of the Income-tax Officer. In view of the categoric findings of the Commissioner of Income-tax (Appeals) that the additions to the incomes of the petitioners were not justified and the same were liable to be deleted, it cannot be said that the petitioners had tried to evade any tax or had made any false statements in the verification of their returns.

8. It was contended by Shri A.K Mittal, learned counsel appearing on behalf of the Revenue, that the decision of the Commissioner of Income-tax (Appeals) was not conclusive regarding the conduct and criminality of the petitioners. This matter had to be tried by the Criminal Court which is entitled to come to its own conclusions on the basis of the evidence adduced before it and the criminal proceedings pending against the petitioners on the basis of the complaints filed by the Income-tax Officers cannot be quashed simply on the ground that the Commissioner of Income-tax (Appeals) had taken a particular view of the facts in the case. The opinion and the conclusions of the Commissioner of Income-tax (Appeals) are not binding on the criminal court. At best they can be treated to be a piece of evidence which may be taken into account by the criminal court while determining the guilt of the petitioners. The writ petitions, therefore, are premature. In support of this contention, he has referred me to a decision of the final court in P. Jayappan v. S.K Peru-mal, 1st ITO, [1984] 149 ITR 696 (SC).

9. Mr. Mittal has also contended that the Revenue has filed an appeal against the order of the Commissioner of Income-tax (Appeals) and the same is pending before the Income-tax Appellate Tribunal and, as such, it cannot be said that the findings of the Commissioner had attained finality.

10. A somewhat similar situation arose in Kanshi Ram Wadhwa v. ITO, [1984] 145 ITR 109 (P&H), wherein the Income-tax Officer imposed a penalty on the assessee. On an appeal filed by the assessee, the order was quashed by the Appellate Assistant Commissioner of Income-tax. In the meantime, criminal proceedings had been launched against the assessee under section 277 of the Act. The assessee argued before the criminal court that the appellate authority had quashed the order of the Income-tax Officer in appeal filed by him and hence the criminal proceedings pending against him should be quashed. He also relied upon a decision of the final court in Uttam Chand v. ITO, [1982] 133 ITR 909 (SC) and a decision of this court in Parhash Chand v. ITO, [1982] 134 ITR 8. The learned Magistrate repelled the contentions of the assessee, because he was of the view that in the absence of some evidence on the record, it would be premature to pronounce on the matter. The assessee filed a petition under section 482, Criminal Procedure Code 1973, assailing the orders of the Magistrate. M.M Punchhi J. allowed the petition, relying on the decision of the Supreme Court in Uttam Chand's case, [1982] 133 ITR 909 and quashed the criminal proceedings pending against the assessee. It was observed that if there was no case for sustenance of penalty, it equally was not a case for criminal prosecution. Uttam Chand's case, [1982] 133 ITR 909 also pertains to this jurisdiction. Uttam Chand and others had filed criminal revisions under article 227 of the Constitution of India read with section 482 of the Code of Criminal Procedure for quashing the criminal proceedings launched against them under various sections of the Indian Penal Code on the ground that the proceedings pending against them before the Magistrate amounted to an abuse of process, in view of the findings of the Income-tax Appellate Tribunal recorded in their favour setting aside the orders of the Income-tax Officer holding that the firm of the petitioners was not genuine and registration thereof had been obtained by misrepresentation and suppression of facts. The matter came up for decision before A.S Bains J. He was of the view that the findings of the Income-tax Appellate Tribunal were not binding on the criminal court. The criminal court had to go into the matter independently and had to form its own opinion and record its own conclusions regarding the guilt of the petitioners on the basis of the evidence led before it. He dismissed the writ petition. Dissatisfied with that order, Uttam Chand and others filed a special leave petition before the final court. It was ordered (p. 910 of 133 ITR):

“Heard counsel, special leave granted. In view of the finding recorded by the Income-tax Appellate Tribunal that it was clear on the appraisal of the entire material on the record that Shrimati Janak Rani was a partner of the assessee-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. There will be no order as to costs.”

11. It is thus manifest that the findings of the Commissioner of Income-tax (Appeals) are relevant and the criminal court is required to act upon them. If the Commissioner of Income-tax (Appeals) came to the conclusion that the additions made to the income of the petitioners (assessees) were not justified and ordered the same to be deleted, it can no longer be pleaded that the petitioners tried to evade tax or had made false statements in the verification of their returns. There was no case left for prosecuting the petitioners in a criminal court for filing false returns or attempting to evade tax. P. Jayappan's case, [1984] 149 ITR 696 (SC), relied upon by Mr. Mittal, does not advance his case. That was a case on its own facts. Therein, a search was conducted in the premises of the assessee which resulted in the seizure of several documents and account books which revealed suppression of purchase of chicory seeds, existence of several bank accounts, fixed deposits, investments in the names of his wife and daughters and several bank accounts not disclosed in the statements filed by him along with the original return for the assessment year 1977-78. A complaint was filed against the assessee under sections 276 and 277 of the Act, on the allegations that he had deliberately filed a false return and had kept false accounts with the intention of using them as genuine evidence in the assessment proceedings. Similar complaints were made for the three preceding years. The petitioners thereupon filed a petition under section 482 of the Code of Criminal Procedure before the High Court to have the proceedings quashed contending that the launching of the criminal prosecution was premature because the reassessment proceedings started against him for these years had not been completed. The High Court dismissed the petitions. Thereafter, the assessee filed a special leave petition before the Supreme Court and it was in this context that it was observed that the criminal court no doubt has to give due regard to the result of any proceedings under the Income-tax 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 was further observed that it did 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. It thus appears that the facts in P. Jayappan's case, [1984] 149 ITR 696 (SC) were not at all similar to the facts of the present case. In that case, even the reassessments had not been completed when the assessee rushed to get the criminal complaint quashed. There was no finding of any authority under the Act in his favour. Their Lordships were not pronouncing upon the effect of the orders passed by the appellate or the revisional authorities quashing the orders of the Income-tax Officer who had launched the criminal proceedings. The general observations in P. Jayappan's case, [1984] 149 ITR 696 (SC) relating to the weight to be given by a criminal court to the orders passed by the Revenue authorities do not in any way water down the categoric findings of a Bench of co-equal authority in Uttam Chand's case, [1982] 133 ITR 909, wherein the view so taken by A.S Bains, J. had been expressly overruled. The appeal had been allowed only and solely on the basis of the findings recorded by the Income-tax Appellate Tribunal and the proceedings in the criminal court were ordered to be quashed.

12. In this view of the matter, these writ petitions must succeed and are allowed. The criminal proceedings pending before the learned Chief Judicial Magistrate relating to the assessment years 1979-80, 1980-81 and 1981-82 are, therefore, quashed. It is, however, made clear that in case the orders of the Commissioner of Income-tax (Appeals) are set aside and that order achieves finality, the Revenue will be entitled to file fresh complaints against the petitioners on the same facts and grounds in accordance with law and this judgment will not stand in their way to that extent. No costs.