Surinder and Company and Another vs A.K. Thatai, Income Tax Officer

J.B. Garg, J.—The petitioners who are carrying on business as cloth merchants in the name and style of Messrs. Surinder and Co., at Jakhal, a suburb in District Hissar, have instituted this petition through their partner, Parmeshwari Dass, u/s 482 of the Code of Criminal Procedure challenging a complaint instituted on December 31, 1987, under Sections 276C: 277 read with Section 278B of the Income Tax Act, 1961, and sections 195 and 196 of the Indian Penal Code, pending in the court of the Chief Judicial Magistrate, Hissar.

On July 28, 1984, a raiding party headed by the Income Tax Officer, A-Ward, Rohtak, along with other officials of the Department raided the premises of the firm and seized certain books of account and documents. They also allegedly checked the stock of cloth physically and verified the stock inventory. The result of the entire raid was that the petitioners'' firm was found having income of Rs. 1,80,791 but in the return they had shown only as Rs. 1,29,604 and the concealment was of Rs. 50,687 for the assessment year 1985-86. The details of the alleged concealment given in para No. 2 of the present petition are reproduced as under :

(a)

Investment in jewellery as per seized document No. 2

Rs. 24,835

(b)

Income from interest on the basis of accrual

20,773

(c)

Unexplained entry in the name of the seized paper No.

14,973

(d)

Unrecorded sale found in paper No. 3

106

50,687

The present petitioners filed appeals against the decision before the Commissioner of Income Tax (Appeals) which was decided on December 30, 1988 (annexure P-2) and also before the Tribunal which was decided on June 27, 1989 (annexure P-1). The Commissioner of Income Tax, vide his order dated December 30, 1988 (annexure P-2) came to the conclusion that the items mentioned in Clauses (b) and (d) were, in fact, not concealments and these were excluded from the proceedings for levy of penalty.

As regards item (b) which relates to accrual of interest in the sum of Rs. 20,773 for the period from April 1, 1984 to October 22, 1984, the Commissioner of Income Tax (Appeals), Faridabad, in his order dated December 30, 1988 (annexure P-2) has held that the assessee was entitled to the benefit of this sum and he also observed that it could not be said to represent his concealed income. It was also held that the Income Tax Officer was not justified in levying any penalty with respect to the aforesaid sum of Rs. 20,773. Besides this, the alleged sale which related to only a sum of Rs. 106 was also ignored from the sphere of penalty considering it to be a petty amount.

This assessee preferred an appeal to the Income Tax Appellate Tribunal, Delhi Branch ''D'', New Delhi, and it consisted of Shri F. C. Rustagi and Shri J. Kathuria. This Tribunal, in its order dated June 27, 1989 (annexure P-l), has held that investment in jewellery was made in the year 1983 when there was a marriage of the second son of the assessee. It was further observed that, in the course of search, no jewellery was recovered and only a parcha was found showing the investment made in purchase of the aforesaid jewellery. The relevant lines from the order of the Tribunal, after discussing this item, are reproduced as under :

"When we carefully peruse the statement of Chandra Kanta and also carefully peruse the vouchers pertaining to jewellery and go through the detailed order of the Commissioner of Income Tax (Appeals) in penalty proceedings for concealment, we are constrained to order the deletion of the said amount of Rs. 24,835.

As regards item (c) being the unexplained entry in the name of one Shri Rameshwar, the assessee''s explanation that it represented the jewellery purchased by Smt. Geeta Devi and that it was purchased through Shri Parmeshwari Dass, a partner in the assessee-firm, was also accepted. After discussing the details, the finding and observations made by the aforesaid Income Tax Appellate Tribunal in their order (annexure P-1) are reproduced as under :

"Since no investment in jewellery was made in the year under consideration and since there is no dispute about this position, no penalty could be imposed with reference to the sum of Rs. 24, 836 representing the investment made by the assessee-firm in the purchase of jewellery. Therefore, I hold that the Income tax Officer was not justified in taking into account the sum of Rs. 24,836 while levying the impugned penalty. He is directed to exclude the sum of Rs. 24,835 for the purpose of the levy of penalty u/s 271(1)(c)."

From the details referred to above and from the findings of the Commissioner of Income Tax (Appeals) and thereafter of the Tribunal, it is now undisputed that the proceedings of the alleged concealment have been set aside by well-reasoned judgments.

Learned counsel for the respondent has referred to Sant Parkash and Others Vs. Commissioner of Income Tax and Others, . However, this case relates to District Ludhiana, where the alleged undisclosed amount was Rs. 16,50,000 when the balance-sheet of the company was placed before the assessing authority. The case now in hand is not where little relief has been given to the assessee but a case where all the four alleged concealments have been explained by the assessee. In the case now in hand, the pendency of the criminal complaint shall be an abuse of the process of the court. Learned counsel for the respondent has also referred to P. Jayappan Vs. S.K. Perumal, First Income Tax Officer, Tuticorin, , wherein it was observed that the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. Here, the appellate authority and the Tribunal themselves have observed that the assessee has explained the items (a), (b) and (c) to their satisfaction and the unrecorded sale found on a piece of paper in the sum of Rs. 106 at the premises of a cloth merchant in the suburb of Jakhal was hardly fit for launching prosecution against the assessee. The conclusion is that the present petition is accepted and the complaint (annexure P-3) and the proceedings arising out of it, pending in the court of the Judicial Magistrate, Hissar, which are at a preliminary stage are hereby quashed.