Common Judgment Ito Vs D D Kochar CC Nos 33 34 3 January 4Th On 4 January 2010

Common Judgment − Ito vs . D.D. Kochar Cc Nos. 33 & 34/3 January 4Th ...
on 4 January, 2010
Common Judgment − Ito vs . D.D. Kochar Cc Nos. 33 & 34/3

January 4Th ... on 4 January, 2010
IN THE COURT OF DIG VINAY SINGH, ADDITIONAL CHIEF METROPOLITAN
MAGISTRATE(SPL. ACTS): CENTRAL: TIS HAZARI COURTS, DELHI
In re:
INCOME TAX OFFICER

MR. THAKAR DASS,
DISTRICT−VII(1),
VIKAS BHAWAN,
I.P. ESTATE,
NEW DELHI .....COMPLAINANT
VS.
M/S. D.D. KOCHAR & SONS ........ACCUSED
CASE NOS. 33/4 & 34/4
U/s.276−CC & 276−D of the Income Act, 1961.
DATE OF RESERVATION OF JUDGMENT: 04.1.2010
DATE OF PRONOUNCEMENT OF JUDGMENT: 04.1.2010
COMMON JUDGEMENT
(a) The serial no. of the case : 02401R0001091987 & 02401R000341987.
(b) The date of commission of offence : 31.3.1977.
(c)The name of complainant : INCOME TAX OFFICER,

MR. THAKAR DASS,
DISTRICT−VII(1)
VIKAS BHAWAN,
I.P. ESTATE,
NEW DELHI
(d) The name, parentage, residence: 1. M/s. DD Kochar & Sons,
of accused. C−254, Mayapuri Industrial Area,
Rewari Line, Ph−II, New Delhi.
COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 & 34/3 January 4th , 2010,
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2. Hans Raj Kochhar s/o. Sh. D.D. Koch

3. Vimal Kochhar s/o. Sh. Hans Raj Koch
Both A2 and A3 partners of A1.
Indian Kanoon - http://indiankanoon.org/doc/112029953/ 1

Common Judgment − Ito vs . D.D. Kochar Cc Nos. 33 & 34/3 January 4Th ... on 4 January, 2010
(e) The offence complained of/ proved : U/s.276−CC & 276−D of the Income Act,
1961.
(f) The plea of accused : Pleaded not guilty.
(g) The final order : Acquitted.
(h) The date of such order : 04.1.2010.
(i) Brief statement of the reasons for the decision:−
1. These are two complaint cases bearing number 33 and 34 (old number
were 316 and 317). Since both these complaint cases are against the same
accused, filed by the same complainant income tax officer and, are based on
same facts, therefore, I propose to decide both these complaint cases vide
the present common judgment.
2. The CC No. 316 is filed by the income tax officer for offences under
section 276C(1) of The Income Tax Act 1961, as well as, section 193 and
196 of the Indian Penal Code for the assessment year 1977 − 1978.
3. The CC no 317 is filed against the accused for offences under section
276C and 277 of The Income Tax Act 1961 and also section 193 and 196 of
Indian Penal Code for the assessment year 1976−1977.
4. Before proceeding further, let it be mentioned, that originally
complaints were filed against the three above named accused. The accused
number 1 is a partnership firm and the accused number 2 and 3 were its
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partners. My learned predecessor Court discharged the accused number 3
on 16th of April 1987, observing that there was no material on record to
connect the accused number 3 with the offence. Subsequently, during the
pendency of proceedings, the accused number 2 also expired and the

proceedings against him were declared abated. Prior to death of accused
number 2, he was representing the accused number 1 partnership firm and
subsequently on his death, it was represented by the accused number 3, who
was earlier discharged. Therefore the present judgment is directed
against the accused number 1 partnership firm only.
5. Section 276C and section 277 of the Income Tax Act 1961 ea
provides that a person found guilty shall be punishable with a mandatory
term of imprisonment and fine. Can a partnership firm alone be tried,
and if found guilty can it be convicted and punished?
6. Section 278B of The Income Tax Act, clearly provides that where any
offence under this Act has been committed by a company, every person
who, at the time the offence was committed, was in charge of and was
responsible to the company for the conduct of business of the company as
well as the company shall be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly. The Explanation
appended to section 278B, clearly provides that for the purposes of this
section the word company shall mean and include a firm. It also provides
that the Director in relation to a firm means partners in the firm.
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278B (3)of the Income Tax Act provides, " Where an offence
under this Act has been committed by a person, being a company, and the
punishment for such offence is imprisonment and fine, then, without
prejudice to the provisions contained in sub−section (1) or sub−section(2),
such company shall be punished with fine and every person, referred to in
sub−section (1), or the director, manager, secretary or other officer of the

company referred to in sub−section (2), shall be liable to be proceeded
against and punished in accordance with the provisions of this Act."
From section 278B of the Act it is clear that proceedings can
be continued against a company/partnership firm.
7. It is now well settled by the judgment of honourable constitut
bench of Supreme Court (Majority View), in the case of Standard
Chartered Bank v. Directorate of Enforcement AIR 2005 SUPREME
COURT 2622 = 2005 AIR
that
" There is no immunity to the companies from prosecution merely
because the prosecution is in respect of offences for which the punishment
prescribed is mandatory imprisonment. As the company cannot be
sentenced to imprisonment, the Court cannot impose that punishment, but
when imprisonment and fine is the prescribed punishment the Court can
impose the punishment of fine which could be enforced against the
company. Such a discretion is to be read into the Section viz., S. 56 of
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Foreign Exchange Regulation Act (1973) (FERA) and Ss. 276−C and
278−B of Income−tax Act (1961) so far as the juristic person
concerned. Of course, the Court cannot exercise the same discretion as
regards a natural person. As regards company, the Court can always
impose a sentence of fine and the sentence of imprisonment can be ignored
as it is impossible to be carried out in respect of a company. This appears
to be the intention of the Legislature. It cannot be said that, there is blanket
immunity for any company from any prosecution for serious offences

merely because the prosecution would ultimately entail a sentence of
mandatory imprisonment. The corporate bodies, such as a firm or company
undertake series of Activities that affect the life, liberty and property of the
citizens. Large scale financial irregularities are done by various
corporations. The corporate vehicle now occupies such a large portion of
the industrial, commercial and sociological sectors that amenability of the
corporation to a criminal law is essential to have a peaceful society with
stable economy." (Paras 63, 64)
it was also held that;
"Thus, because the company cannot be sentenced to imprisonment, the
Court has to resort to punishment of imposition of fine which is also a
prescribed punishment. As per the scheme of various enactments and also
the Indian Penal Code, mandatory custodial sentence is prescribed for
graver offences. If the contrary view is accepted, no company or corporate
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bodies could be prosecuted for the graver offences whereas they could be
prosecuted for minor offences as the sentence prescribed therein is
custodial sentence or fine. The intention of the Legislature is not to give
complete immunity from prosecution to the corporate bodies for these
grave offences. Consequently, even for offences under S. 56(1) (i), FERA
Act , the company could be prosecuted. It is sheer violence t
commonsense that the Legislature intended to punish the corporate bodies
for minor and silly offences and extended immunity of prosecution to major
and grave economic crimes".

8. Before proceeding further let it be also mentioned that so far as the

offences under section 193 and 196 of the Indian Penal Code are concerned,
there is no corresponding section in the Indian Penal Code, corresponding
to section 278 B of The Income Tax Act, which provides that a company
(or partnership firm) can also be proceeded against and punished along with
its directors/partners, under the Indian Penal Code for the offences
mentioned therein.
Section 2 of the Indian Penal Code provides that "Every person shall be
liable to punishment under this Code and not otherwise for every act or
omission contrary to the provisions thereof, of which he shall be guilt
within India".
Section 11 of the Indian Penal Code describes word "person" to include any
Company or Association, or body of persons, whether incorporated or not.
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The registered partnership firm, obviously is covered by the definition of
the provisions.
9. A plain reading of these two sections together would show th
company or a corporate body shall be liable for indictment for all kinds of
offences. But there are several offences which could be committed only by
an individual human being, for instance, murder, treason, bigamy, rape
perjury etc. A company which does not act by or for itself but acts through
some agent or servant would obviously not be capable of commission of the
aforesaid offences and would therefore, not be liable for indictment for such
offences. The definition of a person in Section 11 of the Indian Penal Code
is more or less on par with the definition of that word given in Section 3(42)

of the (Central) General Clauses Act, 1897 which is in the following words :
"3(42) : "person" shall include any company or association or
body of individuals whether incorporated or not".
However, that and the other definitions given in Section 3 of the
(Central) General Clauses Act are governed by the qualifying clause in the
main section No. 3 "unless there is anything repugnant in the subject or
context" but such a qualifying clause is not appended to the definitions
given in the Indian Penal Code. Even so, it would be seen from the analogy
of the reasoning in Kartick Chandra v. Harsha Mukhi Dasi AIR 1943
Cal 345 (FB) and Darbari Lal v. Dharam Wati, (S) AIR 1957 All 541
(FB) that the clause "unless there is anything repugnant in the subject or
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context" must always be understood to exist in the context of the definitions
given in the Indian Penal Code also. There is nothing to the contrary which
would exclude the application of the qualifying clause" "unless there
anything repugnant in the subject or context." It would, therefore, have to
be held that despite the generality of the definition of a "person" given in S.
11 of the Indian Penal Code, a corporate body of a company shall not be
indictable for offences which can be committed only by a human individual.
A company cannot be prosecuted for any offence involving as an essential
ingredient "means rea". A company not being a natural person, cannot have
a mind honest or otherwise, and that, consequently, though in certai
circumstances it is civilly liable for the fraud of its officers,
servants, it is immune from criminal process. Included in these exceptions
would be the cases in which, from its very nature, the offence cannot be

committed by a corporation, as for example, perjury, an offence whic
cannot be vicariously committed, or bigamy, an offence which a limited
company, not being a natural person cannot commit vicariously or
otherwise. It can't be said that in every case where an agent of a limited
company acting in its business commits a crime, the company is
automatically to be held criminally responsible. A company aggregate
cannot be guilty of any offences (such as bigamy or perjury) which by their
very nature can only be committed by natural persons. A company can only
commit crime by or through its agents, some of whom must themselves be
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responsible for the crime. It is a question of fact in each particular case
whether the criminal act of its agent is the act of the company, and whether
the agent's state of mind, intention, knowledge or belief can be imputed to
the company. It depends on the nature of the charge, the position of the
officer or agent relative to the company and the other relevant facts and
circumstances of the case. Thus although section 11 of the Penal Code says
that the word person includes a company or firm but there are ce
offences which requires a kind of mens rea which cannot be said to be
existing in the cases of juristic persons who do not have mind of their own
to nurture such a mens rea. It would in fact depend on the facts of a case and
the nature of offence whether a company or a juristic person can
proceeded against or not. In the case of fabricating false evidence or giving
false evidence also such a mens rea is required which cannot be there in the
case a company. These offences requires mens rea which cannot be alleged

against a company or a partnership firm, which do not have any distinct
mind of its own to nurture mens rea and, therefore, against the partnership
firm, offences under section 193 and 196 of the Indian Penal Code cannot
continue. In the absence of any corresponding section providing punishment
to the company or the partnership firm in the Indian Penal Code,
partnership firm cannot be punished for the offences under section 193 and
196 of the Indian penal code.
10. Turning to the offences under the Income Tax Act. The material parts
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of Sections 276C and 277 of the Act read as follows:
"276C. Willful attempt to evade tax etc. − (1) If a person
attempts in any manner whatsoever to evade any tax, penalty or interest
chargeable or imposable under this Act, he shall, without prejudice to any
penalty that may be imposable on him under any other provision of this Act,
be punishable, −
(i) in a case where the amount sought to be evaded exceeds one hundred
thousand rupees, with rigorous imprisonment for a term which shall not be
less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall
not be less than three months but which may extend to three years and with
fine.
(2) If a person willfully attempts in any manner whatsoever to evade the
payment of any tax, penalty or interest under this Act, he shall, without

prejudice to any penalty that may be imposable on him under any other
provision of, this Act, be punishable with rigorous imprisonment for a term
which shall not be less than three months but which may extend to three
years and shall, in the discretion of the court also be liable to fine.
Explanation ......................."
11."277. False statement in verification etc. − If a person makes a
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statement in any verification under this Act or under any rule made there
under or delivers an account or statement which is false and which he
either knows or believes to be false, or does not believe to be true, he shall
be punishable,
(i) in a case where the amount of tax, which would have been evaded if the
statement or account had been accepted as true, exceeds one hundred
thousand rupees, with rigorous imprisonment for a term which shall not be
less than six months but which may extend to seven years and with fine.
(ii) in any other case, with rigorous imprisonment for a term which shall
not be less than three months but which, may extend to three years and with
fine."
12. The CC No. 316 is filed by the income tax authorities for
offences under section 276 C (1) of The Income Tax Act as well as section
193 and 196 of the Indian Penal Code for the assessment year 1977 − 1978.
The allegations made in the complaint are that the accused number
partnership firm, having accused number two and three as partners in the
ratio of 60:40, filed its return for the assessment year 1977 −− 1978 for the

year ending 31st March 1977 showing its income as Rs 56,820. The
verification of the return was signed by the deceased accused. During the
assessment proceedings the accused number two and three appeared before
the income tax officer during which certain vouchers were produced
showing purchases made by the accused number 1 partnership firm to
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the tune of Rs 1,23,390.86, the details of which are mentioned in Para three
of the complaint. On verification these vouchers were found to be forged as
the parties were non−existent and the sales tax and telephone number
mentioned thereon were found to be bogus. The books of accounts of the
accused firm, produced during assessment proceedings, were showing these
debits and accordingly they were impounded. Therefore the accused
persons were found involved in willful attempt to evade tax and penalty etc
and they were found to be involved in making or causing to be made false
entries in the books of accounts. Accordingly the complaint was filed for
the aforementioned sections. The accused number 1 and 2 were charged
for the said offences by my learned predecessor court on 18th of Apri
1987, to which both of them claimed trial.

13. In support of its case the prosecution examines total three
witnesses, namely, PW 1 Mr. Thakur Dass, who deposed that the accused
number 1 firm was one of his assesses and he undertook certain
assessment proceedings and prior to him the PW2 was the in charge of the
same. The PW 1 completed the assessment of the accused number 1 firm
for the year 1977−− 78 vide his assessment order dated 25th of May 1981.
Thereafter he filed the present complaint along with necessary authorisation

Exhibit PW 1/A. He proved his complaint is Exhibit PW 1/B and deposed
that the accused number 1 firm filed its return of income for th
assessment year declaring its income as Rs 56,820 vide return Exhibit PW
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1/C which was accompanied with various documents. He proved the
statement of partners as Exhibit PW 1/D; balance sheet as Exhibit PW 1/E;
profit and loss account and trading account as Exhibit PW 1/F; lis
Sundry creditors Exhibit PW 1/G; list of sundry debtors Exhibit 1/H and, he
deposed that he assessed the accused company at income of Rs 1, 88,218
vide assessment order Exhibit PW 1/L. He also deposed that during his
assessment proceedings the accused filed five vouchers which on
verification were found to be bogus. Those vouchers were proved as
exhibited 1/ N1 to N5.
14. The complainant also examined the PW 2 Mr. B. L. Gupta,
the initial assessment officer who also deposed as above.

15. The complainant also examined PW−3 Mr. D. R. Chopra,
from the sales tax department who deposed that pursuance to the le
Exhibit PW 2/15 from the income tax office he gave his reply Exhibit PW
3/1 in respect of the three sales tax numbers which are mentioned on the
vouchers.
16. All the incriminating evidence was put to the
number 1 in its examination under section 313 read with section 281 of the
Criminal Procedure Code. The accused number 1 firm admitted having
filed the return for the relevant assessment year. However the accus
claimed that the assessment order passed against it was set aside by the

highest appellate tribunal of the income tax authorities, that is, Income Tax
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Appellate Tribunal and thus there is no assessment against the accused firm
and therefore no proceedings cannot continue.
17. In the second CC No. 317, it is alleged that the accused
number 1 filed return of income tax for the assessment year 1976 −− 1977
for the year ending 31st of March 1976 showing its income as Rs 24,470.
This complaint was filed against the accused for offences under section
276C and 277 of The Income Tax Act and also section 193 and 196 of
Indian Penal Code.

18. In this complaint also my learned predecessor c
framed charges against the accused number 1 and 2 only for the
offences on 18th of April 1987. The accused number three was discharged
in this case also vide the order of my learned predecessor court dated 16th
April 1987.
19. In this case the complainant examined PW 1 Thakur Dass
only, who deposed that during the course of assessment in the pres
complaint it was found that the accused firm claimed credit of Rs 19,763.20
showing purchases made from third party that is M/s Bhatia Iron and stores
on 22nd December 1975. This claim was found to be bogus as the accused
were unable to produce the vouchers in respect of this purchase made. It
was learnt that M/s Bhatia Iron store is non−existent firm and accordingly
this witness assessed the firm at income of Rs 53,809 disallowing the claim
of Rs 19,763.20. It is the case of the complainant that the accu

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attempted to evade the tax of this amount.

20. It appears that in the second CC No. 317, inadvertently
the statement of accused was not recorded. Anyhow in view of the reasons
to follow it is not recorded at this stage also.

21. I have heard learned counsels for the complainant as well
as the accused. I have also perused the written submissions filed from both
the sides.
22. The complaint case number 317, which is admittedly for
an amount of Rs 19,763 only, is not maintainable on technical grounds. It is
argued on behalf of the accused that even if the case of the complainant is
taken to be acceptable that the accused attempted to evade tax for the said
the amount of Rs 19,763, still the present prosecution could not have been
launched against the accused. The said submission is made on the basis of a
circular of CBDT which provides that prosecution under section 276 C and
section 277 of The Income Tax Act need not be initiated if the income
sought to be evaded is less than Rs 25,000.

23. In support of its case the accused also relie
decision in the case of Amrendra Prasad Singh vs. State of Bihar 2000
113 TAXMAN 609 Patna, wherein honourable High Court was pleased to
quash one such criminal proceeding since it was for evasion of tax for less
than Rs 25,000. Honourable High Court observed that the prosecution
could not have been launched against the petitioners for the offence under
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section 276 C and section 277 of the Income Tax Act in view of the said
circular of CBDT.
24. In the present case also since the tax allegedly sought to
be evaded is less than Rs. 25,000, therefore, the present prosecution could
not have been initiated in view of the circular of CBDT. Even if the case of
the complainant, for the sake of arguments, is taken to be true, the present
complaint could not have been initiated and accordingly on this sole ground
alone the criminal CC No. 317 is liable to be dismissed. And it is for this
reason I have mentioned above that there was no requirement of recording
the statement of the accused at this stage. Learned counsel for th
complainant admits that the said circular exists.
25. Accordingly the criminal complaint bearing number
317 stands dismissed and the accused is acquitted for the offences under
section 276 C and section 277 of the income tax Act. I've alread
mentioned above that against the partnership firm a charge under
section 193 and 196 of Indian Penal Code cannot continue for the
simple reason that there is no provision existing in the Indian Penal
Code specifying that a company can be proceeded against or punished
for the offences mentioned therein.
26. Coming to the complaint under section 276 C (1) of The
Income Tax Act bearing number 316, it is argued on behalf of the accused
that the assessment proceedings were challenged by the accused before the
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final authority that is the Income Tax Appellate Tribunal and, the Income
Tax Appellate Tribunal vide its order dated 13th of December 1991 set

aside the penalty and remanded the matter back to the assessing officer for
afresh deciding the issue of levy of penalty under section 271(1) (C) of the
Act, after giving proper opportunity of being heard to the assesses and, after
going through the entire evidence available on record in the light of the
observations made by the tribunal. It is argued that despite the m
having been remanded back to the assessing officer, almost 19 years ago
from now, no fresh assessment proceedings have been conducted or even
initiated till date by the income tax authorities and since the pe
imposed under section 271 (1) (c) of the Act has been set aside by the
ITAT, the present proceedings cannot continue in view of section 279 (1)
(A) of the Income Tax Act. It is claimed that in order to attract section 276
C of the income tax act the prosecution has to established that the accused
willfully attempted in any manner to evade tax, penalty or interest
chargeable or imposable under the Act and in order to attract section 277
the prosecution is required to establish that the accused made a statement in
any verification which he believed to be false or does not believed to be
true. In support of its contention learned Counsel for the accused placed
reliance upon the case of M/s Bandhu machinery Pvt Ltd and others vs.
Assistant commissioner of income tax New Delhi decided by honourable
Supreme Court in criminal appeal number 368 of 2003 in SLP criminal
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number 3945 of 2002 which was decided 10th of March 2003. In that case
honourable Supreme Court relying upon the case of Uttam Chand and
Others vs. income tax officer central circle Amritsar observed that in a

case where the penalty levied under section 271 (1) (C) has been cancelled
by the appellate authority, the proceedings should not have been proceeded
with and prosecution should have been filed.

27. On the other hand learned Counsel for the complainant
argued that the addition in the income has been confirmed by the highest
fact finding body that is ITAT which has attained finality therefore the
offence stands proved independently of the setting aside of the penalty by
the ITAT.
28. Section 279(1A) of the Act reads as follows :
"a person shall not be proceeded against for an offence under Section
276C or Section 277 in relation to the assessment for an assessment year in
respect of which the penalty imposed or imposable on him under Clause
(iii) of sub−section (1) of Section 271 has been reduced or waived by an
order u/S. 273A."

29. In the present case, the question arises is as to whether i
view of judgment rendered by the Income Tax Appellate Tribunal in favour
of the accused, the criminal proceeding for alleged offence under Sections
276C and 277 of the Income Tax Act is called for or not. The
"concealment" as mentioned in Section 271 of the Act and the provision of
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Section 276C of the said Act, both fell for consideration before
Supreme Court in the case of K. C. Builders v. the Assistant
Commissioner of Income Tax, reported in J.T. 2004 (2) SC 100. In the
said case, the Supreme Court held, as follows :
"The word "concealment" inherently carried with it the element of

mens rea. Therefore, the mere fact that some figure or some particulars
have been disclosed by itself, even if takes out the case from the purview of
nondisclosure, it cannot by itself take out the case from the purview of
furnishing inaccurate particulars. Mere omission from the return of an item
of receipt does neither amount to concealment nor deliberate furnishing of
inaccurate particulars of income unless and until there is some evidence to
show or some circumstances found from which it can be gathered that the
omission was attributable to an intention of desire on the part of
assessee to hide or conceal the income so as to avoid the imposition of tax
thereon. In order that a penalty under Section 271(1)(iii) may be imposed,
it has to be proved that the assessee has consciously made the concealment
or furnished inaccurate particulars of his income."
While interpreting the provision of Section 276C of the Act, which
deals with willful attempt to evade tax etc. and the provision of Section 277,
which deals with false statement in verification, etc. and Section 2
which deals with the offences by a Company, the following observation was
Page
made by the Supreme Court in the aforesaid case :
"In the instant case, the penalties levied under Section 271(1)(c) were
cancelled by the respondent by giving effect to the order of the Income
Tax Appellate Tribunal in I.T.A. Nos. 3129−3132. It is settled law that levy of penalties and
prosecution under Section 276C are simultaneous. Hence, once the penalties are cancelled on the
ground that there is no concealment, the quashing of prosecution under Section 276C is automatic.

30. In M/s. Tata Ropbins Fraser Ltd., Jamshedpur v. State of Jharkhand and others, 2005 CRI. L. J.
2318 also it was held as follows;
"appellants cannot be made to suffer and face the rigorous of criminal trial when the
same cannot be sustained in the eyes of law because the entire prosecution in view of
a conclusive finding of the Income Tax Tribunal that there is no concealment of
income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of
the Appellate Tribunal supersedes the order of the Assessing Officer under Section
143 (3) more so when the Assessing Officer cancelled the penalty levied."
It was held that , "In our view, once the finding of concealment and subsequent levy of penalties
under Section 271(1)(c) of the Act has been struck down by the COMMON JUDGMENT − ITO VS.
D.D. KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of Tribunal, the Assessing Officer has
no other alternative except to correct his order under Section 154 of the Act as per the directions of
the Tribunal. As already noticed, the subject matter of the complaint before this Court is
concealment of income arrived at on the basis of the finding of the Assessing Officer. If the order of
concealment and penalties, there is no concealment in the eyes of law and, therefore, the
prosecution cannot be proceeded with by the complainant and further proceedings will be illegal
and without jurisdiction. The Assistant Commissioner of Income Tax cannot proceed with the
prosecution even after the order of concealment has been set aside by the Tribunal. When the
Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot
survive for further consideration. In our view, the High Court has taken the view that the charges
have been framed and the matter is in the stage of further cross−examination and, therefore, the
prosecution may proceed with the trial. In our opinion, the view taken by the learned magistrate and
the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of
the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to
require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as
the passing of the order as aforementioned is unsustainable and unquestionable."
COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of
In that case, the part of the assessment as was originally made against the assessee Company for the
Financial Yr. in question, was set aside by Sales Tax Appellate Tribunal and certain reliefs were
granted. So far as amount of Rs. 9,23,000/− towards warranty expenses is concerned, the Tribunal
remanded the matter before the C.I.T. (Appeal) for a fresh decision and the matter is pending. The
original order of assessment having been modified and the assessment of the financial year in
question, thereafter, having not reached its finality, it was held , the question whether the assessee
Company evaded tax or not, cannot be determined at this stage. Counsel for the Revenue could not
lay hand on any order or record to suggest that after remand, a fresh order of assessment has been
passed by the assessing authority. It was held that no order imposing penalty can be passed till a
fresh assessment order is issued.
31. In the case of K. C. Builders (supra), the Supreme Court has observed that where addition or
alteration is made in the assessment order, on the basis of which penalty for concealment was
levied, there remains no basis at all for levying penalty for concealment and, therefore, in such a

case, no such penalty can survive and the same is liable to be cancelled. The Supreme Court further
observed :
"Ordinarily penalty cannot stand if the assessment itself is set aside. Where an order
of assessment or re−assessment on the basis of which penalty has been levied on the
assessee has itself been finally set COMMON JUDGMENT − ITO VS. D.D. KOCHAR
CC NOS. 33 & 34/3 January 4th , 2010, Page of aside or cancelled by the Tribunal or
otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as,
in the instant case ordered by the Tribunal and later cancellation of penalty by the
authorities."
In the said case, the Supreme Court further held :
"It is well−established principle that the matter which has been adjudicated and
settled by the Tribunal need not be dragged into the criminal Courts unless and until
the act of the appellants could have been described as culpable."
32. In the case of Dapel Investments Ltd. v. Asstt. I.− T., Commr., New Delhi 2000 CRI. L. J. 3629
before Hon'Ble DELHI HIGH COURT, the facts were that the petitioner had submitted its income−
tax return for the accounting year 1−7−1984 to 30−6−1985, i.e., assessment year 1986−87 showing a
loss of Rs. 2,167/−. The petitioner inter alia had claimed expenses of Rs. 83,647/− paid as hire
charges in respect of a car (No. DIB−3538) alleged to have been purchased on hire−purchase basis.
An income of Rupees 49,634/− was shown as income from the said car. On being required to
explain the expenses being more than the income, the petitioner stated that it had purchased the car
from M/s. B. Dharam Singh Babek Singh (Finance) Pvt. Ltd. by means of hire−purchase agreement
dated 18−6−1984 when an initial payment of Rs. 27,201/− was COMMON JUDGMENT − ITO VS.
D.D. KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of made and balance amount of Rs.
60,690/− was paid in 12 monthly installments during the same accounting year. It appears that the
hire− purchase agreement provided for exercise of option for purchase on payment of token
purchase price of Re. 1/−. The learned Assessing Officer held that this clause about exercise of
option to become owner on payment of Re. 1/− was colourable device to claim the amounts paid by
it under hire− purchase agreement as revenue expenditure. He assessed the purchase price of the
car at Rs. 72,000/−, treated it as capital expenditure, allowed an expenditure of Rs. 15,891/− only
(being the difference in Rs. 87,891/− paid and Rs. 72,000/− as cost price of car) and thereby Rs.
72,000/− was disallowed as expenses, added this amount as income and assessed the income
accordingly. He also initiated penalty proceedings under Section 271(1)(C) of the Act. The
Commissioner in appeal vide his order dated 29− 5−1990 held that hire charges be calculated at the
rate of 18% on the price of the car and to that extent only the hire charges should be allowed as
expenses. In pursuance of this order, the learned Assessing Officer assessed the cost of the car at Rs.
82,366/− and Rs. 5,525/− as hire charges and thereby taxable income was increased by Rs.
10,366/−. In further appeal, the Income−tax Appellate Tribunal (for short "The Tribunal") vide its
judgment dated 8−10−1991, however, set aside the appellate order of the Commissioner to the
extent the income was so enhanced. The learned Tribunal further allowed deduction of Rs. 27,201/−
paid as initial payment COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 & 34/3

January 4th , 2010, Page of and 40% as depreciation on the capital cost of the car of Rs. 72,000/−.
Thus enhancement of the income only to the extent of Rupees 15,999/− was upheld and allowed.
After the order of CIT (Appeal), the penalty proceedings were also initiated by the learned Assessing
Officer and vide his order dated 31− 10−1989 held that income of Rs. 82,366/− had been concealed
and tax was avoided to the extent of Rs. 43,242/− and imposed a penalty of Rs. 50,000/− under
Section 271(1)(C) of the Act. This was confirmed by Commissioner in Appeal. In further appeal, the
Tribunal observed that in view of the deductions already allowed by the Tribunal, only Rs. 15,999/−
was the taxable income left unaccounted and in view of the deductions earlier allowed by the
Tribunal and after taking into consideration other circumstances, he held that it was not a fit case to
levy penalty, cancelled the penalty levied and set aside the order passed under Section 271(1)(C) of
the Act.
learned Counsel for the Revenue had contended that the Tribunal has also found concealment of
income to the extent of Rs. 15,999/− and in view of this concealment, the inference arises that the
income has been willfully concealed or attempted to be concealed to evade tax. The finding of
Tribunal is not binding on the criminal Court who has to come to an independent determination
whether there is willful concealment or attempt to conceal income giving rise to criminal liability.
Relying on Uttam Chand v. Income−tax Officer, (1982) 133 ITR 909 (SC) where it was observed that
the principle thus laid down in that case is that the prosecution once initiated may be quashed in the
light of a finding favourable to the assessee on facts given by the highest fact finding authority
constituted under the Act.
33. This principle has been followed in S. P. Sales Corpn. v. S. R. Sikdar, (1993) 113 Taxation 203
(SC). In that case, the assessee had made purchases of Rs. 20,015/− during the assessment year
1985−86 from two named firms. The Assessing Officer held that the purchases had not been
accounted for by supporting relevant documents and were thus made outside the books of accounts
and penalty was imposed. On consideration of the material, the Commissioner in appeal held that
the purchases were duly accounted for and the penalty was set aside. This order was affirmed in
appeal by the Tribunal. However, before these orders, a complaint was laid u/Ss. 276C, 277, 278
read with S. 278−B of the Act by the Assessing Authority. The Supreme Court upheld the order
quashing criminal proceedings and held that the foundation for prosecution had been knocked off
its bottom and the complaint laid against the assessee no longer survived and accordingly quashed
it.
34. In Parkash Chand v. I.T.O., Sonepat, (1982) 134 ITR 8 COMMON JUDGMENT − ITO VS. D.D.
KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of (P and H), prosecution proceedings were
initiated against an assessee for filing false returns. Pending criminal proceedings, the Tribunal in
penalty proceedings on the basis of material arrived at the finding in favour of the assessee that
there was no proof that the assessee had concealed the income and furnished inaccurate particulars
and cancelled the penalty. The Punjab and Haryana High Court following Uttam Chand held that in
view of the order of the Tribunal the criminal proceedings against the assessee could not continue
and quashed the same.

35. Again in Kanshi Ram Wadhwa v. ITO, (1984) 145 ITR 109 : (1983 Tax LR 988 (1) it was held that
when there was no case for sustenance of penalty, there would not be a case for criminal
prosecution. The learned Judge repelled the contention that the Criminal Court has to arrive at an
independent finding dehors the annulment of the penalty proceedings. Criminal complaint was
quashed with the observations that the Court's time is precious and is not meant to be employed for
proceedings which are directionless.
36. The Patna High Court in Banwari Lal Satyanaraian v. State of Bihar, (1989) 179 ITR 387 : (1990
Tax LR 170) has held that where in penalty proceedings, final fact finding authority under the Act
who has expert knowledge of the subject has deleted penalty in its entirety after having been
satisfied that the assessee has furnished good and sufficient reasons for failure to deduct and/or pay
the tax within time, the prosecution COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33
& 34/3 January 4th , 2010, Page of thereafter of the assessee would not be justified.
37. Kerala High Court in Premier Breweries Ltd. v. Deputy CIA, (1994) 117 CTR 35 : (1995 Tax LR
996) and Madras High Court in Mohd. I Unjawala v. Asstt. CIT, (1995) 213 ITR 190 : (1995) Cri LJ
1949) held that where the Tribunal has quashed and set aside the penalty proceedings, the finding of
fact recorded by the Tribunal has to be accepted by the Criminal Court and on that basis prosecution
was liable to be quashed and should not be allowed to be proceeded.
38. Bombay High Court in M/s. Shastri Sales Corporation v. Income− tax Officer, Ward No. 3(3)
1996 Cri LJ 449 following these cases has taken the same view. In that case, it was held at page 454
:− "It is true that the penalty proceedings under S. 271(i)(C) and the prosecution under Ss. 276−C,
277 r/w S. 278 of the Income−tax Act are distinct and separate and may co−exist. It is also true that
there is no question of double jeopardy in such cases and the existence of one proceeding or the
other proceeding is no bar to any of them, inasmuch as an assessee can levy penalty as well as
prosecute for concealment of income and/or furnishing of inaccurate particulars. However, when
the final authority under the Income−tax Act, itself does not find any justification in the penalty
order for the alleged concealment of income or furnishing of inaccurate particulars by the assessee
or that the tribunal holds that the department has failed to establish in the penalty proceedings
that assessee concealed the income or furnished inaccurate particulars, prosecution of an assessee
cannot be permitted on the self same facts."
39. It will also be relevant to refer to the following observations made by D. R. Khanna, J. (of Delhi
High Court) in Sequota Construction Co. Pvt. Ltd. v. Suri, I.T.O. (Delhi) (1985) Tax LR 806 at page
809 :− "Moreover, penalty proceedings under the income−tax law are primarily quasi−criminal in
nature. During their course, the rigour of the criminal law that a prosecution case must entirely
stand on its own legs and not on the weakness of the defence version does not essentially operate
with that infallibility. However, the onus on the prosecution in criminal matters is far rigorous and
must be proved beyond reasonable doubt. The defence version to be satisfactory and plausible in
criminal trial is much lighter and is just weighed in the realm of preponderance of probability. In
case, therefore, in any penalty proceedings under the income−tax law an assessee has been able to
establish "good and sufficient reasons" before the Tribunal, can it not be said that qua the criminal

trial at least on the same facts and circumstances. "reasonable cause" should be treated to exist? I
am making these observations in the context of those provisions, where the provisions of law both
under the penalty provisions and prosecution are similar".
40. The case of P. Jayappan v. S. K. Perumal, AIR 1984 SC 1693 : (1984 Tax LR 1197) was
distinguished by hon'ble Delhi COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 &
34/3 January 4th , 2010, Page of High court in the case of Dapel Investments Ltd. v. Asstt. I.−T.,
Commr., New Delhi 2000 CRI. L. J. 3629 holding that ;
In that case, the only point for consideration before the Supreme Court was whether prosecution for
offences punishable under S. 276C and S. 227 of the Act and u/Ss. 193 and 196 of IPC instituted by
the department while the re−assessment proceedings under the Act are pending are liable to be
quashed on the ground that they were not maintainable. It was held that pendency of such
proceedings cannot act as a bar. In that context, in para 6 it was further observed at page 1200; of
Tax LR :− "It may be that in an appropriate case, the Criminal Court may adjourn or postpone the
hearing of a criminal case in exercise of its discretionary power u/S. 309 of the Code if the disposal
of any proceedings under the Act which has a bearing on the proceedings before it is imminent so
that it may take into consideration the order to be passed therein. Even here the discretion should
be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings.
There is no rigid view which makes it necessary for a Criminal Court to adjourn or postpone the
hearing of a case before it indefinitely or for an unduly long period only because some proceedings
which may have some bearing on it is pending else."
41. After considering Uttam Chand and the aforesaid observations made in P. Jayappan, the
Supreme Court in K.J.M.S. COMMON JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 & 34/3
January 4th , 2010, Page of Mohd.'s case held as under :− "The above principle of law laid down by
this Court gives an indication that the result of the proceedings under the Income−tax Act is one of
the major factors to be considered and the resultant finding in the said proceeding will have some
bearing in deciding the criminal prosecution in appropriate cases."
And it further held that :− "..................., there is no legal bar in giving due regard to the result of the
proceedings under the Income Tax Act."
42. In the Dapel Investments Ltd. case, though the Assessing Officer had held that income to the
extent of Rs. 72,000/− was liable to be added in the income of the assessee and this amount was
further enhanced in appeal by the Commissioner but the Tribunal has found only Rs. 15,999/− as
the income which could be added. The Tribunal has also quashed the penalty imposed. And it was
held as ;
The effect of the finding of the Tribunal would be that the assessee/accused were not guilty of
concealment of income or furnishing of inaccurate particulars of income justifying imposition of
penalty under S. 271(1)(c) of the Act. On the same facts, it could not be said that COMMON
JUDGMENT − ITO VS. D.D. KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of the accused
had willfully attempted to evade any tax, penalty or interest u/S. 276C(1) of the Act.

43. In the present case also perusal of the order of ITAT dated 13th December 1991 clearly reveals
that it was held that in order to find out the bonafides of the assessee's claim argued before ITAT it
was very necessary to know the correct state of affairs regarding the three statements recorded at
the subsequent stage subsequent to the assessment proceedings. It was also observed that without
handwriting experts report, when the accountant refused to admit certain portions of his statement
made in the accounts book, it was difficult to arrive at a conclusion that the assessee had mens rea to
conceal the particulars of income of not. It was also observed that the applicability of Explanation 1
to section 271(1)c also requires to be looked into and therefore the matter was remanded back to the
assessing Officer who was required to go through the disputed cheques and counterfoils and give a
finding and also the assessing Officer was required to give a finding as 2 in whose handwriting
different items in the books of accounts were entered and whether the ink used for the entry was
same or different. In such circumstances the penalty was struck down. The order of learned ITAT
shows that the material before the highest appellate authority was held to be insufficient for the
appellate authority to give a finding that there was any mens rea present to conceal the income.
44. In such circumstances the ground of concealment of COMMON JUDGMENT − ITO VS. D.D.
KOCHAR CC NOS. 33 & 34/3 January 4th , 2010, Page of income or evasion of tax cannot be alleged
against the accused. Admittedly even after expiry of 19 years from the date of a remanding back of
the assessment proceedings, no assessment proceedings have been conducted by the income tax
authorities till date. In such circumstances the present proceedings also cannot continue in terms of
section 279(1) of the income tax act.
45. Accordingly the accused is acquitted for the offences under section 276C and 277 of Income Tax
Act also. I've already mentioned above that the partnership firm cannot be proceeded against for the
offences under section 193 and 196 of the Indian penal code for absence of any provision
corresponding section 278B of the income tax act. The net result is that the accused is acquitted in
both the cases.
ANNOUNCED IN OPEN COURT ON
4th January, 2010 (DIGVINAY SINGH)

ADDITIONAL CHIEF METROPOLITAN MAGISTRATE
SPECIAL ACTS, CENTRAL,
TIS HAZARI COURTS
DELHI

Common Judgment Ito Vs D D Kochar CC Nos 33 34 3 January 4Th On 4 January 2010

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Common Judgment − Ito vs . D.D. Kochar Cc Nos. 33 & 34/3 January 4Th ...

Common Judgment − Ito vs . D.D. Kochar Cc Nos. 33 & 34/3

INCOME TAX OFFICER

M/S. D.D. KOCHAR & SONS ........ACCUSED

CASE NOS. 33/4 & 34/4

U/s.276−CC & 276−D of the Income Act, 1961.

DATE OF RESERVATION OF JUDGMENT: 04.1.2010

DATE OF PRONOUNCEMENT OF JUDGMENT: 04.1.2010

(a) The serial no. of the case : 02401R0001091987 & 02401R000341987.

(b) The date of commission of offence : 31.3.1977.

(c)The name of complainant : INCOME TAX OFFICER,

2. Hans Raj Kochhar s/o. Sh. D.D. Koch

Indian Kanoon - http://indiankanoon.org/doc/112029953/ 1

(f) The plea of accused : Pleaded not guilty.

(g) The final order : Acquitted.

(h) The date of such order : 04.1.2010.

(i) Brief statement of the reasons for the decision:−

the present common judgment.

Indian Penal Code for the assessment year 1976−1977.

4. Before proceeding further, let it be mentioned, that originally

partners. My learned predecessor Court discharged the accused number 3

on 16th of April 1987, observing that there was no material on record to

pendency of proceedings, the accused number 2 also expired and the

Indian Kanoon - http://indiankanoon.org/doc/112029953/ 2

proceedings against him were declared abated. Prior to death of accused

number 2, he was representing the accused number 1 partnership firm and

subsequently on his death, it was represented by the accused number 3, who

was earlier discharged. Therefore the present judgment is directed

against the accused number 1 partnership firm only.

provides that a person found guilty shall be punishable with a mandatory

term of imprisonment and fine. Can a partnership firm alone be tried,

and if found guilty can it be convicted and punished?

responsible to the company for the conduct of business of the company as

liable to be proceeded against and punished accordingly. The Explanation

that the Director in relation to a firm means partners in the firm.

punishment for such offence is imprisonment and fine, then, without

prejudice to the provisions contained in sub−section (1) or sub−section(2),

sub−section (1), or the director, manager, secretary or other officer of the

Indian Kanoon - http://indiankanoon.org/doc/112029953/ 3

company referred to in sub−section (2), shall be liable to be proceeded

against and punished in accordance with the provisions of this Act."

From section 278B of the Act it is clear that proceedings can

be continued against a company/partnership firm.

7. It is now well settled by the judgment of honourable constitut

bench of Supreme Court (Majority View), in the case of Standard

Chartered Bank v. Directorate of Enforcement AIR 2005 SUPREME

COURT 2622 = 2005 AIR

" There is no immunity to the companies from prosecution merely

because the prosecution is in respect of offences for which the punishment

prescribed is mandatory imprisonment. As the company cannot be

sentenced to imprisonment, the Court cannot impose that punishment, but

impose the punishment of fine which could be enforced against the

company. Such a discretion is to be read into the Section viz., S. 56 of

278−B of Income−tax Act (1961) so far as the juristic person

concerned. Of course, the Court cannot exercise the same discretion as

regards a natural person. As regards company, the Court can always

impose a sentence of fine and the sentence of imprisonment can be ignored

as it is impossible to be carried out in respect of a company. This appears

to be the intention of the Legislature. It cannot be said that, there is blanket

Indian Kanoon - http://indiankanoon.org/doc/112029953/ 4

merely because the prosecution would ultimately entail a sentence of

mandatory imprisonment. The corporate bodies, such as a firm or company

citizens. Large scale financial irregularities are done by various