ASSISTANT COMMISSIONER OF INCOME-TAX VS YERRA NAGABHUSHANAM
1999 P T D 2125
[226 I T R 843]
[Andhra Pradesh High Court (India)]
Before B.S. Raikote, J
ASSISTANT COMMISSIONER OF INCOME-TAX
Versus
YERRA NAGABHUSHANAM
Criminal Appeal No.475 of 1995, decided on 19/03/1997.
Income-tax---
---Offences and prosecution---False verification---Wilful attempt to evade tax---Return of firm filed by managing partner on estimated profit basis-- Assessing Officer admitting that managing partner proposed to get income of firm assessed after getting books written by accountant---Department itself not asserting mens rea on part of managing partner in filing false return of firm---Acquittal of managing partner by Trial Court justified---Indian Income Tax Act, 1961, Ss.276-C & 277.
On the basis of search and seizure conducted, books and materials were seized from the managing partner of a firm. A return of the firm was filed showing income of Rs.26,010 only whereas the income was assessed at Rs.1,00,000. The Commissioner reduced the quantum of income to Rs.50,000. Prosecution proceedings were initiated against the managing partner under sections 276-C and 277 of the Income Tax Act, 1961. The Trial Court convicted the firm, but however acquitted the managing partner, on the ground that there was no mens rea on his part in filing the return on estimated profit basis. The Assessing Officer admitted that the managing partner had stated before the Department that he was running the business and the books of account were written by a part-time accountant, that he proposed to get the income of the firm assessed after getting the books written by the accountant after his recovery from ill-health and that he would produce the purchases and sales bills and stock particulars which were with the accountant in a few days time. The Assessing Officer further admitted that the managing partner filed the profit and loss account and balance-sheet alongwith the return of income for the relevant assessment year on an estimated basis. On appeal:
Held, affirming the decision of the Trial Court, that from the facts it was clear that the Department itself was not asserting that there was any mens rea or knowledge on the part of the managing partner in filing the false return. There was no mens rea on the part of the managing partner in filing the false return and the order of the trial Court did not call for any interference.
B.TX Chemicals (P.) Ltd. v. Suraj Bhan (1989) 177 ITR 425 (Guj.); Gavit (R.R.) v. Sherbanoo Hasan Daya (Smt.) (1986) 161 ITR 793 (Bom.); Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) and Thakasi Satyanarayana v. State of A.P. (1985) 1 Crimes 60 (AP) ref.
M.V. Rama Rao for Appellant.
K.K. Viswanadham and M. Jagadish Kumar for Respondent
JUDGMENT
This appeal is preferred by the Assistant Commissioner of Income tax, Investigation, being aggrieved by the judgment of the Special Judge for Economic Offences at Hyderabad, dated August 30, 1994, on his file in C.C. No.96 of 1992.
By the impugned judgment, the Court below convicted A-1, Visakha Medical Stores, Main Road, Kancharapalam, Visakhapatnam, of the offence under section 276-C of the Income-tax Act, by imposing a fine of Rs.5,000 and in default A-2 to undergo rigorous imprisonment for a period of six months. A-1 was further convicted and sentenced to pay a fine of Rs.5,000 for the offence under section 277 of the Income-tax Act and in default A-2 to undergo rigorous imprisonment for a period of six months. By the same judgment, the Court below acquitted A-2 of the offence under section 276-C and under section 277 of the Income-tax Act. This appeal is preferred in so far as it relates to the acquittal of A-2. The conviction of A-1 firm is not challenged in this appeal and the same has become final.
From the facts narrated above, it is clear that I have to consider this appeal only in relation to A-2 who was said to be the managing partner of A-1 firm, Visakha Medical Stores.
In order to appreciate the rival contentions of both the parties, it is necessary to briefly state the facts in this case. On the basis of the search and seizure conducted on December 3, 1986, certain books and other materials were seized from the house-cum-shop of A-2. On the basis of search, it was alleged on behalf of the Income-tax Department that the net income of A-1 firm would come to Rs.1,00,000, whereas the return was filed only regarding the income of Rs.26,010. The accused firm has not accounted for certain commission received by it. On that basis, the Department determined the income of A-1 firm at Rs.1,00,000 and talc was also determined at Rs.11,250. Against the said order, the assessee preferred an appeal, but the same was disposed of by the Commissioner of Income-tax with certain modifications by reducing the quantum to Rs.50,000 under exhibit P-45.
However, the present prosecution is also launched under sections 276-C and 277 of the Income-tax Act.
In support of the case, the Department examined P.W s. 1 and 2 and got marked exhibits P-1 and P-46. On a consideration of the entire material placed on record, the Court below convicted the firm A-1. However, the Court below acquitted A-2 on the ground that there was no mens rea on the part of A-2 in filing the return on an estimated profit basis. The Court below observed that it was not a return reflecting the actual earnings but it is only the estimated earnings, therefore, A-2 cannot be said to have committed the offence and accordingly acquitted accused No.2. It is against this order of acquittal of A-2, that the present appeal is preferred.
Learned counsel appearing for the Department contended that it is the accused who filed the return and the return was a false return. On that basis, A-1-firm has been convicted and the Court below was in error in acquitting A-2. Learned counsel for the appellant further submitted that under section 276-C(1) and (2) of the Income-tax Act, if a person wilfully attempts, in any manner whatsoever, to evade any tax, penalty or interest chargeable or imposable under this Act, he shall be liable for conviction, without prejudice to any penalty that may be imposed on him under any other provision of the Act. He further submitted that "wilful attempt" also has been clarified in the Explanation to section 276-C stating that a wilful attempt shall include a case where any person has in his possession or control any books of account or other documents or makes or causes to be made any false entry or statement in such books of account or other documents or wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents, or causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposeable under the Act or the payment thereof. Learned counsel invited the attention of the Court to section 277 of the Income-tax Act regarding false statement in verification. Under that section if a person makes a statement in any verification under the Act which is false and which he either knows or believes to be false, or does not believe to be true, he shall be punishable. Relying on these two sections, i.e., sections 276-C and 277 of the Act, learned counsel for the appellant strenuously contended that A-2 wilfully evaded the tax. On the other hand, learned counsel for the respondent supported the order of acquittal contending that as per the sections that there should be wilful attempt on the part of the assessee to evade tax. In the instant case, there was no wilful attempt to evade the tax on the part of the assessee and it was due to the mistake committed by the accountant working under the assessee. Under section 277 not only such statement should be false but also he must also know or believe it to be false. Having regard to the circumstances of this case, no knowledge can be imputed to A-2. He submitted that at any rate there was no mens rea on the part of A-2 for filing a false return. When the Department pointed out certain mistakes, the accused accepted the mistakes only to buy peace with the Department. It was contended, on that basis, that there was no intention on the part of A-2 to commit the offence under the Act.
I have given anxious consideration to the facts of this case, Regarding mens rea or wilfulness on the part of the accused. P.W.2, the Assessing Officer, in the cross-examination admitted the effect that "I cannot say whether A-2 has knowledge of the maintenance of the accounts by the accountant and entries thereof." From this fact, it is clear-that the department itself is not asserting that there was any mens rea on the part of the accused and whatever irregularities pointed out by the department are accepted by the accused only to buy peace. Further, P.W.1 stated in his deposition that the statement of A-2 was recorded as per exhibits P-34 and P-38. He admitted that A-2 stated before the Department that 'he is running the business and books are written by one Mr. Surender, a part-time accountant, and sales bills are written by one Mr. Easwararao, salesman at his instance. He also admitted that A-2 further stated that he proposed to get his turnover and income assessed after getting the books written by the part-time accountant after his recovery from ill-health. In those statements, the accused also submitted before the Department that the purchases and sales bills and stock particulars are with the accountant at present and he would produce them in the office in a few days time. As per exhibits P-16, dated December 3, 1986, A-2 stated that the current bill books are with the accountant. P.W.1 further admitted that A-2 filed the profit and loss account and balance-sheet along with the return of income for the relevant assessment year on an estimate basis. From these facts, it is clear that the Department itself is not asserting that there was any mens rea or knowledge or wilfulness on the part of A-2 in filing the alleged false return.
From the evidence of P.W.1, it is clear that the Department is not asserting that there was any mens rea on the part of the accused. This Court in a decision in Thakasi Satyanarayana v. State of A.P. (1985) 1 Crime 60 (AP), has held that to constitute an offence under section 276-C of the Income-tax Act, the Department has to necessarily prove the requisite mens rea, namely, knowledge on the part of a person who made the alleged false statement. The Court observed as under:
" 10. The crucial question which, however, falls for determination is the scope of the Explanation appended to section 276-C of the Income-tax Act. The Explanation has to be read with both the clauses of the section. The opening words of section 276-C(1) imply the existence of a particular guilty state of mind in the person sought to be punished. The requisite mens rea is defined by the expression 'wilfully'.
The Explanation runs thus:
'For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person---
(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement;
The Explanation does not in any way restrict or cut down the ambit of the expression 'wilfully' occurring either in clause (i) or (ii) of section 276-C(1) of the Act. Mere possession or control of any books of account and other documents containing a false entry or statement is not punishable. It is only where a person in possession or control of such books of account or other document has knowledge of the false entry or statement that he renders himself punishable. Any other interpretation would sometimes lead to disastrous results. To take an example, if X carries on several businesses and maintains duplicate sets of accounts in relation thereto and preserves the incriminating set of accounts in the house of his innocent father-in-law and if the same are seized during a raid conducted by the income-tax authorities, can the innocent father-in-law of X be successfully prosecuted under section 276-C(1), clause (ii), read with the Explanation of the Income-tax Act? The answer to my mind is emphatically in the negative. It is not difficult to visualise that a person can come into possession of books of account containing false entries or statements without knowledge of the same. The requisite mens rea, namely, knowledge on the part of a person of a false entry or statement in any books of account or other documents in his possession or control must be established before he is sought to be visited with the penalty prescribed thereunder. "
To the same effect also is the law declared by the High Court of Gujarat in B.TX Chemicals (P.) Ltd. v. Suraj Bhan (1989) 177 ITR 425. However, learned counsel for the appellant submitted that the very fact that A-2 filed a revised return would ipso facto prove the mens rea or wilfulness on the part of A-2. But the explanation offered by A-2 before the Department was that when the Department pointed out certain mistakes, he (A-2) accepted the mistakes only to buy peace with the Department. This explanation offered by A-2 was accepted by the Court below. What is to be noted, in this context, is whether by filing a revised return as suggested by the Department the accused accepted also the fact that he filed a false return.
As held by the Hon'ble Supreme Court in Sri Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705, from the mere acceptance that certain amounts are taxable it cannot be further held that the accused accepted the fact that he deliberately furnished inaccurate particulars or concealed any income. The Hon'ble Supreme Court pointed out that (headnote):
"From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of a quasi-criminal offence. "
In the instant case, P. W.1 admitted in the cross-examination that he cannot say whether A-2 had the knowledge of the maintenance by the accountant and the entries thereof. From the evidence of this official witness, it is clear that the Department itself is not asserting that there was any mens rea on the part of accused No.2 in filing the return. Therefore, as held by the Court below, the Department has not brought home the guilt against the accused for the offences under sections 276-C and 277 of the Income-tax Act.
Lastly, learned counsel for the appellant submitted that in exhibit P-13 the accused has admitted that he was in charge of the firm and his father was not in charge of the firm and he was looking after the affairs of the firm, and in view of exhibit P-13 it is established that it was the accused who was in charge of the firm and he is guilty of the offences charged. It is further submitted that this statement made in exhibit P-13 could be used as evidence in terms of section 132(4) of the Income-tax Act. Therefore, the Court below is in error in acquitting him. In order to appreciate this contention of the appellant I am extracting section 132(4) of the Income-tax Act which is as under:
"(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter, be used in evidence in any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act.
Explanation. ---For the removal of doubts, it is hereby declared that the examination of any person under this subsection may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act.'
From a reading of this section it is clear that the authorised officer during the course of search or seizure may examine on oath any person who is found to be in possession or control of books of account, documents, etc., and any statement made by such person during such examination may thereafter, be used in evidence in any proceedings under the Income-tax Act. From this it follows that for a statement to be admissible in evidence of terms of section 132(4) of the Income-tax Act it must be one recorded by the authorised officer during the search and such a statement should have been obtained on oath. Unless these two basic requirements are fulfilled such a statement cannot be used as evidence in subsequent proceedings under the Income-tax Act. To the same effect is also the law declared by the High Court of Bombay in R.R. Gaviti v. Sherbanoo Hasan Daya (Sint.) (1986) 161 ITR 793. In the instant case, from the material on record, it is not clear as to who has recorded that statement, vide exhibit P-13. That statement is, dated March 11, 1988. Exhibits P-34 and P-38 statements were, dated March 11, 1988. Admittedly, the search was conducted on December 3, 1986. If that is so, from the statement vide exhibit P-13, dated March 11, 1988, it is not known as to who has recorded it. At any rate, exhibit P-13 has not been proved by examining the person who recorded the said statement. The signature of the person found at exhibits P-34 and P-38 is entirely different from the one found at exhibit P-13. Thus, exhibit P-13 is not one such statement recorded on oath under section 132(4) of the Income-tax Act. Therefore, exhibit P-13 is not admissible in evidence. Moreover, the Court below, having examined the entire evidence on record, found that there was no mens rea on the part of the accused in filing the alleged return and accordingly acquitted A-2. In the light of the admissions made by P.W.1 that he cannot say whether there was any knowledge on the part of A-2 in filing the false return, I am of the opinion that the order of the lower Court does not call for interference. Accordingly, the appeal is dismissed.
M.B.A./1966/FC Appeal dismissed