The Deputy Commissioner of Income Tax, V. M/s. Meghraj Moolchand AND Sons,

CRLA/1095/2002

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The case involves the Deputy Commissioner of Income Tax, Special Range \\u2013 1, Visakhapatnam, as the appellant, challenging the acquittal of M/s. Meghraj Moolchand & Sons and its partners (respondents) by the trial court. The respondents were accused of tax evasion and making false statements under the Income Tax Act, 1961. The prosecution argued that the respondents concealed income and made false declarations in their tax returns. However, the trial court found insufficient evidence to prove that the income found during a search operation was unaccounted business income of the firm. The appellate court, while re-evaluating the evidence, concurred with the trial court's findings and dismissed the appeal, reinforcing the principle that the burden of proof lies with the prosecution.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 719752 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 12-11-2009
• Assessment Year: misc
• Other Referred Cases: Aher Raja Khima v. State of Saurashtra
• Laws Referred To: Code of Criminal Procedure, 1973, Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: False statement; Income tax evasion; Search and seizure; Unaccounted business income; Wilful evasion of tax
• Section: 147; 148; 143(3); 143(1); 276 C; 277; 273(A)(4); 378(2); 278-B(1)

Judgement Text

" IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) THURSDAY, THE TWELFTH DAY OF NOVEMBER TWO THOUSAND AND NINE PRESENT HON’BLE SRI JUSTICE K.C.BHANU CRIMINAL APPEAL No.1095 OF 2002 Between: The Deputy Commissioner of Income Tax, Special Range – 1, Aayakar Bhavan, 3rd Floor, Daba Gardens, Visakhapatnam ..... Appellant AND M/s. Meghraj Moolchand & Sons & 5 others 7. The Sate of Andhra Pradesh, Rep. by the Public Prosecutor, High Court of A.P., Hyderabad. ..... Respondents The Court made the following: JUDGMENT: The Criminal Appeal under Section 378 (2) of the Code of Criminal Procedure, 1973 (for short, “Cr.P.C.”), filed by the Deputy Commissioner of Income Tax, Special Range – I, Visakhapatnam, is directed against the judgment, dated 28.02.2002, in C.C.No.90 of 1992, on the file of the learned Special Judge for Economic Offences, Hyderabad, whereunder and whereby the Accused No.1 was found not guilty of the offences punishable under Sections 276-C and 277 of the Income Tax Act, 1961 (for short, “the Act”), and Accused Nos.2 to 6 were found not guilty of the offences punishable under Sections 276-C read with 278-B (1) and 277 read with 278-B (1) of the Act. 2. Brief facts that are necessary for disposal of the prosecution case may be stated as follows: Accused No.1 is a registered firm by name “M/s.Megaraj Moolchand and Sons”. Accused Nos.2 to 6 are the partners of Accused No.1 firm and Accused No.2 is the Managing Partner, doing business in retail trade in kirana under the name and style “Karachi Kirana Stores”, Visakhapatnam. Accused No.1 firm filed Income Tax return on 30.08.1983 for the assessment year 1983-84 corresponding to the accounting year 01.04.1982 to 31.03.1983 before the Income Tax Officer declaring a total income of Rs.86,420/-. The assessment was completed under Section 143 (1) of the Act on 29.08.1985 by the Income Tax Officer and the income of Rs.86,420/- as shown by Accused No.1 firm was accepted. Thereafter, on 17.01.1986, search and seizure proceedings were conducted at the business premises of Accused No.1 firm and also in the residential premises of Accused Nos.2 to 6 who were partners and certain incriminating material, i.e., cash of Rs.22,92,355/- and pronotes standing in the name of different partners to a tune of Rs.3,55,000/- were found and out of cash of Rs.22,92,355/-, a sum of Rs.22,76,000/- and pronotes were seized. Sworn statements of the partners were recorded at the time of the search and the partners have admitted that cash and amounts covered by pronotes advanced which were seized by the Officers had in fact came to their hands out of the unaccounted business income of Accused No.1 firm. Accused No.1 firm also filed a petition for a waiver under Section 273-A (4) of the Act before the Commissioner of Income Tax, Visakhapatnam. A notice under Section 148 of the Act was issued on 31.07.1986 and the same was served on the same day itself on Accused No.2. Thereupon, in response to the said notice, Accused No.2 filed a revised return of income on 29.08.1986 declaring the income for firm as Rs.1,15,300/- along with trading account, balance sheet and profit and loss account etc., and the verification of the return and other documents were signed by Accused No.5, another partner. During the course of the assessment proceedings, on a scrutiny of the books of accounts and other documents of Accused No.1 firm, the Income Tax Officer, Special Investigation Circle, Visakhapatnam, noticed that Accused No.1 firm has willfully evaded the payment of tax by concealing its income of Rs.1,15,300/-. A regular assessment under Section 143 (3) read with Section 147 of the Act was completed on 31.12.1986 on a total income of Rs.2,02,115/- keeping in view of the modes of concealment of income resorted by Accused No.1 firm. Therefore, Accused No.1 firm made a false statement in the verification part of the returns of income filed by it on 30.08.1983 and also on 29.08.1986 with the knowledge that the returns are false and untrue and also believed to be false statements and enclosures, knowing them to be false and thus, committed an offence punishable under Section 277 of the Act and that Accused No.2 who is the Managing Partner and Accused Nos.3 to 6 who are the partners of Accused No.1 firm are responsible for the conduct of the business and they are liable for punishment under Section 278-B of the Act. 3. When the charges under Sections 276-C and 277 of the Act against Accused No.1 and 276-C read with 278-B (1) and 277 read with 278-B (1) of the Act against Accused Nos.2 to 6 were framed, read over and explained to the accused, they pleaded not guilty and claimed to be tried. 4. To prove the charges levelled against the accused, the prosecution examined P.Ws.1 to 9 and got marked Exs.P1 to P43 5. After closure of the prosecution evidence, the accused were examined under Section 313 Cr.P.C. with reference to the incriminating material found against them in the evidence of prosecution witnesses. They denied the same. On behalf of the accused, D.W.1 was examined and Ex.D1 was marked. 6. The trial Court, after considering the evidence on record, acquitted the accused on the ground that the prosecution failed to establish that the amounts seized from the residential premises of the partners was not shown to be that of the business income of Accused No.1 firm, that the burden placed on the complainant has not been discharged and accordingly acquitted the accused. Challenging the same, the present Criminal Appeal is filed. 7. Now the point for determination is whether the prosecution proved its case beyond all reasonable doubt for the charges levelled against the accused and whether the judgment of the trial Court is correct, legal and proper? 8. Learned Standing Counsel appearing for the appellant contended that on application made under Ex.P30-Petition under Section 273-A (4) of the Act, Accused No.1 firm, represented by Accused Nos.2 to 6, filed revised returns; that the Income Tax Officer passed an order, which has become final; that further when a penalty was imposed by the Income Tax Officer, the same was confirmed by the Appellate authority; that therefore, these orders would clearly disclose that Accused No.1 firm has filed two sets of returns and in these two sets of returns, there is a variation of income of the firm which clearly go to show that the true and correct income of Accused No.1 firm has not been shown, and therefore, the accused have committed the offences with which they were charged. He also contended that P.Ws.6 to 9 who were the authorized Officers to record the sworn statements under Section 132 (4) of the Act and those statements can be read as an evidence in prosecution of accused under any one of the provisions under the Act; that on their own admissions, it is clear that the income that was found in the residential premises of the other partners is the income relating to Accused No.1 firm, and therefore, he prays to set aside the order of acquittal. 9. On the other hand, the learned counsel appearing for the Respondent Nos.1 to 6 contended that the money seized from the residential premises of the partners do not belong to the Accused No.1 firm and as a matter of fact, with reference to the amount found in the residential premises of the partners, separate returns were submitted by the partners in their individual capacity, but to purchase a business, they have given a conditional admission under Ex.P30 thinking that the Income Tax Department would waive the penalty and prosecution, that therefore, cash and amounts relating to pronotes seized during such proceedings was not that of the income of the Accused No.1 firm and that in the assessment proceedings, the department has taken a plea that the sworn statements have not been recorded under Section 132 (4) of the Act, that whereas the prosecution have come forward with a different version in this case stating that the sworn statements of the partners have been recorded, that the trial Court, after elaborate consideration of evidence on record, rightly held that the prosecution has failed to establish the income found during the search and variations were not shown to be that of the income of the Accused No.1 firm and there are absolutely no grounds to interfere with the impugned Judgment. 10. There cannot be any dispute that in dealing with the Criminal Appeal against the order of acquittal, the Appellate Court has got full power to reappreciate the evidence available on record, but it will slow in interfering with the findings in view of the fact that there is a presumption under law that the accused is presumed to be innocent unless contrary is proved by the prosecution beyond all reasonable doubt. That presumption of innocence is further strengthened by an order of acquittal. Unless there are compelling or substantial reasons viz., the findings are perverse, or not based upon any evidence, or admissible evidence has not been taken into consideration, or inadmissible evidence was taken into consideration, ordinarily this Court would not interfere with the same. The sum and substance of the powers of the appellate Court to interfere with the order of acquittal, there must be compelling or substantial reasons. 11. On this aspect, it is pertinent to refer to a decision reported in Aher Raja Khima v. State of Saurashtra[1], wherein it is held thus: “A court hearing an appeal under S.417 might be confronted with three possibilities: (i) It might come to the same conclusion as the trial court on the questions in issue, in which case, of course, it should dismiss the appeal; (ii) it might consider that the evidence was not clear and conclusive one way or the other, in which case its duty as an appellate court would be not to interfere with the judgment appealed against; and (iii) it might come to a conclusion on an appreciation of the evidence opposite to that reached by the court of first instance, in which case it would clearly be its duty in exercise of its powers under S.417 to set aside that order of acquittal.” Bearing the above principles in mind, it is to be seen whether the complainant proved its case beyond all reasonable doubt for the charges leveled against the accused. 12. Section 276-C (1) of the Act reads thus: “Wilful attempt to evade tax, etc.:- (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,- (i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.” A perusal of the above provision makes it clear that mere evasion of tax or penalty or interest, is not per se an offence. There must be willful evasion of the tax or penalty. The willful evasion of the tax refers to the deliberate mental intention of the assessee. There must be a mens ria on the part of the assessee with an intention to suppress certain income or to give a false statement. 13. Section 277 of the Act reads thus: “False statement in verification, etc.:- If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable.- (i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.” The above provision also makes it clear that the intention on the part of the accused can be inferred because the accused must be having a knowledge or reason to believe that the statement is a false. 14. Section 278-B (1) of the Act provides that where the offence has been committed by a company, every person, who at the time of offence was committed, was incharge of and was responsible to the company for the conduct of the business of the company as well as the company, can be deemed to be guilty of the offence. 15. Accused Nos.3 to 6 are shown as partners. Accused No.2 is the Managing Partner. There is no allegation in the complaint that Accused Nos.3 to 6 were incharge and responsible for the day-to-day affairs of the conduct of the business of Accused No.1 firm. 16. There cannot be any dispute that there may be a sleeping partner or partners who are not actively participating in the affairs or conduct of the firm. In such circumstances, Section 278-B (1) of the Act says that the complainant has to establish that all the partners were incharge of and responsible for the affairs of the firm. There is no such evidence to show that Accused Nos.3 to 6 were actively participating in the affairs of the conduct of the business of the firm. Simply they were shown as partners of Accused No.1 firm. No doubt, as rightly contended by the learned counsel appearing for the appellant that the assessment orders have become final and the penalty imposed by the concerned Income Tax Officer has also become final, as they were confirmed by the appellate authority. But that cannot be a ground to convict the accused. It must be shown that there was willful evasion of tax or penalty. 17. There is evidence on record which would go to show that even prior to filing of Ex.P30, which is the application filed by Accused No.1 firm to waive the penalty and prosecution, the individual partners submitted a returns in respect of the moneys found when the Income Tax officials conducted a search on 17.01.1986. It is not in dispute that when the Income Tax officials conducted a search in respect of the residential premises of Accused Nos.2 to 6, an unaccounted cash of Rs.22,92,355/- from various partners and the pronotes valued at Rs.3,55,000/- were found. If the individual partners have not submitted any returns for the excess amount found in their respective residential premises, then it can be said that there would be a willful evasion of tax. 18. It is in the evidence on record which would go to show that Accused Nos.2 to 6 filed separate returns on 30.09.1986 in respect of the amounts seized during raid, but, by virtue of Ex.P30-Petition which is subsequent filing of individual returns, they made it clear that they have conceded to treat the amounts found during raid as the income of Accused No.1 firm. In pursuance of Ex.P30-letter, some of the amounts that were seized during search were intended to tag on to the income of Accused No.1 firm. Therefore, under no stretch of imagination, it can be said that the income of Rs.22,92,355/-, which was found in the residential premises of Accused Nos.2 to 6, were shown to be that of the income of Accused No.1 firm. There is no willful evasement of payment of tax or not showing the income in the return of the Accused No.1 firm. It is not a case of concealment of income of Accused No.1 firm. Therefore, the assessment order of the concerned authority as confirmed by the appellate authority and the penalty order as confirmed by the appellate authority are of no relevance to arrive at a conclusion that the accused willfully or knowingly evaded to pay the tax or gave a false statement. Therefore, considering all these aspects, the trial Court rightly acquitted the accused. Therefore, the judgment under challenge does not suffer from any infirmities so as to call for interference by this Court. There are no compelling or substantial reasons to interfere with the same. Hence, the Criminal Appeal is devoid of merit and is liable to be dismissed. 19. Accordingly, the Criminal Appeal is dismissed confirming the judgment, dated 28.02.2002, in C.C.No.90 of 1992, on the file of the learned Special Judge for Economic Offences, Hyderabad. ______________ (K.C.BHANU, J) Dated: 12th November, 2009. KL [1] A.I.R. 1956 S.C. 217 (V.43 C. 45 Mar.) "