Prem Tailor and Prem Nath V. Income Tax Officer

CRM-M/22861/2011

AI Insights

The case involves two petitions filed by M/s Prem Tailor and Prem Nath seeking the quashing of a criminal complaint and subsequent proceedings initiated against them by the Income Tax Officer for alleged concealment of income for the assessment year 1994-95. The Income Tax Appellate Tribunal had previously quashed the penalty imposed on the petitioners, which was the basis for the criminal proceedings. The High Court, referencing decisions from the Supreme Court and other precedents, concluded that the criminal prosecution could not proceed following the quashing of the penalty, as there was no longer any concealment in the eyes of the law.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 796252 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 27-08-2012
• Assessment Year: misc
• Other Referred Cases: K.C. Builders and another versus Assistant Commissioner of Income-tax, Gupta Constructions Co. and others versus Income-Tax Officer and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VIVEK SETHI
• Assessee Lawyers: B S SRA
• Keywords: Concealment of income; Income tax appellate tribunal; Legal Grounds; Penalty; Quashing of criminal complaint
• Section: 142(1); 143(2); 154; 277; 278-B; 276(1)

Judgement Text

"Crl. Misc. No. M-22861 of 2011 (O&M) -1 - Crl. Misc. No. 33089 of 2011 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. 1. Crl. Misc. No. M-22861 of 2011 (O&M) Date of Decision: 27.8.2012. M/s Prem Tailor and another ........Petitioners Vs. Income Tax Officer ......Respondent 2. Crl. Misc. No. M-33089 of 2011 (O&M) Prem Nath ........Petitioner Vs. Income Tax Officer ......Respondent CORAM: HON'BLE MRS. JUSTICE SABINA Present: Mr. B.S.Sra, Advocate for the petitioners. Mr. Vivek Sethi, Advocate for the respondent. ..... SABINA, J. Vide this order, the above mentioned two petitions would be disposed of as the petitioners have sought quashing of the criminal complaint No. 25 of 31.3.2010 under Section 276(1) & 277 read with Section 278-B of the Income Tax Act, 1961 ('Act' for short) for the assessment year 1994-95 titled as Income Tax Officer Ward-3 Phagwara versus Ms. Prem Tailor and others and all the subsequent proceedings arising therefrom. The case of the complainant, in brief, is that accused No.1 M/s Prem Tailors was a partnership concern whereas accused No.2 Prem Nath and accused No.3 Rajinder Pal were its partners. The accused filed their return with regard to assessment year 1993-94 on 31.1.1994 declaring their income as Crl. Misc. No. M-22861 of 2011 (O&M) -2 - Crl. Misc. No. 33089 of 2011 (O&M) ` 5810/- along with other documents. Notices were issued under Section 142(1) and 143(2) of the Income Tax Act, 1961 to the accused. The Income Tax Officer after taking into consideration all the impounded material framed the assessment at an income of ` 5,79,500/-, thus, making an addition of ` 5,73,690/- to the return income of ` 5810/- . Penalty and demand notices were issued accordingly. Aggrieved by the same, the accused preferred an appeal before the Commissioner of Income Tax (Appeals) and relief of ` 3,42,021/- was allowed. The net income of the accused was worked out at ` 2,37,479/-. Against the said order, both the parties preferred appeals before the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar. Both the appeals were dismissed. Thereafter notice regarding penalty was issued to the accused. Since the reply submitted by the accused was found unsatisfactory, the demand notice was issued to them qua penalty of ` 1,04,100/-. The Commissioner of Income Tax (Appeals) vide order dated 18.3.2005 confirmed the levy of penalty. In appeal filed by the accused before Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, the imposition of penalty was quashed on legal grounds vide order dated 8.6.2007. In appeal filed by Income Tax Department against the order of Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, the appeal was dismissed in terms of order passed in ITA No. 180 of 2009 titled as The Commissioner of Income Tax, Jalandhar-II versus Smt. Parmatma Kaur village Langia Goraya, District Jalandhar. As per the said case, the matter was referred to the Tribunal for fresh decision on the issue of penalty in accordance with law. Hence, the complaint qua concealment of income with Crl. Misc. No. M-22861 of 2011 (O&M) -3 - Crl. Misc. No. 33089 of 2011 (O&M) regard to Assessment Year 1994-95 was filed. Learned counsel for the petitioners has submitted that since the order whereby penalty was imposed on the petitioners had been quashed by the Tribunal, the criminal prosecution of the petitioners was liable to be quashed. In support of his argument, learned counsel has placed reliance on 'K.C.Builders and another versus Assistant Commissioner of Income-tax, Income Tax Reporters (Vol. 265) 562. The Apex Court has held as under:- “In our view, once the finding of concealment and subsequent levy of penalties under section 27(1)(c) of the Act has been struck down by the Tribunal, the Assessing Officer has no other alternative except to correct his order under section 154 of the Act as per the directions of the Tribunal. As already notices, the subject matter of the complaint before this court is concealment of income arrived at on the basis of the finding of the Assissing Officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complaint and further proceedings will be illegal and without jurisdiction. The Assistant Commissioner of Income-tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal Crl. Misc. No. M-22861 of 2011 (O&M) -4 - Crl. Misc. No. 33089 of 2011 (O&M) proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross-examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.” Learned counsel has also placed reliance on 'Gupta Constructions Co. and others versus Income-Tax Officer and others, 2003 (Vol. 260) Income Tax Reports 415 (P&H), wherein it was held as under:- “In view of the judgment of the Supreme Court, mentioned above, wherein, it has been held that if the penalty proceedings have been set aside in the deparmental proceedings then the very basis of launching of the prosecution against the assessee stands knocked down. In such facts, the Supreme Court had quashed the proceedings initiated under the Income-tax Act against the assessee. In view of Crl. Misc. No. M-22861 of 2011 (O&M) -5 - Crl. Misc. No. 33089 of 2011 (O&M) the said judgment, I find that the prosecution against the petitioner is an abuse of the process of law. The very basis of penalty has been struck down by the authorities under the Act.” Learned counsel for the respondent, on the other hand, has opposed the petition but has failed to controvert the submissions made by the learned counsel for the petitioners. After hearing learned counsel for the parties, I am of the opinion that the instant petition deserves to be allowed. The Income Tax Appeal Tribunal while quashing the penalty notice vide order dated 20.8.2010 has observed as under:- “Keeping in view the facts and the circumstances explained above, we are of the view that the ld. First appellate authority himself allowed Rs. 20,000/- as expenses as permissible in the normal business practice of the assessee. The A.O. also allowed 50% expenses on the total receipts of the assessee and also allowed some more expenses on estimate basis. It means that explanation given by the assessee has been accepted by the Revenue authorities. Therefore, penal provisions in dispute are not attracted. In the case of the assesseel. Even otherwise, there is no new material with the AO on the basis of which the penalty in dispute has been initiated. No doubt, the assessee has filed copies of Trading & Profit & Loss Account alongwith the return of income and also filed revised Crl. Misc. No. M-22861 of 2011 (O&M) -6 - Crl. Misc. No. 33089 of 2011 (O&M) Trading Account on the basis of entries of receipts and expenses as entered in the day books but the A.O. Has not accepted this portion of the same, which does not mean that the assessee has concealed the particulars of income and filed any inaccurate particulars of income. Therefore, the revenue authorities has accepted the explanation of the assessee and it cannot be said that the same is false and liable for penal action in dispute. As we have stated above that the assessee filed return on income on 6.3.1995 at Rs. 10,040/- which was assessed by the A.O. At Rs. 11,53.000/- on the basis of day books. From these receipts, 50% of the receipts were deducted as trading expenses and further Rs. 15,000/- were allowed as other expenses and the AO completed the assessment at Rs. 5,61,580/- but the CIT(A) also allowed the same expenses and after giving appear effect, the income of the assessee was finally determined at Rs. 1,54,052/- and the same AO levied a penalty of Rs. 58,000/- Keeping in view the aforesaid discussion, we are of the considered opinion that the explanation given by the assessee has not been found false and even in the assessment order, the AO has not discussed about the malafied intention on the part of the assessee either to conceal the income or to furnish inaccurate particulars of income. The AO has failed to establish on record that Crl. Misc. No. M-22861 of 2011 (O&M) -7 - Crl. Misc. No. 33089 of 2011 (O&M) the assessee has concealed any particulars of his income or furnish any inaccurate particulars of such income. In the absence of the same, the penalty in dispute is not sustainable. Therefore, we cancel the penalty of Rs. 58,000/- in dispute by accepting the appeal of the assessee.” Admittedly, the said order has become final. Since the penalty notice has been set aside, the petitioners cannot be prosecuted qua concealment of income. Accordingly, both the petitions are allowed. The criminal complaint No. 25 of 31.3.2010 under Section 276(1) & 277 read with Section 278-B of the Act for the assessment year 1994-95 titled as Income Tax Officer Ward-3 Phagwara versus Ms. Prem Tailor and others and all the subsequent proceedings arising therefrom, are quashed. (SABINA) JUDGE August 27, 2012 Gurpreet "