COMMISSIONER OF Income Tax Vs RAM RUP KISHAN AND OTHERS.

S. D. BAJAJ J., - Messrs. Ram Rup Radha Kishan, Foodgrain Dealers and Commission Agents, Hissar, is a partnership concern. Radha Kishan, Jiwan Ram and Manohar Lal are its three partners. The firm deals in foodgrains, cotton seeds (binola), cotton and gur, etc., etc. For the assessment year 1971-72 (accounting year 1970-71), the firm, on February 14, 1972, filed a return dated February 11, 1972, declaring an income of Rs. 38,159 and a speculation loss of Rs. 13,169. Copies of the profit and loss account, trading account, interest account, balance-sheet and other statements of account duly signed by its partners, Shri Radha Kishan, arrayed as accused No. 2 in the complaint filed by the Income Tax Officer, A-Ward, Hissar against the firm and its three partners, were also filed therewith.

The Income Tax Officer, Hissar, detected that the assessee had not shown any profit or loss in binola (cotton seeds) account, kapas account and cotton account nor had any profit or loss been shown in cotton and binola accounts which the assessee might have earned or incurred on account of speculation transactions shown in these two accounts; nor had he shown them in the copies of accounts attached with the return in spite of the fact that the assessee accused had maintained three separate trading accounts. On being asked to work it out, it was revealed that the firm had claimed Rs. 16,726 as loss in kapas account, declared Rs. 7,124.85 and Rs. 5,735.76 as profit in speculation business in cotton and cotton seeds, respectively, and Rs. 7,456.25 and Rs. 27,325.93 as profit in cotton and binola accounts, respectively. Assessment was completed on March 2, 1973, by adding an income of Rs. 18,056 in all the three accounts.

In penalty proceedings, the Inspecting Assistant commissioner imposed a penalty of Rs. 35,000 which was reduced by the Income Tax Appellate Tribunal to Rs. 18,056 only. Since the lapse was intentional, a complaint u/s 277 of the Income Tax Act as amended up to date was also filed in the criminal court of competent jurisdiction at Hissar. Vide, its impugned judgment dated March 28, 1980, the learned trial court convicted the firm and its two partners, Radha Kishan and Jiwan Ram, of the commission of the offence u/s 277 of the Income Tax Act. The firm was fined Rs. 1,000 and each of its two partners was individually awarded simple imprisonment for a period of one month and fined Rs. 1,000 each. In default of payment of fine, each one of the two partners was ordered to undergo individually simple imprisonment for a further period of 3 months.

In Criminal Appeal No. 35 of 1980, decided on July 16, 1981, the learned lower appellate court set aside the conviction of the three accused as also the sentence passed upon them by the learned trial court. All the three accused were, therefore, acquitted by it. Feeling aggrieved therefrom, the Commissioner of Income Tax, Haryana, has filed Criminal Appeal No. 204-DBA of 1982, in this court. Hence the appeal.

We have heard Shri A. K. Mittal, Advocate, for the appellant, Shri U. D. Gaur, Advocate, for the respondents-accused and have carefully gone through the material on record.

Referring to the observations made in A.D. Jayaveerapandia Nadar and Co. and Others Vs. Income Tax Officer, , Commissioner of Income Tax Vs. Jagdish Lal Behl and Others, and Bhagat Singh and Others Vs. Income Tax Officer, , it was contended that accused Nos. 1 to 3 were liable. Accused No. 1 is a firm. Accused No. 2, Radha Kishan, is one of the partners of the firm who signed the return and verified its particulars while accused No. 3, Jiwan Lal, is another partner who appeared before the Income Tax Officer in the assessment proceedings at intervals once or twice and signed letters, exhibit P-10 to exhibit P-13. In spite of the accused pleading from the very first day that the accounts of the firm were being handled by Chhabil Dass. D. W. - 1 who had also got the return filed in consultation with Dharampal, Chartered Accountant, and that the three accounts were not mentioned in the return due to the negligence of the munim, the learned trial court did not believe the assertions made by Manohar Lal, the third partner, was acquitted because he had not signed any of the papers relied upon by the prosecution. Finding recorded by the learned trial court was that accused Nos. 2 and 3. Radha Kishan and Jiwan Ram, both being responsible for handling the accounts of M/s. Ram Rup Radha Kishan had, therefore, knowledge of these accounts.

In appeal, the learned trial court observed in its impugned judgment dated July 16, 1981 : "The plea of the appellants was that their munim used to keep the accounts and that the munim had taken the books to a chartered accountant, namely, Shri Dharmpal. The plea of the appellants is that either the munim had failed to show the accounts, which were later detected or that Shri Dharampal, on account of omission or negligence, failed to show the account in the statements filed and in the return filed with the Income Tax Department. This plea is quite plausible and indeed appears to be correct. The learned lower court has not given sufficient reasons for rejecting the plea and for rejecting the statement of Chhabil Dass. The learned lower court has rejected the statement of Chhabil Dass simply on the ground that the appellants have failed to produce Shri Dharampal, the chartered accountant. In my opinion, this is not sufficient reason by itself, or otherwise for rejecting the statement of Chhabil Das or for rejecting the explanation given by the appellants in regard to the error committed in filling the return. The law has intentionally not made punishable an incorrect statements or an error committed while preparing the statement. In its wisdom, the law has laid down certain conditions before making the error or omission punishable. The law states that an error or omission would be punishable if it is committed knowingly or if the false statement was made believing the same to be so or knowing the same to be so, or if the statement is not believed to be true. I am of the view that, in the circumstances of the present case, it is proved that the error in question was not an intentional one and that it was on account of a bona fide mistake. At any rate, there is a good deal of doubt on this point. Benefit of doubt has to go to the accused and not to the prosecution even in a case u/s 277 of the Income Tax Act, because it has been held by the High Courts in the judgments referred to above that means era is an essential ingredient."

The view taken by the learned lower appellate court was duly approved in Kuldip Rai Chopra, Income Tax Officer, "D" Ward Vs. Sohan Singh Dhiman, , Kusum Products Ltd. Vs. S.K. Sinha, ITO, and Commissioner of Income Tax Vs. Pratap Chand Maheshwari, ; The relevant observations read :

"On the other hand, Mr. Desai, learned counsel for the assessee, has contended that when a firm has been penalised, no penalty can be imposed on its partners. He has placed reliance on the decision in the case of ADDITIONAL COMMISSIONER OF Income Tax, LUCKNOW Vs. SMT. TRIVENI DEVI., , wherein it was observed as follows :

A firm, even though it is an assessable unit for purposed of Income Tax, is not a legal person or a juridical entity. Thus, any tax imposed on a firm is, in fact, a tax upon the partners. Penalty is nothing but an additional tax and the principle contained in section 86(iii) of the Income Tax Act, 1961, would apply as much as to penalty as to tax. Even if penalty is regarded as punishment, a person cannot be punished more than once in respect of the same offence. Hence, penalty for concealment of income cannot be levied once in the hands of the firm and again in the hands of its partners."

The mens rea is an essential ingredient of an offence u/s 277 of the Act is clear from the section itself and only an actual person who does any of the act indicated therein with specific knowledge or intent can be made liable.

It is argued that the signing verification of the return containing false figures by itself should be enough to raise a presumption of dishonesty. For appreciating this argument, reference will have to be made to section 277 of the Act which says that if a person makes a statement in any verification under the Act, or delivers an account or statement which is false, he may be punished with the penalties as prescribed in the said section. However, the section contains some crucial words in regard to mens rea of the assessee, these words being "and which he either knows or believes to be false, or does not believe to be true". The intention of the Legislature in incorporating these words is quite obvious that a prosecution would not follow in every case where a wrong statement is made and it will have to be judged as to whether the assessee harboured the required mens rea or not.

Another aspect of the matter is that occurrence is of the year 1970-71. Acquittal judgment was rendered by the lower appellate court on July 16, 1981. Criminal Appeal No. 204-DBA of 1982 against it was filed on January 4, 1982. Leave to appeal was granted therein on March 29, 1982. In S. Guin and Others Vs. Grindlays Bank Ltd., their Lordships of the Supreme Court observed that inordinate delay of nearly six years that had ensued after the judgment of acquittal would justify the termination of the criminal proceedings. In the present case, the delay is of twenty years from the date occurrence and more than ten years from the date of the judgment of acquittal. Termination of criminal proceedings ordered by the learned lower appellate court, was therefore, the safest order in terms of the Supreme Court guidelines aforesaid and we see no reason to disturb it in the present appeal.