Monday, October 3, 2011

Whether when partner of assessee-firm fails to raise issue of not signing

Whether when partner of assessee-firm fails to raise issue of not signing revised return and assessee pays up penalty imposed, such acts impliedly amount to admission for purpose of prosecution - YES, rules Supreme Court

NEW DELHI, SEPT 06, 2011: THE issues before the Apex Court are - Whether, for the purpose of prosecution, it is statutorily required of the partner of the assessee-firm to sign the revised return showing higher income and leading to imposition of penalty and Whether when the partner fails to raise the issue of not signing the revised return and the assessee-firm pays up the penalty imposed, such acts impliedly amount to admission for the purpose of prosecution. And the verdict goes in favour of the Revenue.

Facts of the case

Assessee, M/s Mangat Ram Norata Ram, is a partnership firm carrying on the business of sale and purchase of machinery, iron pipes and spare parts. Hem Raj happened to be one of its partners. The Firm filed its income tax return for the assessment year 1988-89 on 14th July, 1988 through its counsel, which was signed and verified by Hem Raj. The income-tax return showed the income of the firm Rs.1,02,800/-. The assessment was completed by the then Income Tax Officer under Section 143(3) of the Income Tax Act for Rs.1,47,370/-.

Meanwhile, the books of the accounts of the firm were taken into possession by the Sales Tax Department, which were obtained by the Income Tax Department and on its perusal discrepancies relating to entries of income, sale and purchase, bank account etc. were noticed and accordingly a notice under Section 148 of the Income Tax Act was issued requiring the assessees to furnish a revised return within 30 days. The respondents did not comply with the notice but ultimately filed its income tax return declaring its income of Rs.1,47,870/-. The prosecution has alleged that this return was duly signed and furnished by accused Hem Raj, which was accompanied by revised statement of income, trading account and profit and loss account. All these documents, according to the Revenue, were also signed by accused Hem Raj. On consideration of the same, the Assistant Commissioner of Income Tax made addition of Rs.1,28,000/- with trading account, Rs.1,10,000/- in bank account and Rs.19,710/- as additional income and assessed the total income to Rs.3,68,200/- and directed for initiating penalty proceedings. Ultimately, the minimum penalty of Rs.1,24,950/- was imposed under Section 271(1)(c) of the Act and further a sum of Rs.7890/- and Rs.12,680/- under Section 271(1)(a) of the Act. The respondent firm filed appeal against the imposition of penalty which was dismissed by the Commissioner of Income Tax (Appeals). The respondents had paid the penalty inflicted on the firm.

A complaint was also lodged for prosecution of the assessees under Section 276C (i), 277 and 278 of the Act. The trial court on appraisal of the evidence held both the respondents guilty and awarded a fine of Rs.1000/- each under Section 276C(1), 277 and 278 of the Act to respondent no.1, the firm, whereas, respondent no.2 was sentenced to undergo rigorous imprisonment for one year and to pay a fine of Rs.1,000/- on each count and in default to suffer simple imprisonment for three months.

Respondents aggrieved by their conviction and sentence preferred appeal and the Appellate Court set aside the conviction and sentence on the ground that sanction for prosecution was not valid. The Appellate Court further held that the prosecution had not been able to prove the signature of respondent no.2 in the return filed, and hence, the conviction was bad on that ground also. The Income Tax Officer aggrieved by the acquittal of the respondents preferred appeal and the High Court by its impugned judgment upheld the order of the acquittal and while doing so observed that the sanction was valid but maintained the order of acquittal on the ground that the prosecution had not been able to prove that the return was signed/verified by respondent no.2.

Respondents aggrieved by their conviction and sentence preferred appeal and the Appellate Court set aside the conviction and sentence on the ground that sanction for prosecution was not valid. The Appellate Court further held that the prosecution has not been able to prove the signature of respondent no.2 in the return filed, and hence, the conviction is bad on that ground also. The Income Tax Officer aggrieved by the acquittal of the respondents preferred appeal and the High Court by its impugned judgment upheld the order of the acquittal and while doing so observed that the sanction is valid but maintained the order of acquittal on the ground that the prosecution has not been able to prove that the return was signed/verified by respondent no.2.

Having heard the parties, the Apex Court held that,

++ the Income Tax Officer, who made the final assessment, did not state in his evidence that the return was signed or verified by the accused Hem Raj in his presence. Further the witnesses namely Satish Kumar (PW1), J.K.Sahni (PW 3) and Satish Luthra (PW 4) have not proved the signatures of Hem Raj. But this would not be sufficient to throw out the case of the prosecution. The prosecution undoubtedly is to prove its case beyond all reasonable doubt to bring home the charge. The evidence for that purpose could be admission of the accused also;

++ in the present case, prosecution had led evidence to prove that revised return was filed by the firm under the name of accused Hem Raj and on that basis assessment was made by the assessing authority. There is further evidence to show that aggrieved by the order of asssessing authority, appeal was preferred before the appellate authority under the signature of the accused Hem Raj, which was dismissed and the penalty was paid. At no point of time accused Hem Raj made any objection that the return did not bear his signature and was not filed by him;

++ it is trite that admission is best evidence against the maker and it can be inferred from the conduct of the party. Admission implied by conduct is strong evidence against the maker but he is at liberty to prove that such admission was mistaken or untrue. By proving conduct of the accused Hem Raj in not raising any dispute at any point of time and paying the penalty, the prosecution has proved his admission of filing and signing the return. Once the prosecution has proved that, it was for the accused Hem Raj to demonstrate that he did not sign the return. There is no statutory requirement that signature on the return has to be made in presence of the Income-tax authority. Nothing has been brought in evidence by the accused Hem Raj that signature did not belong to him on the return and the penalty was paid mistakenly;

++ we are of the opinion that the appellate court misdirected itself in not considering the evidence in right perspective and acquitting the accused, so also the High Court which failed to correct the apparent error. This renders their judgments unsustainable. Any other view may induce the appellant to compel the assessee to file return in the presence of the authority so that the signature is proved by direct evidence by such authority in trial. This will lead to a difficult situation not contemplated under the Act;

++ accordingly, this appeal is allowed, impugned orders are set aside and the judgment of conviction passed by the Chief Judicial Magistrate is restored. However, we reduce the substantive sentence from one year to six months on each count and they are directed to run concurrently.

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