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CASE NO.:

Appeal (crl.) 212-213 of 1998

PETITIONER:

K.C. Builders & Anr.

RESPONDENT:

The Assistant Commissioner of Income Tax

DATE OF JUDGMENT: 28/01/2004

BENCH:

B.N. Agrawal & Dr. AR. Lakshmanan.

JUDGMENT:

JUDGMENT

Dr. AR. Lakshmanan, J.

These appeals are directed against the final judgment passed by the High Court

of Judicature at Madras in Criminal Revision Case No. 508 of 1997 and Criminal Misc.

Petition No. 3411 of 1997 dated 13.08.1997 by which the High Court dismissed the

criminal revision under Section 397 read with Section 401 of the Code of Criminal

Procedure, 1973. The facts giving rise to these appeals are as under:-

The appellant is a partnership firm engaged in the business of construction and

sale of flats. The construction of some of the projects started in the year 1981-82 and

was completed in the year 1986-87. The appellants filed the returns of income

disclosing the assessed income as the income. The cost of construction was shown as

under:-

Assessment Year 1983-84 - Rs.4,72,860/-

Assessment year 1984-85 - Rs.5,77,590/-

Assessment year 1985-86 - Rs.7,28,531/-

Assessment year 1986-87 - Rs.7,03,002/-

The appellants filed revised returns as per the approved valuer's report for

assessment years 1983-84 to 1986-87 on 04.11.1987 in the following manner as the

earlier returns were found to be defective with regard to cost of construction.

Assessment year 1983-84 - Rs.8,76,000/-

Assessment year 1984-85 - Rs.5,42,000/-

Assessment year 1985-86 - Rs.13,47,229/-

Assessment year 1986-87 - Rs.10,37,920/-

The revised returns were accepted by the Department and assessments were

completed.

The respondent/assessing authority treated the difference between the income

as per original return and revised income as concealed income. The Assistant

Commissioner of Income-Tax levied penalties under Section 271(1)(c) of the Income

Tax Act, 1961 (hereinafter referred to as "the Act") for all the aforesaid four assessment

years. Accordingly, penalty proceedings were initiated. The first appeal against the

order of penalties levied for concealment of income against the appellants were

confirmed by the C.I.T. (Appeals). As per the directions of the Chief Commissioner of

Income Tax, four complaints were filed in the Court of Additional Chief Metropolitan

Magistrate, Egmore, Chennai for offences under Sections 276C (2), 278B of the Act

and Sections 120B, 34, 193, 196 and 420 of the Indian Penal Code.

The gist of the prosecution case was that a conspiracy was entered into between

the accused/appellants and they filed false returns of income before the Department

which led to concealment of income to evade tax. On 24.10.1996, the appellants had

preferred an appeal before the Income-Tax Appellate Tribunal against the consolidated

order passed by C.I.T. (Appeals) on 18.07.1990 for assessment years 1983-84 to 1986-

87. It was contended that the Assessing Officer referred the matter relating to valuation

of the Departmental Valuation Cell which reportedly estimated the cost of construction

at Rs.50,96,750/-. If that were to be adopted then the income would result in a loss. It

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was contended that the Department has not brought out any material to show that there

was concealment of income. The Tribunal, after verifying the records, found that the

additions were on the basis of settlement between the assessees and the Department

and represents voluntary offer made by the assessee and, therefore, in such

circumstances the Tribunal applying the principles laid down by this Court in the Case

of Sir Shadilal Sugar and General Mills Ltd. & Anr. Vs. C.I.T., Delhi [1987] 168 I.T.R.

705 held that there was no concealment of income by the assessee and accordingly the

penalties were cancelled and allowed the appeals. The appellants thereupon moved an

application before the Additional Chief Metropolitan Magistrate, (E.O.II), Egmore,

Chennai by filing M.P. No.614 of 1996 in C.C. No. 425 of 1990 praying the Court for

adjourning the proceedings in the above case to enable them to move the necessary

petition and to file the copy of the order of the Tribunal dated 24.10.1996 which allowed

the appeals preferred by the Ist accused against the levy of penalty upon them.

However, the learned Magistrate permitted the appellants to mark the order of the

Tribunal in evidence at the appropriate stage of trial for which prosecution has no

objection.

Giving effect to the Income Tax Appellate Tribunal's order in I.T.A. Nos. 3129-

3132, the penalties levied under Section 271(1)(c) of the Act were cancelled by the

respondent on 27.01.1997. In the meanwhile, the Revenue Department filed an

application under Section 256(1) of the Act for reference of the question of law which

had arisen out of Income Tax Appellate Tribunal's Order dated 24.10.1996. The

application of the Revenue Department was rejected. Thereupon, the appellants

preferred a Criminal Revision under Sections 397 and 401 of the Criminal Procedure

Code, 1973 before the High Court for setting aside the order passed by the Additional

Chief Metropolitan Magistrate dated 21.7.1997. The learned Single Judge of the

Madras High Court rejected the criminal revision vide his impugned order holding that

the Income Tax Appellate Tribunal's order was not applicable since it was not marked

as defence document whereas the fact remains that the order was passed at a

subsequent date. Before the High Court, the decision of this Court in K.T.M.S.

Mohammed and Anr. Vs. Union of India, [1992] 197 I.T.R. 196 was cited. The High

Court after observing that the observation in the case of K.T.M.S. Mohammed & Anr.

(supra) helps the appellants to the extent that the trial Court should have given due

regard to the Tribunal's order but clearly made an error by distinguishing the said

judgment on the ground that the Tribunal's order was marked as a defence document

whereas in the instant case it was not marked as a defence document. Whereas the

fact remains that the defence documents were marked earlier to the order dated

24.10.1996 passed by the Appellate Tribunal which was immediately thereafter brought

to the notice of the trial Court even by the prosecution in their own application.

We have perused the pleadings, the order passed by the High Court, copy of the

complaints, copy of the order dated 24.10.1996 passed by the Income Tax Appellate

Tribunal, Madras, order dated 11.12.1996 passed by the Additional Chief Metropolitan

Magistrate, Chennai, copy of the proceedings of the Income Tax Officer cancelling the

penalty levied under Section 271(1)(c) of the Act, copy of the application filed on

12.12.1996 by the appellants and copy of the order passed thereupon on 21.07.1997

and copy of the order dated 4.8.1997 passed by the ITAT Bench Madras in Reference

Application Nos. 32-35 for assessment years 1983-84 to 1986-87. We also perused the

relevant provisions under the Income Tax Act, 1961 and of the Indian Penal Code.

On the above pleadings and facts and circumstances of the case, the following

questions of law arise for consideration by this Court:-

(a) Whether a penalty imposed under Section 271 (1) (c) of the Income Tax Act

and prosecution under Section 276C of the Income Tax Act are simultaneous?

(b) Whether the Criminal prosecution gets quashed automatically when the Income

Tax Appellate Tribunal which is the final Court on the facts comes to the

conclusion that there is no concealment of income, since no offence survives

under the Income Tax Act thereafter?

(c) Whether the High Court was justified in dismissing the Criminal Revision

Petition vide its impugned order ignoring the settled law as laid down by this

Court that the finding of the Appellate Tribunal was conclusive and the

prosecution cannot be sustained since the penalty after having been cancelled

by the complainant following the Income Tax Appellate Tribunal's Order no

offence survives under the Income Tax Act and thus the quashing of the

prosecution is automatic?

(d) Whether the finding of the Income Tax Appellate Tribunal is binding upon the

Criminal Court in view of the fact that the Chief Commissioner and the

Assessing Officer who initiated the prosecution under Section 276C (1) had no

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right to overrule the order of the Income Tax Appellate Tribunal. More so when

the Income Tax Officer giving the effect to the order cancelled the penalty

levied under Section 271 (1) (c).

(e) Whether the High Court's order is liable to be set aside in view of the errors

apparent on record.

We heard Mr. Ajit Kumar Sinha, learned counsel appearing for the appellants

and Mr. R.P. Bhatt, learned senior counsel appearing for the respondent.

Learned counsel appearing for the appellants submitted that the learned single

Judge of the High Court has failed to appreciate that under Section 254 of the Act an

order by the Income Tax Appellate Tribunal not only superseded the order passed by

the Assessing Officer under Section 143(3) of the Act but also set aside the finding of

the Assessing Officer under the provisions of the Act. He further submitted that the

High Court has failed to appreciate that both the penalty proceedings and the

prosecution are simultaneous and any prosecution launched on the basis of the order of

the Assessing Officer under Section 143(3) of the Act became void and it knocks down

the very basis for prosecution under Section 276C of the Act and it is in this background

the Assessing Officer giving effect to the order of the Appellate Tribunal, cancelled the

penalty levied. Learned counsel further submitted that the learned single Judge has

failed to see that the findings of the appellate Tribunal that there was no concealment of

income and the same became conclusive and hence prosecution could not have been

sustained. The High Court has also further failed to see that even the application for

reference by the Revenue Department under Section 256(1) of the Act was rejected on

the ground that it is a pure question of fact and no question of law was involved. It

was also further contended that the High Court failed to note that the order passed by

the income Tax Appellate Tribunal though marked as Exhibit through the defendants

witness was not considered by the Courts below.

Mr. R.P. Bhatt, learned senior counsel appearing for the respondent, vehemently

opposed the contentions raised by learned counsel for the appellants. He submitted

that the penalty proceedings and the prosecution proceedings are clearly independent

and that the result of proceedings under the Act is not binding on the Criminal Court

and that the Criminal Court has to judge the case independently on the evidence placed

before it. He would further submit that the complaints were filed in March, 1990 under

Sections 276C (1), 277 & 278B of the Act before the Additional Chief Metropolitan

Magistrate which were registered as E.O.C.C. Nos. 422 to 425 of 1990, charges were

framed against the accused firm and its partners in September, 1993 and by October,

1996, nine prosecution witnesses had already been cross-examined and the

prosecution witness No.10 was examined on 8.10.1996. At this stage, the appellants

filed a petition for dropping the prosecution proceedings and, therefore, the High Court

was justified in dismissing the petition of the appellants on the facts and circumstances

of the case. It was further submitted that the discretion should be exercised judicially

and in such a way as not to frustrate the object of the criminal proceedings and,

therefore, the High Court is justified in dismissing the petition of the appellants.

Concluding his submissions, learned senior counsel submitted that on the facts and

circumstances of the case, the order of the High Court is neither erroneous nor against

the principles of law.

Before proceeding to consider the rival submissions, it is beneficial to refer to

some important provisions of the Act under which the proceedings have been initiated:-

Section 147 of the Act deals with income escaping assessment. Section 148

deals with issue of notice where income has escaped assessment. Section 254 deals

with orders of Appellate Tribunal. Section 256 deals with statement of case to the High

Court (reference). Section 271 (1)(c) reads as follows:-

"Section 271. Failure to furnish returns, comply with notices, concealment

of income, etc. \026 (1) If the Assessing Officer or the Commissioner(Appeals) in

the course of any proceedings under this Act, is satisfied that any person \026

(a) \005\005\005\005\005\005..

(b) \005\005\005\005\005\005\005\005.

(c) has concealed the particulars of his income or furnished inaccurate

particulars of such income,

he may direct that such person shall pay by way of penalty, -

(i) \005\005\005\005.

(ii) \005\005\005\005

(iii) in the cases referred to in clause (c), in addition to any tax

payable by him, a sum which shall not be less than, but which

shall not exceed three times, the amount of tax sought to be

evaded by reason of the concealment of particulars of his

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income or the furnishing of inaccurate particulars of such

income."

One of the amendments made to the abovementioned provisions is the omission

of the word "deliberately" from the expression "deliberately furnished inaccurate

particulars of such income". It is implicit in the word "concealed" that there has been a

deliberate act on the part of the assessee. The meaning of the word "concealment" as

found in Shorter Oxford English Dictionary, 3rd Edition, Volume I, is as follows:-

"In law, the intentional suppression of truth or fact known, to the injury or

prejudice of another."

The word "concealment" inherently carried with it the element of mens rea.

Therefore, the mere fact that some figure or some particulars have been disclosed by

itself, even if takes out the case from the purview of non-disclosure, it cannot by itself

take out the case from the purview of furnishing inaccurate particulars. Mere omission

from the return of an item of receipt does neither amount to concealment nor deliberate

furnishing of inaccurate particulars of income unless and until there is some evidence to

show or some circumstances found from which it can be gathered that the omission

was attributable to an intention or desire on the part of the assessee to hide or conceal

the income so as to avoid the imposition of tax thereon. In order that a penalty under

Section 271(1) (iii) may be imposed, it has to be proved that the assessee has

consciously made the concealment or furnished inaccurate particulars of his income.

Where the additions made in the assessment order, on the basis of which penalty for

concealment was levied, are deleted, there remains no basis at all for levying the

penalty for concealment and, therefore, in such a case no such penalty can survive and

the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot

stand if the assessment itself is set aside. Where an order of assessment or

reassessment on the basis of which penalty has been levied on the assessee has itself

been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot

stand by itself and the same is liable to be cancelled as in the instant case ordered by

the Tribunal and later cancellation of penalty by the authorities.

Section 276C of the Act deals with wilful attempt to evade tax, etc. Section 277

deals with false statement in verification, etc. and Section 278B deals with the offences

by companies.

Four complaints were filed by the Assistant Commissioner of Income Tax,

Central Circle III(1) against the appellants on the basis of the sanction ordered by the

Commissioner of Income Tax under Section 279(1) of the Act for the prosecution of the

accused/appellants for the offences punishable under Sections 276 C (1), 277 and

278B of the Act.. It is stated in the complaint that the accounts and documents seized

during the course of search showed that the accused had suppressed the true receipts

from sale of flats, action under Section 148 of the Act was taken and in response to the

said notice, the return of the respective accounts were delivered to the Income Tax

Officer which was signed and verified by the accused concerned and that the Income

Tax Officer further made the enquiries and investigations and summoned various

persons for their statements. When the enquiry was in progress, the accused knowing

that the suppression of receipts has been found out by the Income Tax Officer filed

another revised return on 4.11.1987 showing different income as against the original

return. It was submitted that the appellants with a view to wilfully evade tax and to

defraud the exchequer of its legitimate revenue and to deceive the Income Tax Officer,

acting in consort and in furtherance of the common intention, all the accused conspired

to fabricate false evidence in the form of Books of Accounts containing false entries

with a view to using them as genuine evidence in Income Tax assessment proceedings

for the assessment year 1983-84. Thus it was stated that the appellants had

committed offence punishable under the provisions above-quoted.

A consolidated order was passed by the Commissioner of Income Tax (Appeals)

on 18.7.1990 for the assessment years 1983-84 to 1986-87. In all these appeals, the

assessee disputed the imposition of penalty under Section 271(1)(c) of the Act. The

assessments were initially completed under Section 143(3) of the Act. On 20.3.1986,

the business premises of the firm as well as the residential premises of two of its

partners were searched under Section 132 of the Act. In response to the same, the

assessee filed the returns of income disclosing the income assessed as the income.

After filing the returns in accordance with these books, the assessee came to know that

the Books of Accounts were defective with regard to the cost of construction.

Therefore, on 04.11.1987, the assessee filed a revised return estimating the cost of

construction on the basis of the approved valuer's report. The revised returns were

accepted by the Department and the assessments were completed. The difference

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between the income as per the original returns and the income shown in the revised

returns was treated as concealed income and the Assessing Officer has levied the

penalty under Section 271(1)(c) of the Act in all these years. The assessees were

unsuccessful before the Commissioner of Income Tax (Appeals). Therefore, the

assessee filed the appeals before the Income Tax Appellate Tribunal, Madras in I.T.A.

Nos. 3129 to 3132/Mds/90. Before the Tribunal, it was pointed out that since there

were defects in the Books of Accounts with regard to the cost of construction, the

assessee voluntarily referred the matter to the approved valuer and has revised the

returns accordingly. All this was done with a view to buy peace with the Department

and the returned income does not represent any concealed income. It was also

pointed out by the learned counsel that the Department has not made any addition

beyond what has been returned by the assessee. In other words, it was pointed out

that the returned income has been accepted by the Department and there is no

concealment of any income. It was stressed by the counsel that the returns were

revised in pursuance of the settlement with the Department only to buy peace. Learned

counsel appearing for the Department, on the other hand, strongly supported the

imposition of penalty in the facts and circumstances of the case. The Tribunal allowed

the appeal and cancelled the penalty. It is useful to reproduce the concluding part of

the order passed by the Tribunal which is as under:

"We have carefully considered the rival submissions and perused the materials

brought on record. Although there is a discussion by the Assessing Officer that

the assessee has received some on-money in respect of sale of flats but he has

not mentioned what is the exact quantum of such on-money receipts. The mere

fact that though the receipt of on-money is a prevalent practice in the case of

transaction in flats, it cannot be presumed that there was a concealment of

income or evasion of taxes. The Department must bring out material to indicate

the actual concealment of income. The whole discussions in the assessment

order clearly shows that the Department has proceeded only on the basis of the

cost of construction. At the stage when enquiries were made, the assessee has

got the valuation done by an approved valuer and filed the revised returns and

paid the taxes thereon. This conduct clearly shows that there was some sort of

settlement between the assessee and the Department. The assessment of

income is based purely on estimate basis. Without adequate materials, it is

impossible to accept the Department's contention that some part of the

estimated income represents concealed income. The assessee has filed the

revised returns. By so revising the returns, the assessee has substituted the

income of the original return with that of the revised returns vis-`-vis the revised

return there is no concealment of any income. The department has accepted all

these revised income which clearly shows that the assessments are based on

the basis of the voluntary offer made by the assessee. There is no material

brought before us even at this stage to show that there was any concealment of

income by the assessee and therefore find force in the stand taken by the

assessee that the entire revision of income was as a result of voluntary offer

made by the assessee. Keeping in view the ratio laid down by the Supreme

Court in the case of Sir Shadilal Sugar and General Mills Ltd. And Another vs.

CIT (165 ITR 705), we hold that in the facts and circumstances of the case

there is no concealment of income by the assessee. Accordingly, the penalties

are cancelled.

In the result, the appeals are allowed.

Sd/- Sd/-

(G. Chowdhury) (G.E.Veerabhadrappa)

Judicial Member Accountant Member

Madras,

Dated, the 24th October, 1996" (emphasis supplied

)

The above order of the Tribunal was not appealed against and thus has become

final and conclusive.

The Additional Chief Metropolitan Magistrate, on an application moved by the

appellants, permitted the appellants to mark the copy of the order of the Tribunal dated

24.10.1996 in evidence at the appropriate stage of trial.

It is also very useful, in the present context, to refer to the proceedings of the

Income Tax Officer, City Ward-II (2), Chennai cancelling the penalty. One sample order

reads thus:-

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"GIR.No: 279-K/CW.II(2)/83-84 Dt: 27-1-97

Sub: Penalty under section 271(1)(c) \026 Asst. year 1983-84 \026 in the case of M/s K.C.

Builders, 26, Nynar Nadar Road, Chennai \026 600 004 \026 reg \026

Ref: I.T.A.T's Order in I.T.A.No: 3129 to 3132/Mds/90 dt. 24-10-1996.

:O R D E R :

Giving effect to the Income-tax Appellate Tribunal's Order in I.T.A.No: 3129 to

3132 the penalty levied under section 271 (1)(c) is hereby cancelled.

U/s.271(1)(c), Rs.1,43,181/- is hereby cancelled."

Learned counsel appearing for the appellants cited the following decisions in

support of his submissions at the time of hearing:-

The first in the series is the judgment in Uttam Chand & Ors. Vs. Income Tax

Officer, Central Circle, Amritsar, (1982) 2 SCC 543. In this case, the registration was

cancelled on the ground that the firm was not genuine and prosecution initiated for filing

false return. The Tribunal rendered the finding that the firm to be genuine and on the

basis of the finding of the Tribunal, this Court held that the prosecution must be

quashed. The short judgment reads thus:-

"Heard counsel, special leave granted. In view of the finding recorded by the

Income Tax Appellate Tribunal that it was clear on the appraisal of the entire

material on the record that Shrimati Janak Rani was a partner of the assessee

firm and that the firm was a genuine firm, we do not see how the assessee can

be prosecuted for filing false returns. We, accordingly, allow this appeal and

quash the prosecution.

There will be no order as to costs"

In the case of G.L. Didwania & Anr. Vs. Income Tax Officer & Anr. 1995

Supp(2) SCC 724, the prosecution was levelled against the assessee for making false

statement. The Assessing Authority held that the assessee had intentionally concealed

his income derived from `Y' company which belonged to him, initiating prosecution

against him. The appellant filed the appeal against the assessment order and the

Tribunal set aside the assessment holding that there was no material to hold that `Y'

company belonged to the assessee. The assessee thereupon filed a petition before

the Magistrate to drop the criminal proceedings and the application before the High

Court under Section 482 to quash the criminal proceedings which were dismissed. On

appeal, this Court held that the whole question was whether the appellant made a false

statement regarding the income which according to the assessing authority had

escaped assessment and so far as this issue was concerned, the finding of the

appellate Tribunal was conclusive and hence the prosecution cannot be sustained.

Accordingly, this Court quashed the criminal proceedings and allowed the appeal filed

by the assessee.

The above judgment squarely applies to the facts and circumstances of the case

on hand. In this case also, similarly, the application was moved by the assessee before

the Magistrate to drop the criminal proceedings which were dismissed by the Magistrate

and the High Court also on a petition filed under Sections 397 and 401 of the Code of

Criminal Procedure, 1973 to revise the order of the Additional Chief Metropolitan

Magistrate has also dismissed the same and refused to refer to the order passed by

the competent Tribunal. As held by this Court, the High Court is not justified in

dismissing the criminal revision vide its judgment ignoring the settled law as laid down

by this Court that the finding of the appellate Tribunal was conclusive and the

prosecution cannot be sustained since the penalty after having been cancelled by the

complainant following the appellate Tribunal's order, no offence survives under the

Income Tax Act and thus quashing of prosecution is automatic.

In the instant case, the penalties levied under Section 271(1)(c) were cancelled

by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in

I.T.A. Nos. 3129-3132. It is settled law that levy of penalties and prosecution under

Section 276C are simultaneous. Hence, once the penalties are cancelled on the

ground that there is no concealment, the quashing of prosecution under Section 276C

is automatic.

In our opinion, the appellants cannot be made to suffer and face the rigorous of

criminal trial when the same cannot be sustained in the eyes of law because the entire

prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no

concealment of income becomes devoid of jurisdiction and under Section 254 of the

Act, a finding of the Appellate Tribunal supercedes the order of the Assessing Officer

under Section 143(3) more so when the Assessing Officer cancelled the penalty levied.

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

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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.

The same view as that of ours has been taken by this Court and the various

other High Courts in catena of decisions.

1. Commissioner of Income-Tax vs. Bahri Brothers Pvt. Ltd.

[1987] 167 I.T.R. 880

"Held, that the penalty was based on the earlier assessment order

wherein the amount representing cash credits was included. Since

that order had been set aside and the cash credits deleted from the

assessment, the consequent order of penalty had been rightly

cancelled."

2. Commissioner of Income-Tax vs. Bhagwan Ltd. [1987] 168 I.T.R. 846

"Held, that the orders of reassessment on the basis of which penalties were

levied had been set aside by the Tribunal. Hence, the order of penalty could

not stand by itself. The cancellation of penalty was justified."

3. Commissioner of Income-Tax vs. Bengal Jute Mills Co. Ltd.

[1988] 174 I.T.R. 402

"Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs

to the assessee's total income and the addition was deleted by the Tribunal:

Held, that it was evident from the material on record that the penalty had

been imposed solely on the basis of the addition of Rs. 4 lakhs to the

assessee's income. If the addition was deleted, the charge of concealment

of income could not be sustained. Imposition of penalty under section

271(1)(c) of the Income-tax Act, 1961, was, therefore, not valid."

4. Commissioner of Income-Tax vs. Madanlal Sohanlal

[1989] 176 I.T.R. 189

"Penalty cannot stand on its own independently of the assessment.

Where, in an appeal against the assessment reopened under section 147 of

the Income-tax Act, 1961, the Appellate Tribunal deleted the addition on

account of deemed dividend under section 12(1B) read with section 2(6A)(e)

of the Indian Income-tax Act, 1922, the deemed dividend which had been

deleted could not form the subject-matter of imposition of penalty under

section 271(1)(c) of the Income-tax Act, 1961, because, the basis for

imposition of penalty had ceased to exist. Therefore, the Tribunal was

correct in cancelling the penalty imposed on account of the addition."

5. Commissioner of Income-Tax vs. Bedi and Co. (P) Ltd.

[1990] 183 I.T.R. 59

"Held, that, in view of the conclusion reached by the High Court that the

amount in question was not assessable, there was no basis for the

imposition of penalty. The cancellation of penalty was valid.

[The Supreme Court has dismissed the special leave petition filed by the

Department against this judgment of the High Court in relation to penalty

under section 271(1)(c) arising out of an assessment, wherein the addition of

a loan has been cancelled by the High Court as reported in [ 1983] 144 ITR

352 : See [ 1990] 181 ITR (St.) 19-Ed.]

6. Commissioner of Income-Tax vs. Agarwalla Brothers

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[1991] 189 I.T.R. 786

"Held, (i) that the fact a particular construction had not been shown in the

accounts of the assessee was not relevant since this circumstance had not

been recorded as one of the reasons for initiating the proceedings under

section 147(a);

(ii) that the Tribunal had found, after examining the entire record, that there

had been no failure to disclose primary facts on the part of the assessee.

The reassessment was, therefore, not valid;

(iii) that penalty had been imposed consequential to the re-assessment.

Since the reassessment had been set aside, the order of the Tribunal

cancelling the penalty levied under section 271(1)(c) of the Act was also

legal."

7. Additional Commissioner of Income-Tax vs. Badri Prasad Kashi Prasad

[1993] 200 I.T.R. 206

"Held, that the levy of penalty was based on the addition to income made by

the Income-tax Officer. The addition was deleted by the Tribunal. Hence,

the Tribunal was justified in cancelling the penalty."

8. Commissioner of Income-Tax vs. Roy Durlabhji [1995] 211 I.T.R. 470

"Held, dismissing the application for reference, that the Tribunal had set

aside the penalty on the ground that the additions to income had already

been deleted. Since there was no liability to tax, no penalty could be levied.

The Tribunal was justified in cancelling the penalty and no question of law

arose from its order"

The very recent judgment in the case of Hira Lal Hari Lal Bhagwati vs. C.B.I.

New Delhi, JT 2003 (4) SC 381,in which one of us (Dr. AR. Lakshmanan,J.) was a

member, this Court while considering the scope of the immunity granted under the Kar

Vivad Scheme - Whether criminal proceedings could be initiated in respect of

declaration filed under the Scheme and accepted by the Excise Department can

proceed further with the prosecution and criminal conspiracy and cheating against the

appellants therein. Allowing the appeals, this Court held that since the alleged criminal

liability stood compounded on settlement with respect of the civil issues, the FIR was

erroneous and unwarranted and, therefore, the continuation of the proceedings would

tantamount to double jeopardy. This Court further held that the Collector of Customs

had exonerated the appellants there was no warrant for any fresh investigation and

prosecution on a matter which stood settled. Further since no prima facie case of

cheating and criminal conspiracy was made out the process issued is liable to be

quashed. It is to be noticed that as per the Kar Vivad Samadhan Scheme, 1998

whoever is granted the benefit under the said Scheme is granted immunity from

prosecution from any offence under the Customs Act, 1962 including the offence of

evasion of duty. In the circumstances, the complaint filed against the appellants is

unsustainable. This Court further held that under the penal law, there is no concept of

vicarious liability unless the said statute covers the same within its ambit. In that case,

the appellants have been wholly discharged under the Customs Act, 1962 and the GCS

granted immunity from prosecution.

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.

It is a well-established principle that the matter which has been adjudicated and

settled by the Tribunal need not be dragged into the criminal courts unless and until the

act of the appellants could have been described as culpable.

For the aforesaid discussions and reasons adduced, the questions of law

formulated above are answered accordingly and the appeals stand allowed.