Judgment:
MRS. SANTOSH DUGGAL J. - Rinkoo Steels, a partnership firm, petitioner No. 1 in this petition under section 482, Criminal Procedure Code, is an income-tax assessed, with petitioners Nos. 2 and 3 as partners. After the assessment for the year 1980-81 had been finalised, a search under section 132 of the Income tax Act, 1961 (for short 'the Act'), was conducted on May 31, 1984, of their business premises as well as of other associates of theirs, and during the said search operations, allegedly, a number of incriminating documents, books of account, etc., were seized. An examination of the documents so seized is alleged to have revealed large scale understatement of income by petitioner No. 1. Since the assessment for the previous years had already been completed prior to the date of search, proceedings under section 147(a) read with section 148 of the Act were initiated, and the assessed was called upon to submit fresh returns for the earlier assessment years, namely, 1980-81 and 1981-82.
The further allegation is that in the returns filed for the aforesaid years, pursuant to notice under section 148 of the Act, the total income declared in the prescribed pro forma, as signed by Joginder Kaur, one of the partners of the firm, was understand, and in that connection, the Income-tax Officer concerned entered upon a detailed enquiry and called upon the assessed to produce the books of account, purchase and sale vouchers, etc., but they were not produced on the plea that the accountant who had access to these books of account and other documents was not available and that his whereabouts were not known or that the said books of account had been burnt.
The contention is that the Income-tax Officer was thus prevented from examining the books of account and other documents on the basis of which the assessed had declared is income and had to fall back upon his post search enquiries. It has been further alleged that one of the documents that had been recovered during the course of the search operation and seized was a certificate issued by the chartered accountant, Shri Ashok Mahata, disclosing huge discrepancies in the total value of the raw material consumed by the assessed, as against the total sales declared by them in the trading account, and that the figures shown were of far less amounts as compared to the figures given by the chartered accountants certificate. Thereupon, the Income-tax Officer called for an Explanationn in respect of the said documents, giving opportunity to the assessed to reconcile the discrepancies, and also required them to produce the chartered accountant but he was not produced on the plea that his present whereabouts were not known to the assessed.
A complaint for prosecution of assessed-firm and its partners for the offences under section 276C/277 of the Act as sections 193 and 196 of the Indian Penal Code was filed in the Court of the Additional Chief Metropolitan Magistrate, Delhi, alleging that the above narrative clearly indicated that the assessed had understated its income in the return filed pursuant to notice issued under section 147/148 of the Act, and had also failed to disclosed income out of which it had funds to make additional purchases as reflect in the certificate of the chartered accountant, and that it caused circumstances to exist which would have the effect of enabling it to evade income-tax, penalty or interest chargeable or imposable under the Act, and further that it was in possession of books of account and other documents containing false entries and statements relating to the sales effected by them, and that the accused dishonestly and deliberately fabricated false evidence in the shape of books of account and other documents for the purpose of being used in evidence in the assessment proceedings.
Since the allegations related to three different assessment year 1980-81, 1981-82 and 1983-84, three separate complaints were filed. After the order of summoning was passed by the Additional Chief Metropolitan Magistrate, applications were moved in each of the complaint cases for dropping the proceeding on the plea that on appeal being filed by the assessed against the order of the Income-tax Officer on completion of the assessments for the aforesaid assessment years, the Commissioner of Income-tax (Appeals) had quashed the order on the view that the notice under section 148 of the Act was illegal, and as such all the proceedings initiated pursuant thereto or to the orders passed by the Income-tax Officer in respect of the returns filed by the assessed were liable to be set aside, the plea being that there was no basis left for prosecution of the accused on the allegation of under statement of income or fabrication of accounts or false verification, etc., because once the notice had been held to be not sustainable, then the income-tax returns, filed in response to the said notice, have to be treated as non est and thus there was no material for prosecution of the accused and the ends of justice required that the said proceeding be dropped and the complaint dismissed.
This application was rejected by the Additional Chief Metropolitan Magistrate on the view that the mere fact that the Commissioner of Income-tax (Appeals) had set aside the assessment and had directed reassessment after fresh notice under section 148 of the Act, in conformity with the provisions of the Act, would not have any consequence for the criminal proceedings based on the complaint instituted by the Income-tax Officer for the reason that the complaint is to be decided independently on the strength of the evidence adduced by the complainant before the court, and on its own appreciation, and thus quashing of the assessment order could be of no consequence for the accused so far as the proceedings in the criminal complaint were concerned. The application moved in Criminal Complaint case No. 226/1 in respect of the assessment year 1980-81 was dismissed, vide order dated January 16, 1988. Similarly, applications moved in the other two complaint cases, i.e., for the year 1981-82 (Criminal Complaint Case 225/1) and 1983-84 (Criminal Complaint case No. 224/1) were dismissed by separate orders dated January 18, 1988 and July 22, 1988, respectively.
The accused have filed three separate petitions under section 482, Criminal Procedure Code, assailing the correctness of the view and the approach adopted by the Additional Chief Metropolitan Magistrate while dismissing their applications. These are Criminal Miscellaneous (M) Nos. 1189 of 1988, 1190 and 1988 of 1991 of 1988. Since common questions arise in all the three petitions, these are being disposed of by a common order, being recorded in Criminal Miscellaneous (M) No. 1189 of 1988, covering the assessment year 1980-81.
Mr. D. C. Mathur, appearing for the petitioners, argued that the continuance of the proceedings against the petitioners would certainly result in defeating the ends of justice because, in spite of the fact that the assessment finalised by the Income-tax Officer, who is the complainant in the case, pursuant to notice under section 148 of the Act, stands quashed by the Commissioner of Income-tax (Appeal) on the view that the notice itself was illegal, and even then they have been held liable to continue to face criminal proceedings, based on the under allegation that the income-tax returns filed by then pursuant to notice under section 148 of the Act contained understatement of income, based on false accounts / fabricated documents and that they had been filed under a false verification, and used in assessment proceedings making them liable for prosecution under sections 276C and 277 of the Act as well as under sections 193 and 196 of the Indian Penal Code. He contended that when the notice itself has been quashed, all the returns in response thereto have to be treated as nonexistent and thus there was no material for prosecution of the petitioners, and that in view of the fact that reassessment has undertaken after fresh notice under section 148 of the Act for all the assessment years under reference, it was a fit case for dropping the present proceedings and the complainant could take further steps depending upon the result of the reassessment proceedings.
Reliance has placed on a judgment of this court, W. L. Kohli v. CIT : [1985]152ITR154(Delhi) , wherein the plea of the accused for dropping the proceedings was held entitled to consideration on the ground that it was in the fitness of things that unless the reassessment is completed, there could not be any deduction or inference of concealment of income or falsification of accounts.
Mr. Mathur pleaded that the present case was also of an identical nature and here also, since the assessment itself has been quashed and all the proceedings have been held to be invalid, there was no basis for prosecution of the petitioner and the proceedings in these complaint case were liable to be quashed.
Mr. D. K. Jain, appearing for respondent No. 1 in these proceedings, countered the arguments of Mr. Mathur, firstly, in respect of his plea that there was no material against the petitioners as accused persons in the wake of quashing of the assessment orders finalised by the Income-tax Officer on the basis of the returns filed pursuant to the notice under section 148 of the Act. He drew attention to certain averments made in the complaint, instituted in the court of the Additional Chief Metropolitan Magistrate, copy whereof has been annexed with the present petition and contended that by the Income-tax Officer or the returns filed by the assessed pursuant to notice under section 148 of the Act, but there were allegations of independent incriminating material against the accused discovered during the search operation, etc., and further that understatement which has been detected as a result of scrutiny of the documents recovered and seized during the search operation relates to the original returns filed for the assessment years 1980-81, 1983-84 and that these furnished material which the Department was in position to produce and prove during evidence in the complaint case, and, as such, the presumption on which the present petition has been moved was misconceived, namely, that since the proceedings taken up as a sequel to the notice under section 148 of the Act including the assessment made thereon have been set aside, it was a case where there was no material for proceeding against the accused.
Mr. Jain made a pertinent reference to the Explanationn to section 276C of the Act which defines willful attempt to evade any tax, penalty or interest chargeable or imposable under this Act, as including a case where any person -
'(i) has in his possession or control any books of accountant or other documents (being books of account or other documents relevant to any proceedings under this Act) containing a false entry or statement; or...'
He thus contended that even the existence of books of account containing any false entry or statement or possession thereof by the assessed, now came within the inclusive definition of 'willful attempt to evade any tax, etc.', and that in view of the categorical allegations in the complaint that during the search operations, books of account and other documents were recovered which, on examination, were found to contain false entries or statements and further that one of the documents recovered was a certificate from their charted accountant which, on the face of it, revealed vast difference in the amounts of sales shown in the books of account which the accused produced during the original assessment, as against those reflected by this certificate, the petitioners were on a wrong footing when they asserted in these petitioners or in the application before the Additional Chief Magistrate that, after the order of the Commissioner of Income-tax (Appeals) dated April 1, 1987, setting aside the assessment orders on the view that the notices under section 148 of the Act were illegal, there was no material against them justifying the prosecution in these complaint cases. He reiterated that there were definite allegations in paragraphs 5, 8 and 11 of the complaint as to discovery of incriminating documents and books of account during the operations, particularly the certificate of the chartered accountant, and failure on the part of the assessed to produce the books of account and documents on the basis of which they had declared their income earlier as also their failure to produce the chartered accountant and that there was understatement of income by falsification of account books, as also false verification on the original returns filed and the these allegations still subsist in spite of the assessment order made pursuant to the notice under section 148 of the Act having been set aside.
Besides repelling the plea of the petitioners as to non-existence of any material for the purpose of these complaint cases, by referring to facts and allegations a aforesaid, Mr. Jain further argued that there was no force in the contention that merely because reassessment had been ordered, the criminal complaint filed earlier was liable to be quashed. He placed reliance on a Supreme Court judgment in P. Jayappan v. S. K. Perumal, First ITO : [1984]149ITR696(SC) , wherein it was categorically held that there was no provision in law which provides that a prosecution for offences under section 276C or section 277 of the Income-tax Act could not be launched until reassessment proceedings initiated against the assessed are completed.
In this case, the Supreme Court, while observing that although the criminal court may have to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and that in an appropriate case, it may drop the proceedings in the light of the order passed under the Act, added that (at p. 701) :
'It does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it.'
This authority is thus sufficient to defeat the contention of the petitioners that proceedings in the complaint case are liable to be dropped merely because assessment has been set aside or reassessment ordered or initiated. In the view of the Supreme Court, even if it were so, then also, the criminal case can be initiated or continued, as the case may be, because the court, notwithstanding the said situation, has to decide independently, on the basis of the evidence adduced before it, and that its findings were not dependent upon the result of reassessment proceedings.
The present case is still better for the complainant at this stage because, apart from the allegations of understatement of income of falsification of accounts and other cognate allegations, confirming to the ingredients of sections 276C and 277 of the Act, as well as sections 193 and 196 of the Indian Penal Code in relation to the returns filed after notice under section 148 of the Act, there are allegations that the original returns of the assessment years which are the subject-matter of the criminal complaints also suffered from the same vices, and further that there was independent evidence of existence of false books of account, and other documents, with the intention of evading income, recovered during the search operations. Mr. Jain conceded that all these allegations shall have to be proved by the complainant before the criminal court, but asserted that the departmental authorities were in a position to do so, and that the proceedings cannot be throttled at this stage simply because notice under section 148 of the Act was quashed on a technical view, necessitating fresh notice and reassessment proceedings.
Mr. Jain also placed reliance on a judgment of the Andhra Pradesh High Court, Ashok Biscuit Works v. ITO 0044/1987 : [1988]171ITR300(AP) , enunciating the same proposition to the effect that the criminal court has to adjudge the case independently, on the evidence placed before it, and that where the allegation was that the books of account contained false entries or that there were discrepancies showing attempted falsification of accounts, resulting in concealment of income and evasion of income-tax, consequent upon false statement and verification of the income-tax returns, it was a case where the complaint discloses a prima facie case and the question, whether false statement and verification had been made, had to be judged with reference to the date of filing of the original returns. Learned counsel stated that this view of the Andhra Pradesh High Court has been endorsed by the Supreme Court inasmuch as a special leave petition has been dismissed, as per the report in [1988] 169 ITR 13.
In so far as the judgment of the Delhi High Court in W. L. Kohlis case : [1985]152ITR154(Delhi) , is concerned, Mr. Jain cited two subsequent judgments of this court Umesh Kumar Modi v. K. S. Sahni, ITO : [1986]159ITR597(Delhi) and Dharma Pratishthan v. Miss. B. Mandal, IAC of I.T. : [1988]173ITR487(Delhi) , both holding that where the ingredients covered by the provisions of sections 276C and 277 or section 278B of the Act were prima facie made out and when the complaint was based on the material and evidence collected, and not merely on the basis of the assessment order, then the fact that the assessment order had become invalid or been set aside or fresh assessment ordered by the appellate authority or reassessment undertaken would be hardly relevant, and that the criminal complaint would proceed to be decided on its own merits, and on the basis of the facts proved and the evidence adduced before the criminal court and thus petitions under section 482, Criminal Procedure Code, for quashing the criminal proceedings were dismissed.
It is thus now the settled view that criminal proceedings are not to be interfered with or dropped merely because some assessment of reassessment proceedings were still pending before the departmental authorities particularly when allegations in the complaint were referable not solely to the finding arrived at in the assessment order with reference to the returns filed by the assessed, which assessment order came to be quashed later on, but on independent evidence of attempted evasion of income-tax by preparing false books of account or on allegations in the complaint of independent evidence having been unearthed during the search operations giving rise to the behalf of attempted concealment of income with intent to evade income-tax.
The accused, in these cases, approached the trial court for dropping of the proceedings on the threshold only when the order summoning the accused was passed. Apart from the fact that there in abundant authority for the view, as noticed above, that the plea of the accused for dropping of the proceedings on the ground of reassessment having been ordered or such proceedings being pending, was not tenable, otherwise also, it would not be ordinarily desirable to interfere with the proceedings before the criminal court, in exercise of power under section 482 of the Code of Criminal Procedure, at such an early stage when only proceedings have been initiated, an order for summoning the accused having been passed, and the court has yet to appreciate the evidence.
It has been impressed upon by the Supreme Court in a very recent judgment, State of Bihar v. Murad Ali Khan, : 1989CriLJ1005 , that when the High Court is called upon to exercise its inherent jurisdiction under section 482, Criminal Procedure Code, to quash a proceeding at the stage of the Magistrate taking cognizance of an offence, such a power should be used very sparingly, and that unless it is manifest on record that the allegations in the complaint or the charge sheet do not, in law, constitute or spell out any offence and that resort to criminal proceedings would amount to an abuse of the process of the court, the High Court should refrain from interfering in the proceedings and that this power should be exercised with circumspection.
Similar view had been earlier expressed by the Supreme Court in the case of J. P. Sharma v. Vinod Kumar Jain : 1986CriLJ917 , wherein it was stressed that the High Court, while exercising jurisdiction under section 482, Criminal Procedure Code, should not embark upon an enquiry as to whether the allegations were true or false, or as to whether any subsequent development has taken place which may render the proceedings, futile, but only to confine itself to the fact whether, on the basis of the allegations, an offence, as alleged, can be said to have been committed or not.
It thus follows that the continuance of the criminal complaint or proceedings is not to depend upon the subsequent events but on the fact as to whether the allegations as set out therein make out a prima facie case for proceeding against the accused or not. It has already been noticed that there are averments in the complaint particularly paragraphs 5, 8 and 11 which clearly show that the complainant alleges existence of material, independent of the income-tax returns or assessments made pursuant to notice under section 148 of the Act, and as such, this latter event is absolutely inconsequential in so far as the criminal complaints pending before the Additional Chief Metropolitan Magistrate were concerned. The applications of the accused persons for quashing of proceedings were thus wholly misconceived, and rightly dismissed.
I, accordingly, do not find existence of any material or any case made out for interference in the course of the criminal proceedings. This petition as well as Criminal Miscellaneous (M) No. 1190 of 1988 and Criminal Miscellaneous (M) No. 1191 of 1988 are, accordingly, dismissed. As a result, stay of proceedings in the lower court, in all the three complaint cases, is hereby vacated.
A copy of this order be sent to the court of the concerned Additional Chief Metropolitan Magistrate.
Petitions dismissed.