2004(2) Crimes 48 (SC)
Supreme Court of India
(From Madras High Court)
B.N. Agrawal and AR. Lakshmanan, JJ.
K.C. Builders and Anr. —Appellants
versus
The Assistant Commissioner of Income Tax —Respondent
Criminal Appeal Nos. 212-213 of 1998
Decided on 28-1-2004

Important point
Once the finding of concealment and subsequent levy of penalties under Section 271(1)(c) of the Income Tax Act has been struck down by the Tribunal, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction.

Headnote:Income Tax Act, 1961—Sections 276(2), 276B—Indian Penal Code, 1860—Sections 120B, 34, 193, 196 and 420—Conspiracy entered into between accused—Filing of false returns of income before the Department which led to concealment of income to evade tax—Appellant was a partnership firm engaged in business of construction and sale of flats—Appellants filed returns of income disclosing the assessed income as the income—Revised returns filed as per approved valuer’s report as earlier returns were found defective with regard to cost of construction—Assessing authority treated the difference between the income as per original return and revised income as concealed income—Levy of penalty u/s 271(1)(c) for concealment of income against appellants—Prosecution for offences u/ss 276C(2), 276B of the Act and u/ss 120B, 34, 193, 196 and 420 IPC—Allegations against appellants that they filed false returns of income before the Department which led to concealment of income to evade tax—Tribunal found that additions were on basis of settlement between the assessees and the Department and represents voluntary offer made by assessee—It was held that there was no concealment of income by the assessees—Cancellation of penalties—Whether prosecution of appellants is sustainable—(No).

       Held : In our view, once the finding of concealment and subsequent levy of penalties under Section 271(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 noticed, the subject matter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the Assessing 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 complainant 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 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 Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable. (Para 28)

       In this instant case, the charge of conspiracy has not been proved to bring home the charge of conspiracy within the ambit of Section 120-B of I.P.C. It is also settled law that for establishing the offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or misrepresentation. From his making failure to keep up promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed. As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the I.P.C. does not arise. The High Court without adverting to the above important questions of law involved in this case and examined them in the proper perspective disposed of the revisions in a summary manner and hence the impugned orders passed by the High Court and the learned Magistrate warrant interference. (Paras 31 and 32)

       Result : Appeals allowed.