S P MURUGAPPAN Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) 1.ARUNACHALAM J.Both these petitions are disposed of together since the point raised is common and the parties are also the same. In Criminal M. P. No. 9493 of 1986, the prayer is to call for the records in C. C. No. 177 of 1985, pending on the file of the Judicial First Class Magistrate, Coimbatore, and to quash the proceedings therein as not maintainable and as an abuse of the process of court In Criminal M. P. No. 9495 of 1986, the prayer is similar, but it relates to C. C. No. 176 of 1985, pending on the file of the same court.The petitioner in each one of these petitions is being prosecuted at the instance of the respondent, who is the Income-tax Officer, Circle-III(3), Coimbatore, for commission of offences punishable under sections 120B, 193, 196 and 420 read with section 34 of the Indian Penal Code and under sections 276C(1) and 277 read with section 278B of the Income-tax Act, 1961.It is the prosecution case that in the normal course of business transactions, the first accused, Muruga Steel Corporation, which is the petitioner in Criminal M. P. No. 9495 of 1986, purchased iron and steel materials from Iron and Steel Traders, 77, Sembudoss Street, Madras-600 001. Enquiry and investigation made in the case of Muruga Steel Corporation revealed that the demand drafts mentioned in the complaint had been purchased by K. Thavamani alias Mani, employee of the first accused, in favour of one E. Muthu, an employee of Iron and Steel Traders, 77, Sembudoss Street, Madras-600 001. In the course of the sworn statement recorded from K. Thavamani alias Mani, it Was admitted by him that the purchases of the demand drafts were made by him as directed by S. P. Murugappan, the petitioner, in Criminal M. P. No. 9493 of 1986 or the third accused S. P. Chokkalingam or on the directions of both. He also admitted that he had handed over the drafts to one or other of the above two accused who had given the money for the purchase of those drafts. In the complaint, it has been stated that the above financial transactions have not found a place in the account books maintained by Muruga Steel Corporation. S. P. Murugappan, the second accused in this prosecution, when examined, admitted that Thavamani alias K. Mani was an employee of the first accused on a monthly salary of Rs. 250. He also admitted the purchase of M. S. sheets from Iron and Steel Traders, Sembudoss Street, Madras, on a few occasions for the amounts mentioned in the invoices. However, he denied that the demand drafts were purchased by Thavamani out of the money advanced on behalf of the first accused.

(2.) THE complaint also states that the firm filed a return of income accompanied by the trading and profit and loss account and balance-sheet for the current assessment years which were the subject-matter of these two prosecutions.

(3.) THE documents will have to be brought on record and their genuineness established before learned counsel could be permitted to advance this argument. THEreafter, learned counsel referred to portions of the report of the Wanchoo Committee to gain support for his argument that, under section 271(1)(c) of the Act, the assessee would be liable to pay penalty, but would not have to face prosecution. With specific reference to paragraph 2.76 of the report, he contended that the Wanchoo Committee, while they were of the view that penalty should not be draconian, strongly felt that those who are tempted to resort to concealment of income should not be allowed to get away with tenuous legal interpretations and, therefore, recommended the changes in the Act by way of penalty in section 271 (1)-(c). Finally, he referred to sections 28, 45 and 56 which take in their fold the income assessable specifically, and not on fictional notions. He insisted that section 69C was a discretionary provision and unless the discretion vested in the Income-tax Officer was exhausted, the prosecution cannot be maintained. He urged that the complaint does not state either about concealment of income or about nondisclosure of income and, therefore, on the totality of his arguments, the law laid down by David Annoussamy J., in S. Vaidyanathan, ITO v. Dr. B. Mathuram and Sons 1989 (179) ITR 463, 1989 (76) CTR 80, 1989 (44) TAXMAN 348, 1989 (93) TAXATION 308, 1989 (76) CTR(Mad) 80 (Mad) should be made applicablePer contra, Mr. K. Ramaswami, appearing on behalf of the respondent in each one of these petitions, took me through paragraphs 5 and 8 of the complaint to contend that the transactions which form part of the earlier paragraphs did not find a place in the account books maintained by the first accused. He pointedly referred to paragraph 8 which shows that the income-tax assessment was made on the basis of the figures mentioned in the day book and ledger which did not record the demand drafts mentioned in the earlier part of the complaint. According to learned counsel, there was a deliberate concealment of income and the volume of transactions had been reduced purposely to avoid getting into the net of taxation. He contended that under section 276C, Explanation, clauses (i) and (iv), for the purpose of the said 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 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, or had caused any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.