Income Tax Officer vs City Dry Fish Company and Others

Bhaskar Rao, J.—Criminal Appeal No 209 of 1988 has been filed by the Income Tax Department against the judgment of the Special Judge for Economic Offences, Hyderabad, in Criminal Case No. 8 of 1982 for enhancement of sentence. The Transferred Criminal Appeal No 1636 of 1989 is filed by A-2 against his conviction and sentence in Criminal Case No. 8 of the 1982. Therefore, both the appeals can be disposed of by a common judgment.

The Special Judge for Economic Offences, Hyderabad, acquitted A-1 of all the charges framed against it. He convicted A-2 for the offences u/s 276C and 277 read with section 278 of the Income Tax Act and setenced him to pay a fine of Rs. 2,000 under each count and also imprisonment till the rising of the court; in default of fine, simple imprisonment for a term of six months. A-3 was convicted for the offences under sections 276C and 277 of the Income Tax Act and was sentenced to pay a fine of Rs. 1,000 under each count and also imprisonment till the rising of the court; in default of fine, simple imprisonment for a term of six months. Aggrieved by the said judgment, an appeal for enhancement of the sentence has been filed by the Income Tax Department, whereas A-2 filed an appeal in the lower appellate court challenging the conviction. That was transferred to this court and numbered as Criminal Appeal No. 210 of 1988. Both the appeals are heard together.

The brief facts of the prosecution case as spoken to by P. Ws. 1 and 2 are as follows : A-1 is a firm by name Messrs. City Dry Fish Company, Vijayawada, represented by its managing partner, Syed Suleman, A-2, and its accountant, Mohd. Zahullah, A-3. They were carrying on business in dry fish at Vijayawada. The accounting year of the firm ends with September 30, every year. No estimate was filed for the assessment year 1979-80.

Exhibits P-3, P-4 and its verification exhibits P-4(a), its enclosures exhibit P-5, the profit and loss account and the computation of income were signed by A-2. Basing on exhibits P-6 and P-7, the profit and loss account and the computation of income, P. W. 2, Income Tax Officer, completed the assessment and computed the total income at Rs. 3,61,920 and passed an assessment order, exhibit P-27 dated November 30, ''98''. Thereafter, one Appaji Rao, who succeeded P. W. 2, authorised survey of the premises of A-1 firm and the residences of A-2 and A-3 u/s 133A(1) of the Income Tax Act by his inspectors, late G. Krishna Rao and J. Chakravarthi (not examined). The said two inspectors who conducted the survey recorded a statement, exhibit No. P-9, from A-3. The inspectors submitted their report, exhibit P-10, on the same day to late S. V. K. Appaji Rao, who impounded the day books, ledgers and other account books relating to A-1 firm for the accounting year 1977-77 onwards. Exhibit P-15(b), list of books that were impounded, contains not only some day books and ledgers but also exhibit P-16, ledger (secret account) relating to the firm. Later on, the late Appaji Rao recorded a statement, exhibit P-17, from A-2, on September 13, 1980. Discrepancies were found in the incomes originally submitted by the A-1 firm on which the assessment order, exhibit P-27, was passed and the secret account books found during the survey. Thereafter, A-1 firm filed a revised return, exhibit P-20, showing its income at Rs. 3,52,870. Subsequently, the file relating to A-1 firm was transferred to P. W. 1, who examined the entries in the first set of books of account and also the secret set of accounts that were impounded after verifying all the accounts. According to P. W. 1, he verified all the accounts and found suppression in the purchases, sales, gross profit and net profit. Therefore, he completed the assessment and computed the income as per the assessment proceedings, exhibit P-27, dated November 30, 1981. He ultimately initiated penalty proceedings against A-1 firm. As many as eleven charges were framed against A-1 to A-3 on different counts under the Indian Penal Code as also under the Income Tax Act. The court below, after elaborately discussing the entire matter on merits, acquitted all the accused of the offence under the Indian Penal Code and also acquitted A-1 of all the charges. However, it convicted A-2 and A-3 and sentenced them as stated earlier. The present appeals are filed by A-2 and the Income Tax Department as narrated supra. However, there is no appeal preferred by A-3 now in this court.

Learned counsel for the appellant (a-2_ in Tr. Cr. A. P. No. 1637 of 1989 contends that there is no legal evidence to base a conviction, that the alleged documents, i.e., return of income filed by A-1 firm for the assessment year 1977-78, profit and loss account and computation of income statement signed by A-2, ledger of A-1 firm for the assessment year 1977-78, statement recorded from A-3 by the then inspectors, the late G. Krishna Rao and J. Chakravarthi, report of the inspectors submitted to the late S. V. K. Appaji Rao, the then Income Tax Officer, E-Ward, on September 11, 1980, secret books seized during the survey and other documents, are not property proved and that, therefore, the conviction of A-2 cannot be based on the above evidence. Learned Special Public Prosecutor of Income Tax cases contended that the above documents are all public documents and they are properly proved by the prosecution witence of the prosecution witnesses and convicted the accused. There are no grounds in this appeal and it is liable to be dismissed.

To appreciate the above respective contentions, d it is relevant to refer to the evidence of P. W. 1. It is in the evidence of P. W. 1 that A-2 was the managing partner of A-1 firm and that A-3 was the accountant of the firm at the relevant time and that the accounting year of the firm ended with September 30 of every year. The assessment of A-1 firm for the assessment year in question was completed by Sri M. Venkateswarulu, the then Income Tax Officer, E Ward. On September 11, 1980, the late Sri S. V. K. Appaji Rao who was the then Income Tax Officer authorised survey of the premises of A-1 firm and the residences of A-2 and A-3 u/s 133A(1) of the Income Tax Act which was conducted by the inspectors, the late Krishna Rao and J. Chakravarthi as per exhibit P-10. They inspected the premises and recorded a statement, exhibit P-10, from A-3. They seized secret records along with the other records. it is also in the evidence of P. W. 1 that the inspectors submitted their report, exhibit p-11 on the same day to the late S. V. K. Appaji Rao who impounded the day books, ledgers and other account books relating to the firm for the accounting year 1976-77 onwards. Exhibit P-14(b) is the list of boos that were impounded. It contains not only day book and ledger for the accounting year 1976-77, i. e,, exhibits P-5 and P-6, but also exhibits P-15 and P-16 ledgers relating to the firm. The late Appaji Rao recorded a statement, exhibit P-17, from A-2. It is further in the evidence of P. W. 1 that, on discovering discrepancies, he reopened the assessment and issued a notice u/s 148 of the Act A-1 firm under the original of exhibit P-19. P. W. 1 stated that, in pursuance of the notice u/s 148, A-1 firm filed its return, exhibit P-20, showing an income of Rs. 4,01,050. It was some time thereafter as per exhibit P-8 proceedings that the file relating to A-1 firm was transferred to P. W. 1. P. W. 1 examined in detail the entries in the first set of books of account and also the secret set of accounts that were impounded, i.e., exhibits P-15 and P-16. It is stated that the suppression was in the purchases, sales, gross profit and net profit. Based on these documents, P. W. 2, the Income Tax Officer made an assessment and passed an assessment order, exhibit P-7, dated June 14, 1978.

The contention of learned counsel appearing for the appellant (A-2) is that A-2 has only signed on the blank forms, that the said forms were subsequently filled in by some other persons and that there was no knowledge on the part of A-2 that he was filing a false return. It must be noted that A-2 is none other than the managing partner of A-1 firm, that he is dealing with the affairs of the firm A-1 and that, therefore, on the face of it, it cannot be believed that A-2 has no knowledge of the contents therein and that A-2 signed on the blank forms and some other person had filed the returns. This assertion is also falsified by the evidence of the defence witnesses. D. W. 1, the Income Tax practitionery at Vijayawada, deposed that he is the consultant for A-1 firm from 1975 onwards, that A-3 was instructing him in the preparation of the returns and that A-2 was signing and sending the filled returns. He specifically stated that A-2 signed and filed the returns. In view of the evidence spoken to by D. W. 1, I see no force in this contention.

It is next contended that there is no evidence to show that exhibits P-15 and P-16, secret account books, which were produced before the court, are the same account books that were seized from the house of A-3 and that there is no evidence to show that exhibits P-15 and P-16 were seized from A-3. P. W. 1 clearly deposed that he was acquainted with the handwriting and signature of late Appaji Rao and he knew the signature of late Appaji Rao on the documents, exhibits P-14 and P-14(b), i.e., impounding order and the list of books that were impounded. Exhibit P-14 clearly shows that the seized books were impounded, the list of which is marked as exhibit P-14(b). Exhibits P-15 and P-16 clearly mention that one of the books was seized during the survey P. W. 1 specifically stated that the seized books were filed in the court. Therefore, it cannot be said that exhibit P-15 and exhibit P-16 were not seized from the house of A-and that the same were filed by the Department by creating another set of account books. P. W. 1 or the officers of the Income Tax Department have no grudge or enmity against the firm or the partners of the firm and there is no reason for them to create any false accounts. Further, exhibit P-11, report submitted by the inspectors to the late S. V. K. Appaji Rao, the then Income Tax Officer, is a public document and admissible in evidence In addition, A-1 firm itself, after receiving the notice issued u/s 148 of the Act, filed a revised return, exhibit P-20. After receiving the return, the Department again assessed the income and passed on assessment order. Thus it cannot be said that exhibits P-15 and P-16, ledgers for the accounting years 1976-77, are not admissible merely because the author of the said document has not stated that he wrote the account. It must be noted that the author is none other than A-3 and the statements recorded from A-2 and A-3 clearly show that a survey was conducted in the house of A-3 and secret account books along with the regular account books were seized from the house of A-3. Therefore, it cannot be said that the secret account books are planted by the Department In the circumstances, I see no force in the contention of learned counsel for A-2.

It is next contended that even assuming that exhibits P-15 and P-16 were seized during the survey conducted by the Income Tax Inspectors, there is no evidence adduced to show that the entries made in exhibits P-15 and P-16 are by any of the partners of the firm. Therefore, unless that is proved, exhibits P-15 and P-16 cannot be acted upon. It is a fact that there is no evidence to show that exhibit P-16 was written by any particular person. But it is the case of A-1 firm that A-3 was the accountant and that he was maintaining the accounts and writing accounts. Further, the fact that the account books were seized from the house of A-3 and the statements of A-2 and A-3 were recorded by the Income Tax Inspectors would go to show that A-3 was maintaining the accounts. Apart from that, the firm itself had filed a revised return based on exhibit P-16. Therefore, the non-examination of the person who prepared the accounts matters little and on that basis the entire case cannot be thrown out.

It is further contended by learned counsel that even taking that there is discrepancy of income in the original return and the subsequent return, still it cannot be said that the offences of concealment and fabrication of documents are made out. Itr must be noted that there is not only difference of income in the two returns but the same fact was also spoken to by P. W. 1 whose evidence is based on the documents, exhibits P-3, P-3(a), P-5, P-15, P-16, P-20, and P-29. Therefore, the case of the Department rests not only on the record but also on the evidence of P. Ws. 1 and 2, who are the Income Tax Officers. Therefore, I do not see any force in this submission also.

Nextly, it is contended that A-1 firm having been acquitted, A-2, the managing partner of the firm, cannot be convicted u/s 278B(1) of the Act for the constructive liability of the offences committed by the firm. Though there is no specific finding as regards the guilt of A-1 firm, the court below has elaborately considered the evidence and found that the offences under sections 276C and 277 of the Income Tax read with section 278B were committed by the firm. But as the firm cannot be made liable for corporal punishment, A-1 was acquitted. Therefore, it cannot be said that A-2''s conviction u/s 278B is illegal. Furthermore, it is deposed by P. Ws. 1 and 2 that the returns were filed by A-2 after signing. Even the evidence of D. W. 1 clearly shows that the returns are signed by A-2 after they were prepared. Thus A-2 has played a prominent role in filing the returns. Therefore, I see no force in this contention.

Learned counsel next contended that the evidence showing that there is difference of income in the original return and the revised return is not at all sufficient to punish the firm or the partners of the firm. The prosecution must further establish that there is an intentional suppression on the part of the firm and the partners. The evidence of P. Ws. 1 and 2 clearly discloses that the original return shows an income Rs. 1,14,970 whereas in the revised return which was filed after the notice u/s 148 the income shown is Rs. 4,01,050. Thus the difference in the income is Rs. 2,86,080. This itself shows that the firm had suppressed the real income and therefore it can safely be inferred that the said suppression is intentional. It is not the case of the firm or its partners that the said account books were misplaced and not available and, therefore, they have filed the original returns. Except the bald denial, there is no plea at all put forward by the firm or its partners. Therefore I see no force in this submission.

Lastly, on the strength of a ruling of the Supreme Court in Hamareddy v. State of Karnataka AIR 1989 SC 1917 (sic) learned counsel for A-2 urges that when an offence u/s 277 of the Income Tax Act is committed in the course of the same transaction as offences under sections 193 and 196 of the Indian Penal Code, it is the Income Tax Officer, E-Ward that had to file the complaint and not the Income Tax Officer of A-Ward. Not having done so, the prosecution cannot be sustained. In the above case, the accused was convicted under sections 467 and 193 of the Indian Penal Code. Another accused was convinced u/s 467 of the Indian Penal Code. On appeal, the Karnataka High Court set aside the conviction and acquitted Hamareddy on the ground that the complaint was filed by a private individual and not by the court. In appeal against the acquittal, their Lordships of the Supreme Court held that since the fabricated sale deed was not put in evidence at any stage of the suit, the accused was liable u/s 467, Indian Penal Code, and hence the accused was convicted of the offence u/s 567 of the Indian Penal Code, but confirmed the acquittal of Hamareddy of the offence u/s 193 because there was no complaint should have been filed by the Income Tax Officer, E-Ward, but not by P. W. 1, the Income Tax officer, A-Ward. But, in view of the judgment of this court rendered in Veerakistiah and Others Vs. Income Tax Officer and Another, , I am afraid that it is not open for me to hold that the prosecution of the offences under sections 277 and 278 of the Act on the complaint made by P. W. 1, the Income Tax Officer, A-Ward, is not valid. The court below has thoroughly considered the entire material on record and rightly found A-2 guilty of the offences with which he was charged and sentenced him accordingly assigning cogent and convincing reasons. The order of the lower court does not, therefore, call for interference by this court. Accordingly, Tr. Criminal Appeal No. 1636 of 1989 is dismissed.

Coming to Appeal No. 209 of 1988 of the Income Tax Department, it is filed for enhancement of sentence against A-2 and A-3. No appeal is filed against the acquittal of A-1. Apart from this, it is elicited in evidence that except one or two partners, the remaining partners are hut-dwellers and as stated supra, the Department also assured that it was not going to initiate penalty proceedings or prosecution. It is a fact that, under the provisions of section 276, 277 and 278B of the Income Tax Act, the minimum sentence prescribed under the Act has to be imposed by the court. But the court below has given cogent and proper reasons for not awarding the said minimum sentence. Having regard to the facts and circumstances of the case, it is not a fit case to impose higher punishment. The Criminal Appeal No. 209 of 1988 is also dismissed.