N.R.AGARWAL INDUSTRIES LTD. V. JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE - 2

CR.MA/3437/2004

AI Insights

The case involves N.R. Agarwal Industries Ltd. and its directors, who were accused by the Joint Commissioner of Income Tax, Surat, of willfully concealing income and furnishing inaccurate particulars in their tax returns for the assessment years 1994-95 to 1996-97. The allegations were based on a search conducted under Section 132 of the Income Tax Act, 1961, which led to the discovery of undisclosed stock. The prosecution was initiated under Sections 276C(1), 277, and 278B of the Act. The applicants challenged the criminal proceedings, arguing that the necessary sanctions were improperly granted and that the substantive issues had not been adequately considered in previous related applications. The court, after examining the merits of the case and the applicable legal provisions, concluded that the criminal proceedings were not justified, leading to the quashing of the charges.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 750879 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-10-2018
• Assessment Year: misc
• Other Referred Cases: A.C.I.T. v. Velliappa Textile Mills Ltd., Mohd. Iqbal Ahmed v. State of Andhra Pradesh, Commissioner of Income Tax, Gujarat-III v. Vijaychand Harilal, M.A.Unneerikutty and Others v. Deputy Commissioner of Income Tax, Assessment, Assistant Commissioner, Assessment-II, Bangalore and Others v. Velliappa Textiles Ltd. and Another, Homi Phiroze Ranina v. State of Maharashtra, K.C.Builders v. Assistant Commissioner, Income Tax, Krishna Textile v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PUBLIC PROSECUTOR
• Assessee Lawyers: J P SHAH; MANISH SHAH; PREMAL JOSHI; KALPANAK RAVAL
• Keywords: Block assessment; Criminal Proceedings; Income Tax Act violations; Sanction for prosecution; Undisclosed income
• Section: 143(3); 143(1); 271(1)(c); 132; 158BC; 271B; 158BFA; 271A; 276C(1); 279(1); 193; 136; 277; 278B; 158BF

Judgement Text

"R/CR.MA/3437/2004 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/CRIMINAL MISC.APPLICATION NO. 3437 of 2004 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE ANANT S. DAVE Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ================================================================ N.R.AGARWAL INDUSTRIES LTD. Versus JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE - 2 ================================================================ Appearance: DELETED(20) for the PETITIONER(s) No. 7 MR JP SHAH(1054) for the PETITIONER(s) No. 1,2,3,4,5,6 MR MANISH J SHAH(1320) for the PETITIONER(s) No. 1,2,3,4,5,6 MR PREMAL R JOSHI(1327) for the PETITIONER(s) No. 1,2,3,4,5,6 MRS KALPANAK RAVAL(1046) for the RESPONDENT(s) No. 1,2 PUBLIC PROSECUTOR(2) for the RESPONDENT(s) No. 3 ================================================================ CORAM: HONOURABLE MR.JUSTICE ANANT S. DAVE Date : 26/10/2018 CAV JUDGMENT 1. Heard learned advocate for the parties and with the consent of the parties, this application is taken up for final hearing. Page 1 of 19 R/CR.MA/3437/2004 CAV JUDGMENT 2. On 5.10.2004, learned Single Judge (Honourable Mr.Justice C.K.Buch, as His Lordship then was) passed an order and rule was issued and in terms of paragraph 9 (B) ad-interim relief was granted and ordered to be heard with Special Criminal Application No.528 of 1999. 3. That Special Criminal Application No.528 of 1999 came to be dismissed and rule issued therein was discharged by vacating ad-interim relief granted earlier (Coram:Honourable Mr.Justice M.R.Shah, as His Lordship then was). It appears from record that instant application was admitted and ad-interim relief was granted since Special Criminal Application No.528 of 1999 raising similar issues also came to be admitted and relief was granted therein. 4. Be that as it may, learned counsel appearing for the applicants would contend that order dated 23.1.2012 passed in Special Criminal Application No.528 of 1999, in which various contentions raised in the present application and certain case laws vis-a-vis provisions of the Income Tax Act, 1961 never fell into consideration of the Court and, therefore, straightway dismissal of Special Criminal Application No.528 of 1999 shall have as such no bearing on the present proceedings and it is to be heard on its own merits. 5. At the time of hearing of this application, a xerox copy of the Death Certificate dated 25.1.2011 issued by the competent authority of Municipal Corporation of Greater Mumbai about death of applicant no.2, Mr.Nagin Radhakishan Agrawal, which took place on 7.1.2011, is produced on record and, accordingly, this application stands abated qua petitioner no.2 Page 2 of 19 R/CR.MA/3437/2004 CAV JUDGMENT herein. 6. Brief facts of the case:- 6.1 Petitioner no.1 is a public limited company and petitioner nos.3 to 7 are Directors of petitioner no.1 company. Respondent no.1, Joint Commissioner of Income Tax, has filed Criminal Case No.2105 of 2000 in the Court of learned Chief Judicial Magistrate, Surat, upon sanction accorded by respondent no.2, Commissioner of Income Tax, Surat, under Section 279 (1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act, 1961”) for the complaint being lodged under Section 276 C (1) and 277 read with Section 278B of the Act, 1961. 6.2 The accused no.1 was the registered company and during the accounting year 1993-94 to 1995-96, the relevant assessment years being 1994-95 to 1996-97, accused no.3 to 7 were the Directors of accused no.1 and in-charge of and were responsible to accused no.1 for the conduct of the business during above-stated assessment years and, therefore, were answerable and liable for any default or violation of any provisions of the Act, 1961 and Rules made thereunder, that may have been committed by accused no.1 company by virtue of Section 278B of the Act. That proceedings under the Act 1961 before the Income Tax Authorities are in the nature of judicial proceedings and within the purview of Section 136 of the Act and Section 193 of IPC, and the accused were bound to furnish true and correct information in the verification and in the solemn statement and to produce true accounts and documents, as required by the authority. Page 3 of 19 R/CR.MA/3437/2004 CAV JUDGMENT 6.3 It is relevant to quote paragraphs 4 to 9 of the complaint to consider submissions made by learned counsel for the applicants for challenging institution of criminal proceedings, which read as under:- “(4) The accused No. 1 was engaged in the business of manufacturing Duplex paper. The return of income of the accused No. 1 for the accounting period 1993-94, the relevant A.Y. 1994-95 was filed on 6.12.1994 declaring Nil income. The said return of income was signed and verified by Shri. N.R. Agarwal, the accused No.2, Director of accused No.1 for the said assessment year within the knowledge of the rest of the accused on 5.12.1994. The return of income so filed was accepted u/s. 143(1) of the Act by passing the order dated 10.2.1995. (5) The return of income for the accounting period 1994-95, relevant assessment year being 1995-96 was filed on 30.11.95 declaring the total loss of Rs.5804483/-. The return of income of the accused No.1 was signed and verified by Shri. R.N. Aagarwal, the accused No.3, the director of the accused No.1 within the knowledge of rest of the accused on 29.11.1995. The assessment for the said assessment year was framed u/s. 143(3) of the Act and order determining the total loss of Rs.5800733/- was passed on 12.5.1998. (6) The return of income for A.Y. 96-97 was filed on 30.11.1996 declaring total income of Rs.69890/-. The return of income was signed and verified by Shri. R.N. Aagarwal, the accused No.2, the director of the accused No.1 within the knowledge of rest of the accused on 28.11.1995. The same was accepted u/s. 143(1)(a) on 28.2.1997. The assessment was taken for scrutiny u/s. 143(3) and the total income was determined at Rs.148334/- vide order dated 26.3.1999. (7) The Search u/s. 132 of the Act was carried out at the business premises of the accused on 1.12.1995 which was finally concluded on 5.1.1996. The accused No. 1 company is one of the six companies of N.R. Agarwal Companies which were covered u/s. 132 of the Act. The accused during the course of Search proceeding did not make any true and correct disclosure of undisclosed income. The statement of accused No. 2 was Page 4 of 19 R/CR.MA/3437/2004 CAV JUDGMENT recorded during the search proceedings. (8) In response to notice u/s. 158BC of the Act, the return for the Block Period 1.4.1985 to 5.1.1996 the relevant block assessment years being 1986-87 to 1996- 97 was filed on 16.2.1996. The said return of income was signed and verified by accused no. 2 for and on behalf of accused no. 1 within the knowledge of rest of the accused. Even in the return for the Block Assessment year, the accused did not show the true and correct income of the accused no. 1. Thus, the accused willfully concealed and attempted to conceal the true, and correct income of the company, to evade the income-tax, penalty and interest chargeable and imposable under the Act. The assessment was completed on 30.1.1997 determining the undisclosed income of Rs.333000/- consisting of two items of Rs.165000/- being the amount of stock of imported waste worth and Rs.168000/- being the value of stock of imported pulp lying in the factory premises of accused no. 1 at 169, GIDC, Vapi. Thus, the undisclosed income on account of excess stock for the said period came to Rs.333000/-. The said assessment was framed and finalised by Shri Tejinder Singh, Dy. Commissioner of Income-tax, Special Range-II, Surat. Against the said order, appeal bearing No. ITA 71/Ahd/097 was filed before the Honourable Tribunal. Consolidated order dated 18.5.1998 was passed by the Honourable Tribunal. By the said order, the amount of Rs.333000/- being the amount of undisclosed income was upheld by the tribunal. The appeal effect was given vide order dated 13.1.2000 determining total undisclosed income of Rs.233100/- by the complainant. (9) The Company and its directors i.e. all the accused therefore for the purpose of willful evasion of taxes payable under the Act did not disclose deliberately true, accurate and correct particulars of income and they corruptly, dishonestly and intentionally furnished incorrect, inaccurate and false information as to be the true and correct income of the company in the above stated returns of income with full knowledge that the informations so furnished were false to the knowledge of all accused. The accused as Directors of Company also knowingly and intentionally made false declaration in the return of income of accused no. 1 for the respective assessment year and falsely signed and verified as same to be true. The accused nos. 2 to 7 at the time of offences committed were in charge of and were Page 5 of 19 R/CR.MA/3437/2004 CAV JUDGMENT responsible to accused No. 1 for the conduct of business of company and as such all the accused shall be deemed to be guilty of offences and shall be liable to be proceeded against and punished accordingly. Thus, it clearly establishes that all the accused have committed the offences punishable u/s. 276C(1), 277 rws 278B of the Act within the jurisdiction of this Honourable Court and therefore, the Honourable Court has jurisdiction to try, inquire and to hear the case.” stock of imported waste worth and Rs.168000/- being the value of stock of imported pulp lying in the factory premises of accused no. 1 at 169, GIDC, Vapi.” 6.4 Thus, the case of the department is based on undisclosed income on account of excess of stock viz. imported waste worth and also of imported pulp lying in the factory premises and such undisclosed income for both the above together was Rs.3,33,000/-. It is emphatically submitted by learned counsel for the applicants that though raid was carried out on the business premises of petitioner no.1 and resident of directors on 1.12.1995, at the relevant point of time a new Chapter XVI- B was introduced in the Act, 1961 which provided special procedure for search cases with effect from 1.7.1995 and was applicable in cases of raid carried out between 1.7.1995 to 1.1.1997. That relevant Section 158-BF provided that no interest under the provisions of Section 234A, 234B or 234C or penalty under the provisions of Clause (C) of Sub-section (1) of Section 271 or Section 271A or Section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment. 7. That above provision was made inapplicable after 1.1.1997 by virtue of newly inserted Section 158 BF(A) of the Act 1961. That petitioner no.1 filed a block return showing Page 6 of 19 R/CR.MA/3437/2004 CAV JUDGMENT income of rupees-nil for the period 1.4.1985 to 5.1.1996 and the Assessing Officer passed a block assessment order on 31.1.1997 and computed the income of Rs.3,33,000/-. In appeal, the Tribunal passed an order on 18.5.1998 reducing the income to Rs.2,33,100/- and, thus, it was finally assessed income. Since above order attained finality, notice dated 30.11.1998 was received by the petitioner no.1 to show cause as to why the petitioner should not be prosecuted for not showing any returns under Section 139 of the Act 1961, for the respective years, the income of Rs.2,33,000/- sustained by the Tribunal. A reply dated 7.1.1999 was filed by the petitioner to the show cause notice and submitted that in regular assessments for the assessment years falling in the block period, the returns were accepted by the then assessing officer and all the assessments were of loss and there was no finding of any concealment in the regular assessment orders and, therefore, no prosecution can be lodged or instituted in respect of regular assessment, particularly, when provisions of Section 158BF was inoperative. Thus, according to learned counsel for the applicants it is clear that if there can be no penalties, a fortiori there cannot be prosecution. Therefore, sanction given by respondent no.2 vide order dated 8.6.2000 under Section 279 (1) is illegal and consequently, institution of criminal proceedings against the applicants also deserve to be quashed and set aside. 8. It is further contended that the complaint is in respect of returns under Section 139 and assessment under Section 143 of the Act 1961 and assessing officer, who passed orders under Section 143 recorded no findings in the assessment orders about concealment of income or furnishing of inaccurate Page 7 of 19 R/CR.MA/3437/2004 CAV JUDGMENT particulars and, therefore, even proceedings under Section 271 (1) (c) ought not to have been started. Besides the complaint is not in respect of concealment in the block return. The fact is that the complaint is in respect of omission in return under Section 139 and not in the block return. 9. Learned counsel for the applicants relied on various decisions including that in the case of A.C.I.T. v. Velliappa Textile Mills Ltd. reported in 263 ITR 550, wherein it was held that when punishment of imprisonment is compulsory, company cannot be proceeded against and the Supreme Court quashed and set aside the prosecution against the company under Section 276 (C) and 277 of the Act 1961. Further, none of the Directors had any concern with the conduct of the business of the company at the time of commission of offence and particulars regarding conduct of business and responsibility etc. was not stated in the complaint, apart from the averments made of general in nature and, therefore, it would be a travesty of justice to prosecute the directors. Attention is also drawn to Section 276 (CCC) of the Act 1961 where intent of the legislature is of no prosecution in respect of the search prior to 1.1.1997. 10. Learned counsel for the applicants relied on the decision in the case of Mohd. Iqbal Ahmed v. State of Andhra Pradesh reported in 1979 SC 677, where the Apex Court held that it is incumbent on the prosecution to prove that a valid sanction has been granted by the sanctioning authority after it was satisfied that a case for sanction has been made out constituting the offence. The prosecution can prove a valid sanction in two ways either (i) by producing the original Page 8 of 19 R/CR.MA/3437/2004 CAV JUDGMENT sanction which itself contains the facts constituting the offence and the grounds of satisfaction and (ii) by adducing other evidence to show the facts placed before the sanctioning authority which arrived at conclusion of requirement of granting the sanction. The grant of sanction is not an idle formality or an acrimonious exercise but a solemn and sacrosanct act which affords protection to government servants against frivolous prosecutions and must therefore be strictly complied with before any prosecution can be launched against the public servant concerned. 11. Another decision relied on by learned counsel for the applicants was in the case of Commissioner of Income Tax, Gujarat-III v. Vijaychand Harilal reported in [1979] 120 ITR 752 (Guj), wherein it was held that normally, the revenue must establish that the receipt of the amount in question constituted the income of the assessee. The explanation to Section 271 (1) (c) enables revenue to discharge the burden of proof laid on it if the conditions regarding the returned income being less than 80% of the assessed income is satisfied. But the presumption can be rebutted by the assessee. In the above judgment, a Division Bench of this Court relied on two decisions in the case of CIT v. Anwar Ali reported in (1970) 76 ITR 696 (SC), and Khoday Eshwara reported in (1972) 83 ITR 369 (SC), whereby it was held that mere fact that the explanation of the assessee in the assessment proceedings was rejected is no ground for levying penalty against the assessee in connection with that particular assessment year. 12. In M.A.Unneerikutty and Others v. Deputy Commissioner of Income Tax, (Assessment) reported in Page 9 of 19 R/CR.MA/3437/2004 CAV JUDGMENT (1996) 218 ITR 606 (Ker). In the above case, offences were registered in the context of partnership firm and no specific allegations were made that partners were responsible for the conduct of business of the firm. It was held that complaint against the partners was not valid, however, criminal proceedings against the firm could continue. 13. Assistant Commissioner, Assessment-II, Bangalore and Others v. Velliappa Textiles Ltd. and Another reported in (2003) 263 ITR 550 (SC), wherein the Apex Court considered Section 279(2), 279, 278B, 278, 277, 276C of the Act 1961, wherein the Apex Court no doubt held that the grant of sanction is purely an administrative act and affording an opportunity of hearing to the accused is not contemplated at this stage and further as per majority view that each of the Sections viz. 276C, 277 and 278 read with Section 278B requires imposition of mandatory terms of imprisonment coupled with fine and leaves no choice to the Court to impose only fine and since it was difficult to impose punishment of fine in lieu of imprisonment on a company, the prosecution of the company could not be sustained. However, the third Honourable Judge consisting of the Bench made a note of dissent on the above issue. However, the Bench was unanimous about interpretation of penal statute in strict manner and provision of sanction is made in order to protect persons from unnecessary prosecutions and consequent harassment and such sanction has to be a valid sanction and it must be proved that the sanction was given in respect of the facts constituting the offence charged. Even compounding of an offence is also to be not a right of the accused nor is it his unilateral act. It can only be done with the consent of the Page 10 of 19 R/CR.MA/3437/2004 CAV JUDGMENT authorities enumerated in the provisions of the Act. 14. That in the case of Homi Phiroze Ranina v. State of Maharashtra (2003) 263 ITR 636, wherein Commissioner of Income Tax had not stated in complaint that accused were in- charge of affairs of the company and responsible for conduct of day-to-day business and summons issued to all accused persons by Magistrate came to be quashed and set aside by holding that there should be credible material to show active involvement of directors in the conduct and management of business of the company. 15. In the case of K.C.Builders v. Assistant Commissioner, Income Tax (2004) 265 ITR 562 (SC), the prosecution was launched for attempt to evade tax and penalty for concealment imposed on the basis of additions to income. However, the Tribunal held that there was no concealment, penalty so cancelled on the basis of Tribunal's order quashing of prosecution was held automatic. In the above case also the Apex Court considered Section 271 (1) (c) of the Income Tax Act, 1961 and held that once penalty imposed on the assessee under above Section are cancelled on the basis of conclusive finding of the appellate Tribunal that there was no concealment of income, prosecution of the assessee for an offence under Section 276 (C) for willful evasion of tax cannot be proceeded with. The Apex Court also considered earlier decision where concealment inherently carries with it the element of mens rea. 16. Lastly the decision relied is in the case of Krishna Textile v. Commissioner of Income Tax (2009) 310 ITR Page 11 of 19 R/CR.MA/3437/2004 CAV JUDGMENT 227 (Guj). In the above case, proviso to Section 69-C of the Act 1961 was inserted with effect from April 1, 1999 and then it was held that proviso was not applicable to assessment year 1987-88, when the amount covered by credits not assessable as income of the assessee. By referring to third annual report for the year 1995-96 of the petitioner no.1 company, it is submitted by learned counsel for the applicants that balance- sheet of the company would reveal huge turnover and income from sales was approximately Rs.32 Crores and increase in stocks was also around Rs.21.30 Lacs and expenditure including raw materials and payment of excise duty, salary and other expenses was to the tune of more than Rs.30 Crores, there was no reason for the assessee not to disclose such stock or to evade tax. Even otherwise CIF value of imports of raw material was around 6138 matric tonne for the above year. So stock worth even as per the asssessment order was of Rs.3,33,000/- only. 17. Collectively, therefore, the impugned criminal proceedings launched by respondent no.1 by way of criminal case no.2705 of 2001 in the Court of Chief Judicial Magistrate deserves to be quashed and set aside. 18. As against above, learned counsel for the revenue would contend that keeping in view Special Criminal Application No.528 of 1999 which was admitted and interim relief granted therein and, based on above, present application was admitted and relief was granted is already dismissed by this Court on 23.1.2012 wherein also similar contentions were raised and, therefore, this application also deserve to be dismissed. One more Criminal Misc. Application No.3436 of 2004 was also Page 12 of 19 R/CR.MA/3437/2004 CAV JUDGMENT dismissed by an order dated 2.2.2012 which was also ordered to be heard with Special Criminal Application No.528 of 1999 and, therefore, this application also deserves to be dismissed. 19. By referring to the contents of complaint to which we have made reference in earlier part of this judgment by reproducing paragraphs 4 to 9 of the complaint, it is submitted that merely because revised return was accepted, it could not be said that there was no concealment of income and question about validity of sanction given by the authority can be raised at an appropriate stage of the criminal case but prosecution is not liable to be quashed and set aside. Learned counsel for the revenue relied on the decision in S.Vasudeva Rao v. P.S.J.Sigamany (1995) 211 ITR 284 Madras. In the case of Tip Top Plastic Industries Ltd. v. Income Tax Officer reported in (1995) 214 ITR 778 (Mad.) wherein it was held that when record seized during search disclosed short statement of stock, income tax officer was entitled to proceed against the assessees according to law, for fresh assessment and also for the prosecution. It was further emphasized by learned counsel for the revenue that even in case of absence of a definite finding by the Tribunal as to correctness of returns submitted by assessees, criminal prosecution under Section 276C and 277 could not be quashed. 20. Reliance was placed on Commissioner of Income Tax v. Unipol Chemical Intermediates Limited reported in (2012) 27 Taxmann.com 87 (SC), where it was held that for concealment of income vis-a-vis assessed income resulting in loss, the Supreme Court confirmed levying of penalty under Section 271 (1) (c) even when the assessed income was a loss. Page 13 of 19 R/CR.MA/3437/2004 CAV JUDGMENT In the case of Puran Chand v. R.K.Suman (2010) 325 ITR 38, wherein Punjab and Haryana High Court considered Section 276C of the Act 1961 in the backdrop of willful attempt to evade tax. In the said case, the petitioner was actively connected with the business of the firm and was responsible for maintaining accounts and conduct of business of firm and discrepancy in stock was not properly explained and, therefore, prosecution of the assessee was justified. By relying on another decision of Madras High Court in the case of N.Athimoolam v. Income Tax Officer (2010) 327 ITR 603 (Madras), wherein it was held that de hors the orders setting aside the penalty proceedings by the Tribunal, the criminal proceedings can go on. 21. By referring to a decision in Union of India v. Dharmendra Textile Processors (2008) 174 Taxman 571 (SC) in the context of Section 11AC of Central Excise Act, wherein the Apex Court considered relevant provisions as to whether Section 11AC was inserted by the Finance Act 1996 with an intention of imposing of mandatory penalty on persons, who evade payment of tax can be read to contain mens rea as an essential ingredient and there is scope for levying penalty below prescribed minimum limit, and it was held by the Apex Court that penalty cannot be levied below prescribed minimum limit. 22. Lastly in the context of Section 56 of Foreign Exchange Regulation Act, 1973, it was held that there was no immunity to companies from prosecution merely because prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment and though company cannot be Page 14 of 19 R/CR.MA/3437/2004 CAV JUDGMENT sentenced to imprisonment, for that reason only company cannot be given complete immunity from prosecution where mandatory punishment is imprisonment coupled with fine and the Court can resort to punishment of imposition of fine, which is also a prescribed punishment. 23. Having regard to the facts and circumstances and submissions made by learned counsel for the applicants and by learned counsel for the respondent authorities, and a careful perusal of a compliant for which order under Section 279 (1) of the IT Act, 1961 passed by the competent authority and accorded sanction for which now Criminal Case No.2705 of 2000 is pending before the Court of learned Chief Judicial Magistrate, Surat, along with assessment orders for block assessment for the assessment years 1986-87 to 1996-97, for which accounting period is shown separately, the above order of assessment dated 30.1.1997 referred to difference in stock so found during the course of search, the assessing officer records explanation rendered by the counsel appearing on behalf of assessee that the stock which was continuously packed and placed in the bonded store and entered in RG-1 Register would keep on increasing but ultimately an addition of Rs.3,30,000/- was made for the assessment year 1996-97 in the block period and finally undisclosed income on account of excess stock, for the said period was valued at Rs.3,33,000/- with tax payable on undisclosed income at the rate of 60% with permissible surcharge under Section 158 BC (c) read with Chapter XIV-B of the Act. 24. In appeals preferred being ITAT No.74 of 1997 and allied appeals by the companies in the case of N.R.Agrawal Page 15 of 19 R/CR.MA/3437/2004 CAV JUDGMENT Industries Limited, action of AO in making addition of Rs.3,33,000/- was upheld. With regard to levy of surcharge, AO was directed to give an opportunity of hearing to assessee and then re-adjudicate the question as to whether levy of charge or not in accordance with law relating to block period under consideration by passing speaking order and the above issue was set aside and restored to file of AO. 25. In view of above order dated 18.5.1998 passed by ITAT, Ahmedabad Bench, in Appeal No.71/1997 deduction was given under Section 80IA of the Act to the extent of Rs.99,900/- and refused undisclosed income so assessed to Rs.2,33,100/- and no surcharge was to be levied at present and revised demand notice was to be issued. The assessee has also replied to notice dated 30.11.1998 issued by Deputy Director of Income Tax (Prosecution) Surat, by reply dated 7.1.1999, wherein it was contended that “undisclosed income in Section 158 B (b) include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of accounts or other documents or transactions where such asset, entry or other document or transaction repaying wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act. Therefore, what the assessee had already disclosed or would have disclosed is not to be treated as undisclosed income. Besides, reference was made to Chapter XIV-B of the Act, whereby the undisclosed income incorporated into the scheme with effect from 1.7.1995 to 30.12.1996 was deleted and, accordingly, search was required to be assessed separately, for which budget note for the year 1995-96 were also relied on. The assessee tried to justify that the block assessment period was, Page 16 of 19 R/CR.MA/3437/2004 CAV JUDGMENT therefore, a single unit of assessment year comprising a period of ten years and, hence, the income tax in the block assessment would not be said to be relating to the particular year of regular year of assessment. It was with this objective only the concept of block assessment was introduced. The assessee also relied on various other provisions. By relying on comparison of provisions for block assessment for the period 1.7.1995 to 31.12.1996 and similar provisions which were made effective from 1.1.1997, the prosecution was never intended by the Legislature, it was clear according to assessee that the period covering the search of the assessee for which no time limit was prescribed for filing the returns of income tax in Form No.2B under Section 158BC of the Act, which was amended by introducing Section 158BC (a) (ii) of the Act from 1.1.1997. At the same time, there was no provision for payment of tax which was amended by introducing Section 158BFA from 1.1.1997 and, therefore, during the period from 1.7.1995 to 31.12.1996, the tax was to be paid at the time of determination of income irrespective of the date of filing the return of undisclosed income and irrespective of the amount of undisclosed income. It was also clear that had there been any intention of levying any penalty or prosecution, the legislature would have been specific or would have introduced the provisions of Section 158 BC (a) (ii), and Section 276 CCC, since the provisions of Section 276 CCC was introduced from 1.1.1997 for prosecution for willful failure to furnish the return of income in such cases and by specific proviso contained in the Section provided that no person shall be punished for any failure to this Section in respect of search initiated under Section 132 or books of accounts or other documents etc. requisitioned under Section 132A after 30.6.1996 but before Page 17 of 19 R/CR.MA/3437/2004 CAV JUDGMENT 1.1.1997. Therefore, specific exemption for the block period covering the case of the assessee-company indicated that if there was any intention of the legislature the specific provision for prosecution would have been introduced for such cases but in absence of such provision, it could be easily inferred that the legislature intended to grant immunity for the block period covering the case of the assessee company. Reliance was also placed under Section 158B (i) of the Act read with Section 158 BC whereby what is assessed is the undisclosed income of the block period and not total income of any previous year and the determination of the undisclosed income is the income, which was not disclosed or determined in the regular assessments. Therefore, what was concealed for regular assessment is taxed as undisclosed income in the block assessment. Even it was pleaded that there was no willful attempt to evade any tax so as to bring provisions under Section 276 (c) (i) of the Act and immunity granted by Section 158 BF from levy of interest and penalty under Section 271 (1) (c), 271 (A), 271-B of the Act. That there is no mention of Section 276-C in Section 158BF of the Act and, as a matter of fact, a careful reading of Section 276-C transpires that if a person willfully admits to evade any tax, penalty or interest chargeable or imposable under the Act, 1961 then only prosecution can be launched. 26. None of the authorities gave clear finding about evading tax willfully and on the contrary deduction was given under Section 80IA by ITAT Bench to the extent of Rs.99,900/-. Therefore, a company having past turnover and shown in third annual report 1995-96, C.I.F. value of imports of row-material and capital goods to be considered in quantity, it was 6138.894 for the value of Rs.7,24,23,783/-. Minor lapse on the Page 18 of 19 R/CR.MA/3437/2004 CAV JUDGMENT part of the assessee of not mentioning such a stock, undisclosed income in the facts of this case do not attract launch of prosecution under Section 276-C (i) and 277 read with Section 278-B of the IT Act, 1961. 27. So far as decisions relied on by learned counsel for the applicants as well as for the respondents, proposition of law laid down therein cannot be disputed but at the same time, in a given case, question about validity of sanction of prosecution can be gone into by the trial Court for which powers to quash the complaint may not be exercised and, in a given case, de- hors the order setting aside penalty proceedings by the Tribunal, the criminal proceedings can go on, but here in the facts of this case, it cannot be said that with mala fide intention and to evade the tax, stock in the stock book was not shown by the assessee and keeping the above factor in mind, vis-a-vis Sections 143, 158 BC, 158 BF, 271 (1)(c), 271-A, 271- B read with Sections 276-C(i), 277 and 278-B of IT Act, 1961 and parameters of Section 482 of Criminal Procedure Code, allowing criminal case to proceed would subject assessee to rigmarole of trial resulting into unavoidable hardships and to secure end of justice, I am inclined to allow present application. Accordingly, present application is allowed by quashing and setting aside the impugned criminal proceedings launched by respondent no.1 by way of Criminal Case No.2705 of 2000 in the Court of Chief Judicial Magistrate, Surat, so far as present applicant is concerned. Rule is made absolute accordingly. Sd/- (ANANT S. DAVE, J) R.S. MALEK Page 19 of 19 "