Premier Breweries Ltd. and Others vs Deputy Commissioner of Income Tax and Another

K.T. Thomas, J.—The petitioners are arrayed as accused A-1, A-2 and A-4 to A-8 in a complaint filed by a Deputy Commissioner of Income Tax before the Court of the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam, for offences under Sections 276C and 277 read with Section 278B of the Income Tax Act, 1961. The learned Chief Judicial Magistrate, upon the complaint, took cognizance of the offences and issued process to the petitioners. They have filed this criminal miscellaneous case for quashing those proceedings.

The hub of the complaint is that the petitioners submitted false returns by claiming revenue expenditure to the tune of Rs. 9,98,200. In the assessment proceedings, the aforesaid claim was found to be without any basis. The contention of the petitioners is that since the Income Tax Appellate Tribunal has accepted the explanation offered by the petitioners in respect of the above claim, a criminal court cannot possibly convict the accused of the offences by holding that the claim was made falsely.

There is no dispute that in the penalty proceedings the Income Tax Appellate Tribunal accepted the explanation and quashed the order imposing penalty on the aforesaid count. But standing counsel for the Revenue contended that since the assessment became final by treating the aforesaid claim as baseless, prosecution could be sustained notwithstanding the finding made by the Income Tax Appellate Tribunal in penalty proceedings

Learned counsel for the petitioners cited the decision of the Punjab and Haryana High Court in Parkash Chand Vs. Income Tax Officer, A-Ward, It was a similar case in which prosecution proceedings were initiated against an assessee for filing false returns. But pending the criminal proceedings, the Income Tax Appellate Tribunal examined the materials in penalty proceedings and arrived at a finding in favour of the assessee. In view of that finding the High Court quashed the prosecution proceedings. Bains J. relied on the decision of the Supreme Court in Uttam Chand and Others Vs. Income Tax Officer, Central Circle, Amritsar, . That is a case where the Income Tax Appellate Tribunal set aside an order passed by the Income Tax Officer cancelling the registration of a firm. On its basis the assessee sought to have the prosecution proceedings quashed. The Supreme Court accepted the contention and quashed the proceedings. In Kanshi Ram Wadhwa Vs. Income Tax Officer, M.M. Punchhi J. (as he then was), quashed a similar prosecution proceeding on the premise that with the annulment of the penalty proceedings there was no case to launch a criminal prosecution against an assessee. The learned judge repelling the contention that the criminal court has to arrive at an independent finding de hors the annulment of the penalty proceedings, pointed out that "the court''s time is precious and is not meant to be employed for proceedings which are directionless".

The contention of standing counsel for the Revenue is that since the assessment has become final the Department would be able to prove the case against the petitioners in the criminal court. In penalty proceedings which are only quasi-criminal in nature, the explanation offered by the assessee was accepted as genuine. It must be borne in mind that in such quasi-criminal proceedings the burden on the Department is not akin to the burden cast on the prosecution in a full-fledged criminal proceeding. When in the former the stand of the assessee was accepted, the position would be much weaker for the prosecution in the latter.

I agree with the stand of the petitioners that in the light of the annulment of the penalty proceedings, there is no reasonable prospect of a criminal case ending in conviction as against the petitioners. As such, the continuation of the prosecution proceedings against the petitioners would only be a waste of time for the criminal court.

In the result, I quash the proceedings adopted by the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam, upon annexure I complaint.

Criminal miscellaneous case is disposed of in the above terms.