By TIOL News Service

PATNA, MAY 30, 2017: THE ISSUE BEFORE THE COURT IS - Whether criminal proceedings on the same facts and circumstance can be allowed to continue when assessee's adjudication before the Income Tax Department is still pending. NO is the verdict.

Facts of the case:

The assessee was partner of M/s Mallick enterprises and thereafter he became the Proprietor thereof. The accused at the material time was carrying on the business of supply of fodder to the Animal Husbandry Department of the State Government of Bihar. He filed its return for the year 1993-94 with along with the tax audit report u/s 44 AB. The return so filed was selected for its scrutiny. The AO completed the assessment u/s 143(3). The Fodder Scam came into light in the State of Bihar during 1995-96. FIR was lodged by the State of Bihar and the case was handed over to the CBI. The assessee named in the FIR was taken into custody and thereafter released on bail. A notice u/s 148 was issued on the ground that the accused has inflated the expenditure and thereby a portion of income had escaped assessment. The case of the assessee was transferred from the CIT, New Delhi to CIT, Patna, in exercise of powers u/s 127. DCIT, Special Range-IV, Patna, issued notice to the accused u/s 142(1) directing furnishing of all papers and documents. The said notices were not served personally on the assessee. The same were served by affixture while he was in judicial custody. Assessment thereafter was completed u/s143(3) r/w/s 147 of the Act. The AO brought to tax the entire receipt from the Animal Husbandry Department. The AO disallowed all the expenditure related to business and allowed a paltry expenditure. A demand of Rs.2,79,45,854/- were raised. Interest was charged u/s 234 B & penalty u/s 271(1)(c) was also initiated. Upon appeal CIT(A) set aside the assessment. CIT(A), however, held that initiation of proceedings was bad in law. Before ITAT the assessee contended that since very initiation of proceeding u/s 147 held to be bad in law, setting aside of the assessment with a direction to pass order afresh was not just and proper. Revenue also filed cross appeal. The appeals filed by the assessee were dismissed and the appeal filed by the Revenue was allowed. Assessee preferred appeal to High Court submitting that transfer of cases in purported exercise of jurisdiction u/s 127 without issuance of notice and opportunity of being heard in the matter rendered the proceeding without jurisdiction.

The High Court held that since accused participated in proceeding of assessment, the service of notice u/s 127 were not material. Assessee filed SLP before Supreme Court submitting that the High Court erred in not appreciating the matter in its true perspective.The present application was filed u/s 482 of the Code of Criminal Procedure for quashing the order passed by the Presiding Officer (Special Court), Economic Offences, Patna, in a Complaint Case by which the Court below has taken cognizance against the petitioner u/s 276C (1) and 276C (2) of the Income Tax Act, 1961. The complaint was filed by the AO before the Presiding Officer (Special Court), Economic Offences, Patna, alleging therein that the accused has evaded income tax, interest and penalty for the period 1993-94 and has, thus, committed offences which are liable to prosecution under the aforesaid sections. CIT granted permission to launch prosecution u/s 279. The Presiding Officer (Special Court), Economic Offences, Patna, on the basis of the averments made in the Complaint Petition held that there are sufficient materials for proceeding against the accused and, accordingly, took cognizance of the offence.

On appeal, the HC held that,

++ in the decision of Radheshyam Kejriwal Vs. State of West Bengal, it has been held that "yardstick would be to judge whether the allegation in the adjudication proceedings as well as for prosecution is identical and the exoneration of the person concerned in the adjudication proceedings is on the merits. If it is found on the merits that there is no contravention of the provisions of the Act in the adjudication proceedings, the trial of the person concerned would be abuse of the process of the Court." As such, in terms of the aforesaid decision of the Supreme Court on exoneration of the person concerned in adjudication proceeding on merits, criminal proceeding on the same facts and circumstances cannot be allowed to continue. In the instant case, the petitioner has not been exonerated by the Income Tax Department in the adjudication proceeding till date. The assessment done by the Income Tax Department has been upheld by the High Court. As per own averment of the petitioner, SLP filed by the petitioner is still pending in the Supreme Court of India. In such circumstances, this Court does not find any illegality in the impugned order passed by the Presiding Officer (Special Court), Economic Offences, Patna, in Complaint Case taking cognizance against the petitioner u/s 276(1) and 276(2) of the Income Tax Act.

(See 2017-TIOL-1016-HC-PATNA-IT)