N.S.BABU vs. COMMISSIONER OF INCOME TAX

JUDGMENT Petitioner

is the proprietor

of M/s.Bharathy Clays, Thiruvananthapuram and M/s.Bharathy

Earth

Engg.

Contractors, Trivandrum. For the assessment year 1989-90 he filed a return on 31.10.1989 declaring loss of Rs.4685/-. From the total income of Rs.2,19,375/- unabsorbed depreciation of Rs.2,24,060/- was deducted resulting in a loss of Rs.4685/-. Along with the return computation statement and annual account were submitted. Accepting the loss, the return of income was processed under section 143(1)(a) of Income Tax Act on 23.3.1990. Investigating wing of the department conducted a survey in the premises of the petitioner on 6.3.1990. He sent several letters calling the petitioner to furnish the details to scrutinise the accounts. As he did not respond, Assessing Officer proposed to do an ex parte assessment of an income of Rs.40,00,000/-. Petitioner submitted a reply and in that reply he offered to add two items to the income originally declared namely Rs.40,413/- being the interest received from M/s.Kalpaka Finance, Trivandrum on its winding up and Rs.1,28,335/- received from M/s.Tranvancore Cements Ltd, Kottayam in full against the advance made. Assessment was done under section 143(3) disallowing business expenses of Rs.43,499/-. Petitioner filed an appeal before Commissioner of Income tax Appeals. Appeal was allowed and expenses of Rs.43,499/- was allowed. The Assessing officer was directed adjustment of property income against the income from other sources and to allow deduction under section 80C, which petitioner had not claimed in his return. As a result when originally no tax was payable on regular assessment, petitioner has to pay Rs.1,64,266/-. Penalty of Rs.1,20,000/- was also imposed. Petitioner filed an appeal under section 271(1)(c). In the appeal, C.I.T(A) directed the assessing officer to treat Rs.1,68,748/- as concealed income and levy the minimum penalty as provided under section 271(1)(c). It was contended that the said levy of penalty was not contested before the Income tax Appellate Tribunal and the penalty payable was Rs.66,805. Department filed an appeal against the said order before I.T.A.T, Cochin Bench. It was subsequently disposed by Ext.P4 order whereunder the penalty imposed was set aside allowing the cross objection filed by the assessee. Department filed Ext.P1 complaint before Additional Chief Judicial Magistrate (Economic Offences), Ernakulam contending that petitioner deliberately concealed the income with the intention of evading tax and also made a statement on verification under the I.T.Act and delivered an account or statement which he knew or believed to be false and therefore he committed offences under section 276C and Section 277 of Income-tax Act and also offences under section 193, 196 and 420 of Indian Penal Code. Learned Magistrate has taken cognizance of the offences. Petition is filed under Article 226 of the Constitution of India to quash Ext.P1 complaint.

concealment. Moreover, though the AO had sent the proposal for the best judgment

assessment

for assessing the assessee's income at Rs.40 lakhs, but the assessment is completed under section 143(3) accepting the additional income declared by the assessee which as per the assessee was an accounting mistake. We also find force on the facts of this case in the contention of the assessee that when the accounts are audited by a Chartered Accountant, certainly the assessee will be relying on the audited accounts and he filed the return of income based on the said audited accounts. Another aspect we would like to clear here is that the word “concealment” appearing in the Section contemplates

some deliberate act and not a mistake. There is no second opinion in respect of the impact of the Explanation to Section 271(1)(c) of the Act, but at the same time, we find that the assessee has offered his

explanation

for not declaring the two said two sums in his original return but only offered at the time of assessment is sufficient to relieve him from Explanation B to Section 271(1)(c) of the Act. In our further opinion the different decisions relied on by the revenue are distinguishable

on facts. There is no fixed scale or any device to decide whether a particular assessee is liable for penalty under section 271 (1)(c) but each case is to be determined on the basis of the facts. In this case, another aspect to be considered is that no books of accounts were impounded

nor

any other enquiries were made by the AO and in our opinion, it was purely a mistake on the part of the assessee and not any conscious concealment.” Though the department challenged the order before this court in ITA 219/2009, by Ext.P3 judgment the appeal was dismissed. In such circumstances, it can only be found that there was no wilful attempt to evade tax as provided under section 276C. In the light of the said finding, it can only be found that petitioner did not make any false statement, which is false or which either knew or believed to be false. If that be so, petitioner cannot be prosecuted for either an offence under section 276C or 277. The question has been settled by this court in Edayanal Constructions v. Income-tax Officer and another (2007 288 ITR 134) where it was held that when the Appellate Authority as well as the Income tax Appellate Tribunal in unambiguous terms found that the explanation of the assessee for not showing the concealed income is accepted, an offence under section 276C or 277 is not attracted. So also none of the offences under sections 193, 196 or 420 of Indian penal Code is attracted. Hence the cognizance taken and the proceedings pending before the learned Additional Chief Judicial Magistrate can only be quashed. Petition is allowed. Ext.P1 complaint and the further proceedings in C.C.38/1997 on the file of Additional Chief Judicial Magistrate Court (Economic Offences), Ernakulam is quashed. M.SASIDHARAN NAMBIAR JUDGE tpl/-

M.SASIDHARAN NAMBIAR, J. --------------------- W.P.(C).NO. /06 --------------------- JUDGMENT SEPTEMBER,2006