M/S.OUR COLLEGE, T.D.ROAD, ERNAKULAM V. ASST.COMMISSIONER OF INCOME TAX

Crl.Rev.Pet/2126/2005

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The case involves M/S. Our College and its partners, who were accused of attempting to evade tax and making false statements under the Income Tax Act, 1961, for the assessment year 1987-88. The Additional Chief Judicial Magistrate dismissed their application for discharge under Section 245(2) of the Cr.P.C., leading to this revision petition. The High Court found procedural irregularities in the trial court's handling of cross-examinations and the discharge application, leading to the setting aside of the impugned order and remitting the case for fresh proceedings.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 765716 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 05-11-2020
• Assessment Year: misc
• Other Referred Cases: Ajoy Kumar Ghose v. State of Jharkhand & another [(2009) 14 SCC 115]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH; P K R MENON; GEORGE GEORGE; CHRISTOPHER ABRAHAM; K M V PANDALAI
• Assessee Lawyers: ARUN
• Keywords: Concealment of income; Income Tax; Wilful attempt to evade tax; False statement in verification; Discharge under Cr.P.C.
• Section: 139(9); 276C(1); 277; 244(1); 245(2)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.ANIL KUMAR THURSDAY, THE 05TH DAY OF NOVEMBER 2020/14TH KARTHIKA, 1942 Crl.Rev.Pet.No.2126 OF 2005 AGAINST THE ORDER IN Crl.M.P.No.52/05 IN CC 95/92 DATED 05-08-2005 OF ADDITIONAL CHIEF JUDICIAL MAGISTRATE (ECONOMIC OFFENCES), ERNAKULAM REVISION PETITIONERS/PETITIONERS/ACCUSED Nos.1 to 3: 1 M/S.OUR COLLEGE, T.D.ROAD, ERNAKULAM, COCHIN-35, REPRESENTED BY ITS MANAGING PARTNER, K.BALAKRISHNAN NAIR. 2 K.BALAKRISHNAN NAIR, MANAGING PARTNER, M/S.OUR COLLEGE, T.D.ROAD, ERNAKULAM, COCHIN-35. 3 J.B.MOHAN, PARTNER, M/S.OUR COLLEGE, T.D.ROAD, ERNAKULAM, COCHIN-35. BY ADV.SRI.ARUN RAJ.S. RESPONDENT/RESPONDENT/COMPLAINANT: ASST.COMMISSIONER OF INCOME TAX, CIRCLE-3, DIVISION-II, C.R.BUILDINGS, I.S.PRESS ROAD, COCHIN-18. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX BY ADV. SRI.P.K.R.MENON SR.COUNSEL GOI TAXES BY ADV. SRI.GEORGE K.GEORGE, SC, FOR INCOME TAX BY SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT BY SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT THIS CRIMINAL REVISION PETITION HAVING BEEN FINALLY HEARD ON 05.11.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: Crl.R.P.No.2126 of 2005 ..2.. [CR] ORDER Dated this the 05th day of November, 2020 The revision petitioners are the accused 1 to 3 and the respondent is the complainant in C.C.No.95/1992 on the file of the Additional Chief Judicial Magistrate Court (Economic Offences), Ernakulam. Parties are hereinafter referred to as 'the complainant' and 'the accused' according to their status in the trial court unless otherwise stated. 2. The case arises under the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The assessment year concerned herein is 1987-88. The offences alleged against the accused are punishable under Sections 276C(1) and 277 of the Act in respect of the assessment year 1987-88. Primarily, the complaint against the accused is arising from wilful attempt to evade tax, penalty or interest, false statement in verification, etc. Crl.R.P.No.2126 of 2005 ..3.. 3. The 1st accused is a firm, running parallel colleges at Ernakulam and Nedumangad, and is an assessee to the income tax. The accused 2 and 3 are the Managing Partner and Partner respectively of the 1st accused firm. The case is instituted otherwise than on a police report by the complainant for the offences punishable under Sections 276C(1) and 277 of the Act. 4. The 1st accused firm filed its return on 29.9.1987 along with Annexure-A statement of total income, Annexure-B profit and loss account, Annexure-C balance sheet and other documents, as contemplated under Section 139(9) Explanation (a),(b),(bb),(c),(d), etc. of the Act disclosing a total income of Rs.3,16,000/-. This total income of Rs.3,16,000/- was arrived at after openly claiming deduction from the net profit of Rs.8,04,236/- disclosed by the firm in the profit and loss account which was filed along with the return. It could be seen from Annexures-A, B and C that the petitioner firm had disclosed a sum of Rs.8,04,236/- as the income and thereafter the firm had openly claimed a deduction of Rs.4,88,233/- and Crl.R.P.No.2126 of 2005 ..4.. then arrived at the figure of Rs.3,16,003/- which was the ultimate figure derived while filing the return of tax payable. The complainant, the Assessing Officer, on the basis of the consideration of the materials on record, assessed the firm at Rs.6,50,000/-. The difference between the returned figure and the assessed figure was treated as the concealed income. 5. The learned Additional Chief Judicial Magistrate after taking cognizance of the offence under Section 276C(1) and 277 of the Income Tax Act issued summons to the accused 1 to 3. In a warrant-case instituted otherwise than on a police report, when the accused appeared before the learned Magistrate under Section 244(1) of the Cr.P.C., the learned Magistrate is obliged to hear the prosecution and take all evidence as may be produced in support of the prosecution. In this case, the learned Magistrate examined PWs.1 and 2 on the part of the prosecution. On going through the evidence of PW1, it is seen that the trial court did not permit the accused to cross-examine PW1, presumably for the reason that the defence will get an opportunity to cross-examine PW1 later. Crl.R.P.No.2126 of 2005 ..5.. There is nothing on record to indicate that the accused opted to cross-examine PW1 at a later stage. However, the trial court permitted the accused to cross-examine PW2. Two more witnesses are yet to be examined by the prosecution as per the witness list submitted before the trial court. 6. Soon after the examination of PWs.1 and 2, the accused filed Crl.M.P.No.52/05 before the trial court seeking for a discharge under Section 245(2) of the Cr.P.C. The learned Magistrate dismissed the application concluding that there is concealment of income on the part of the accused and accordingly dismissed the application filed under Section 245(2) of the Cr.P.C. The petitioners, being aggrieved by the Anneuxre-E order, have filed this revision before this Court. 7. Heard Sri.Arun Raj.S., the learned counsel for the revision petitioners and Sri.Jose Joseph, learned Standing Counsel for the Income Tax. 8. When the revision petition has come up for hearing, the learned counsel for the revision petitioners Sri.Arun Raj.S. submits that the 2nd revision petitioner is no more and the case Crl.R.P.No.2126 of 2005 ..6.. against him stands abated. The 2nd revision petitioner was the Managing Partner of the 1st revision petitioner herein. 9. The learned counsel for the revision petitioners further submitted that it was brought to the notice of the learned Magistrate that Annexures-A and B statement and profit and loss account respectively which form part of the return marked as Ext.P4 on the side of the complainant, would show that Rs.8,04,236/- is the income figure which the accused have disclosed whereas the income assessed by the Assessing Officer was only Rs.6,50,000/-. According to the learned counsel, the claim of depreciation to the tune of Rs.4,88,233/- is an open claim which the Assessing Officer could allow or reject. Thus, it is contended that the Assessing Officer could have rejected the claim for deduction and assessed the income at Rs.8,04,236/-. Instead of the above, the Assessing Officer, it has been submitted, assessed the income at Rs.6,50,000/-. 10. The learned counsel for the respondent, on the other hand, would submit that taking into consideration the Crl.R.P.No.2126 of 2005 ..7.. evidence available on record, the learned Magistrate declined the prayer of the accused to discharge them under Section 245(2) of the Cr.P.C. The learned counsel for the respondent further submitted that no other conclusion is reasonably possible and where the order of the learned Magistrate is neither perverse nor suffers from any illegality, the order would not be interfered in revision. 11. When it comes to cross-examination, the trial court has adopted two different yardsticks as stated earlier to examine PWs.1 and 2. This is apparently incorrect. In this context, the Apex Court in Ajoy Kumar Ghose v. State of Jharkhand & another [(2009) 14 SCC 115] held in paragraph 51 of the judgment thus:- “51. The right of cross-examination is a very salutary right and the accused would have to be given an opportunity to cross-examine the witnesses, who have been offered at the stage of Section 244(1) Cr.P.C. The accused can show, by way of the cross-examination, that there is no justifiable ground against him for facing the trial and for that purpose, the prosecution would have Crl.R.P.No.2126 of 2005 ..8.. to offer some evidence. While interpreting this Section, the prejudice likely to be caused to the accused in his losing an opportunity to show to the Court that he is not liable to face the trial on account of there being no evidence against him, cannot be ignored.” 12. Now coming to the facts of this case, it is clear that the opportunity to cross-examine PW1 is curtailed as the trial court has straight away proceeded to examine PW2. The trial court has taken into consideration the complaint, oral evidence of PWs.1 and 2 and dismissed the application filed by the accused under Section 245(2) of the Cr.P.C. In view of the decision in Ajoy Kumar Ghose's case (supra), the jurisdictional Magistrate has the power to discharge the accused under Section 245(2) of the Cr.P.C. if the charge levelled against the accused is groundless, at any previous stage, that is, before the evidence is completed under Section 244(1) of the Cr.P.C. or any stage prior to that. Consequent to the application filed by the accused, the learned Magistrate not only dismissed the application but also failed to state the Crl.R.P.No.2126 of 2005 ..9.. future course of action under Section 244(1) of the Cr.P.C. Paragraphs 24, 25 and 26 in Ajoy Kumar Ghose's case (supra) are relevant in this context, which are extracted as hereinbelow:- “24. Now, there is a clear difference in Sections 245(1) and 245(2) of the Cr.P.C. Under Section 245(1), the Magistrate has the advantage of the evidence led by the prosecution before him under Section 244 and he has to consider whether if the evidence remains unrebutted, the conviction of the accused would be warranted. If there is no discernible incriminating material in the evidence, then the Magistrate proceeds to discharge the accused under Section 245(1) Cr.P.C. 25. The situation under Section 245(2) Cr.P.C. is, however, different. There, under sub-Section (2), the Magistrate has the power of discharging the accused at any previous stage of the case, i.e., even before such evidence is led. However, for discharging an accused under Section 245(2) Cr.P.C., the Magistrate has to come to a finding that the charge is groundless. There is no Crl.R.P.No.2126 of 2005 ..10.. question of any consideration of evidence at that stage, because there is none. The Magistrate can take this decision before the accused appears or is brought before the Court or the evidence is led under Section 244 Cr.P.C. The words appearing in Section 245(2) Cr.P.C. \"at any previous stage of the case\", clearly bring out this position. 26. It will be better to see what is that \"previous stage\". The previous stage would obviously be before the evidence of the prosecution under Section 244(1) Cr.P.C. is completed or any stage prior to that.” 13. In this case, the learned Magistrate dismissed the application filed by the accused under Section 245(2) of the Cr.P.C. before the entire evidence is recorded under Section 244(1) of the Cr.P.C. This seems to be the established law. However, the impugned order was passed by the learned Magistrate after taking into consideration the evidence adduced by PW1 without giving an opportunity to cross- examine PW1. The principles of natural justice mandate that it Crl.R.P.No.2126 of 2005 ..11.. is only after affording an opportunity to cross-examine PW1, the trial court would proceed to decide as to whether the case levelled against the accused is groundless or not. If the learned Magistrate comes to a conclusion that the charge is groundless, the learned Magistrate may proceed to discharge the accused under Section 245(2) of the Cr.P.C. If not, the learned Magistrate is duty bound to proceed under Section 244(1) of the Cr.P.C. and take all evidence as may be produced by the complainant in support of the prosecution. After taking such evidence, the learned Magistrate comes to a conclusion that no case against the accused has been made out which, if unrebutted, would warrant their conviction, the learned Magistrate shall proceed to discharge the accused under Section 245(1) of the Cr.PC. If not, the learned Magistrate will proceed under Section 246(1) of the Cr.P.C. Thus, the complainant will get the second opportunity to lead evidence in support of the prosecution. Thus, the case is liable to be remitted back to the trial court, where the complainant may offer remaining witnesses under Section 244(1) of Cr.P.C. and Crl.R.P.No.2126 of 2005 ..12.. the trial court shall give an opportunity to cross-examine the witnesses for the prosecution by the accused. It is only after affording an opportunity to cross-examine PW1, the trial court would proceed to decide the petition filed by the accused under Section 245(2) of the Cr.P.C. and decide whether the case levelled against the accused is groundless or not. In case the application under Section 245(2) of the Cr.P.C. is not insisted by the accused before the trial court, the trial court shall proceed to examine the remaining witnesses under Section 244(1) of the Cr.P.C. offered by the prosecution and decide the case in accordance with law. 14. Accordingly, the criminal revision petition is allowed in part and the impugned order stands set aside. It is further clarified that the case stands remitted for consideration afresh in accordance with law, if possible, within three months from the date of production of a certified copy of this order before the trial court. The trial court will decide the case on the basis of the materials and the evidence adduced by the prosecution uninfluenced by the earlier order passed by the trial court. This Crl.R.P.No.2126 of 2005 ..13.. Court, however, makes it clear that this Court has not expressed any opinion on the merits of the case while having formed an opinion to remand the case to the trial court. Sd/- N.ANIL KUMAR, JUDGE skj "