K.C. BUILDERS AND ANR. vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

CRIMINAL APPEAL No. 212/1998Supreme Court[2004] 1 S.C.R. 113428 January 2004Bench: 2 JudgesAuthor: B.N. AGRAWAL, AR. LAKSHMANAN K.C. BUILDERS AND ANR.21 pages
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What did the Supreme Court hold?

The Supreme Court held that the prosecution for concealment of income could not be sustained. The Court reasoned that the ITAT's order, which found no concealment of income and cancelled the penalty, superseded the Assessing Officer's order. Since penalty and prosecution proceedings are simultaneous, the cancellation of the penalty by the ITAT automatically led to the quashing of the prosecution under Section 276-C. The Court emphasized that once the ITAT conclusively found no concealment of income, the entire prosecution became devoid of jurisdiction. It would be an idle and empty formality to require the assessee to face a criminal trial when the basis for it had been nullified by a higher appellate authority. The Court also noted that for establishing the offence of cheating under Section 420 of the Penal Code, 1860, a fraudulent or dishonest intention at the time of making the promise or misrepresentation must be shown; mere failure to keep up a promise subsequently does not presume such an intention. The appeals were allowed.

What were the facts?

The assessee, K.C. Builders, engaged in construction and sale of flats, filed original returns for AYs 1983-84 to 1986-87. Subsequently, revised returns were filed based on an approved valuer's report, which were accepted by the respondent (assessing authority). The assessing authority treated the difference between original and revised returns as concealed income and levied penalty under Section 271(1)(c)(iii) of the Income Tax Act, 1961. Complaints were filed before the Magistrate under Sections 276-C(2), 278-B of the Act and Sections 120-B, 420 of the Penal Code, 1860. The Income Tax Appellate Tribunal (ITAT) cancelled the penalty, holding there was no concealment of income as the additions were based on a settlement and voluntary offers. This ITAT order became final. The assessing authority cancelled the penalties. The High Court dismissed the assessee's criminal revision petition.

What were the issues?

1. Whether prosecution for concealment of income under Section 276-C of the Income Tax Act, 1961, can be sustained when the Income Tax Appellate Tribunal (ITAT) has cancelled the penalty for concealment on the ground that there was no concealment of income? Assessee's contention: The ITAT's order, which found no concealment of income and cancelled the penalty, superseded the Assessing Officer's order. Since both penalty and prosecution proceedings were simultaneous, the quashing of the penalty by the ITAT automatically rendered the prosecution void and without jurisdiction. The ITAT's finding that there was no concealment of income became final, thus the prosecution could not be sustained. Revenue's contention: Penalty proceedings and prosecution proceedings are independent. The result of proceedings under the Income Tax Act is not binding on the Criminal Court, which must judge the case independently on the evidence.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 271(1)(c)(iii),Section 276-C,Section 276-C(2),Section 278-B,Section 120-B,Section 254,Section 143(3),Section 154

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A K.C. BUILDERS AND ANR. v. THE ASSISTANT COMMISSIONER OF INCOME TAX JANUARY 28, 2004 B [B.N. AGARWAL AND DR. AR. LAKSHMANAN, JJ.] Income Tax Act, 1961: Section 271 (J)(c)-A Ys 1983-84 to 1986-87-Concealment of income- C Prosecution for-Imposition of penalty-Assessee engaged in the business of construction and sale of flats submilled original ret11rns-S11bsequent/y, assessee submilled revised retums based on approved valuer's report-Assessing authority treated difference in income between original and revised returns as concealed income and levied penalty-Therea.fier, complai/1/s against assessee D were filed before Magistrate-ITAT held that there was no concealment of income and cancelled the penalty-Assessing authority gave effect to /TAT's order-ITAT's order not challenged and became final-Held: Under such circumstances, prosecution could not be sustained Section 27 I (I )(c)(iii)-Penalty-Levy of-A Ys 1983-84 to i 986-87- E Prosecution and penalty-Interrelation between-Assessing authority levied penalty on the assessee for concealment of income and la1111ched prosecution- B11t /TAT held that there was no concealment of income and cancelled the penalzv-Held: Le

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