Ganesh Steel Traders and Another vs Commissioner of Income Tax and Others

Nagendra Rai, J.—The present application has been filed for quashing the order dated March 30, 1992, passed in Complaint Case No. 294 of 1992, taking cognizance under Sections 276C and 277 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), against the petitioners.

The complainant-opposite party filed a petition of complaint alleging, inter alia, that the original assessment of the firm was made u/s 143(1) of the Act on a total income of Rs. 15,310 on October 15, 1986. Thereafter, a search was conducted and documents were seized on July 11, 1988, and, thereafter, a notice u/s 148 of the Act was issued to file a return. On scrutiny of the relevant documents, which were seized from the search, the assessment was completed on a total income of Rs. 1,73,935 u/s 144 of the Act and a penalty proceeding was initiated. The scrutiny of the books seized from the residence of one of the partners, namely, Ashok Kumar, revealed sale proceeds of Rs. 51,500 on three different dates. Page 4 of the exercise book showed cash sales of Rs. 25,936 from April 6, 1985, to April 12, 1985. None of these sale proceeds appeared in the regular books of account. Another entry made in another exercise book showed cash sales from May 8, 1985, to June 6, 1985, of Rs. 55,247 and expenses were shown as Rs. 8,574 during the said period. Further, advance of Rs. 9,650 was also made to different parties. Rs. 10, 846 was estimated as interest on these advances. The records further showed that the firm has earned interest during the relevant period but did not show it in the relevant documents. Thus, it was alleged that the accused persons wilfully did not file the return in response to the notice u/s 148 of the Act and failed to furnish particulars called for u/s 142(1) of the Act and as such they committed an offence punishable u/s 276C of the Act. The accused also concealed all the particulars of income or deliberately furnished inaccurate particulars and thereby wilfully attempted to evade tax chargeable or imposable under the Act. They have also made a false statement in the verification portion of the return and as such committed offences punishable under Sections 276C and 277 of the Act.

Learned counsel for the petitioners submitted that there is no specific averment in the complaint petition against the petitioners and as such in view of the provision of Section 278B of the Act, the prosecution of petitioner No. 2 is not permissible in law.

The case was lodged against the firm, M/s Ganesh Steel Traders, and three partners, namely, Lakhan Lal Sao, Ashok Kumar and Ajay Kumar. This petition has been filed on behalf of the firm and Lakhan Lal Sao. Now, the law is well-settled that in the case of the prosecution under the Act with regard to offence alleged to have been committed by the firm or company there should be specific averment in the complaint that the directors or the partners were in charge of and responsible for the conduct of the business of the firm or the company at the time of the alleged offence. In the absence of such averment their prosecution is not sustainable in law.

In this case, petitioner No. 1 was the firm and there is no legal bar in prosecuting the firm in view of the allegations made in the complaint petition. So far as petitioner No. 2, Lakhan Lal Sao, is concerned, it is admitted that he is a partner and as such in view of the said settled law, his prosecution is not sustainable. Accordingly, his prosecution is quashed. The prosecution against petitioner No. 1, the firm, shall continue.

In the result, this application on behalf of petitioner No. 2 is allowed and as against petitioner No. 1, it is dismissed.