Navarathna And Co. v. State

Padmini Jesudurai, J.:— The petitioner, a chartered accountant, prosecuted along with an income-tax assessee, on a complaint filed by the respondent, before the Additional Chief Metropolitan Magistrate, Madras, in CC No. 151 of 1985 for offences under sections 120B, 193, 196, 420 and 511, Indian Penal Code, and sections 276C, 277 and 278 of the Income-tax Act, 1961, hereinafter referred to as “the Act”, invokes the inherent powers of this court to quash the same.

2. Facts briefly are:— One Adhimulam, a transport contractor, arrayed as the first accused (the petitioner being the second accused) and doing business in transport of oil, etc., from storage points and installations of Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum Corporation, to various factories in and around Madras, filed on July 30, 1983, a return of income, along with profit and loss account and balance-sheet for the assessment year 1983–84. It is alleged that on October 27, 1983, a search of his business premises and residential premises was made under section 132(1) of the Act, which resulted in the seizure of certain documents, account books and papers. On a perusal of the above materials, it was found that the statement of profit and loss account and balance-sheet submitted by the first accused on July 30, 1983, was false, and his income had been understated and his expenditure had been overstated.

3. The complaint further alleges that the above statement was typed in the letter-head of Navarathna and Co., Chartered Accountants, of which the petitioner herein was the proprietor, and that he had acted in collusion and conspiracy with the first accused and had committed offences under sections 120B, 193 and 420, Indian Penal Code, and also offences under sections 276C(1) and 277 of the Act. It was further alleged that the petitioner by typing the false trading, profit and loss account and balance-sheet as on March 31, 1983, in his letter-head for the first accused and helping the first accused to deliver false income-tax return, etc., abetted and induced the first accused to make and deliver statements and declarations relating to income, which he knew were false and thereby committed an offence under section 278 of the Act. Contending that the above material, even if accepted to be true, would not make out the offences alleged against him, the petitioner invokes the inherent powers of this court for quashing the proceedings.

4. Learned counsel for the petitioner contended that the only allegation made against the petitioner was that he had typed returns (statements) in the letterhead of Navarathna and Co., of which the petitioner was the proprietor and that from the above fact alone, even if found to be true, no inference could be drawn that the petitioner acted in furtherance of a common intention, along with the first accused or had conspired with the first accused or had abetted the first accused in making a false return. The auditor would prepare the profit and loss account and the balance-sheet on the materials that are placed before him by his client and the profit and loss account and balance-sheet so prepared, could be typed in the letter-head of the auditor to show that the same has been prepared by him on the basis of the accounts placed before him by his client. Even if, on the basis of some additional information, it was later proved that the profit and loss account and the balance-sheet were found to be false, no liability could be placed upon the auditor, unless, of course, it was shown that at the time when he prepared the balance-sheet, this additional information was also placed before the auditor. Learned counsel placed reliance upon a decision of this court, which I shall refer to later.

5. Per contra, Thiru Sam. V. Chelliah, learned counsel for the respondent, contended that at this stage the allegations in the complaint ought to be taken at their face value and the truth or falsity of the same could not be gone into by this court and the complaint contained averments that the petitioner had acted in furtherance of a common intention, along with the first accused and had conspired with the first accused and had also abetted the commission of the offance, in filing false returns by the first accused and that, therefore, the other matters would be for the trial court to go into at the appropriate time.

6. I am unable to agree with the contention of learned counsel for the respondent. The only factual allegation made against the petitioner is that he is the authorised representative who has prepared the final accounts for the first accused and the same had been typed by him in the letter-head of Navarathna and Co., Chartered Accountants, of which the petitioner was the proprietor. No other factual allegation has been made against the petitioner. Being a case instituted on a private complaint, the only material that is now before the trial court is the complaint. No other document has been filed along with it. The question, whether there is any basis for holding that there is a prima facie case against the petitioner for the offences shown in the complaint for the trial to proceed with has, therefore, to be determined only on the allegations made in the complaint. The returns, which later were found to be false, are said to have been filed by the first accused on July 30, 1983. The petitioner, therefore, should have scrutinised the accounts and prepared the returns prior to July 30, 1983. The search was made on October 27, 1983. It is stated that certain documents were seized both from the residence as well as from the business premises of the first accused. There is no allegation in the complaint that these documents had actually been placed before the petitioner at the time when he prepared the returns for the first accused. Unless and until there is such a specified allegation that in spite of the additional documents being placed before the petitioner and despite the same, the latter prepared the returns which were found to be false, the question of abetment or conspiracy would not arise. It could not be even stated that the petitioner had knowledge that these additional documents existed. The further allegation that the petitioner acted in furtherance of a common intention and conspired with the first accused and abetted the first accused in filing false returns has no basis. From the mere fact that the returns, which later were found to be false, were prepared by the petitioner and were typed by him in his letter-head, it could not be stated that the petitioner also was a party to the filing of false returns. Learned counsel for the petitioner relied upon a decision of this court in CIT v. G.M Dandekar, [1952] 22 ITR 235, 239, 241 : 22 Comp Cas 356, 360, 362, wherein, a Bench of this court, referring to the auditor, held as follows:

“But he is under no duty to investigate whether the accounts produced by the assessees are correct or not. That is a matter for the decision of the Income-tax Tribunal…The charge is that he owed a duty to the Department to himself investigate the truth and correctness of the accounts of the assessees and not merely to act as their post office in transmitting them. We do not agree that the respondent is under any such duty to the Department and, therefore, no question of negligence arises.”

7. The auditor could prepare returns only on the materials placed before him by his client. There is no presumption that all materials available with the client are being placed before the auditor. Unless there was evidence to indicate that the additional materials, which had been unearthed during the seizure, had also been placed before the auditor and despite the same, the latter prepared false returns and made the first accused sign the same and delivered it to the Department, the auditor will not become liable under any one of the above provisions of law. Merely preparing returns on the basis of the accounts placed before him and having the same typed in his letter-head and delivering them to the client for signature will not make him liable, even if the returns are subsequently found to be false, on the basis of some new materials gathered by the Department.

8. In the instant case, there is nothing in the complaint to show that the documents so recovered during the seizure had been placed before the petitioner. Factually, there is no basis for the allegation that the petitioner had acted in furtherance of a common intention, along with the first accused or conspired with him or even abetted him in filing false returns. Even if all the averments made in the complaint are true, there would still be no basis to hold that the petitioner had committed any of the offences alleged against him. Continuance of the proceedings against the petitioner, therefore, would be an abuse of the process of law which this court under its inherent jurisdiction is bound to prevent.

9. In the result, the petition is allowed and the proceedings in C.C No. 151 of 1985 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, in so far as it relates to the present petitioner, are quashed.