Mere omission cannot be treated as concealment of income

The Hon’ble Supreme court has held in the case of K.C. Builders & another vs. The Asst. Commissioner of Income Tax, J.T. 2004(2) SC 100, that mere omission cannot be considered as concealment. The double bench consisting of Hon’ble Justice B.N. Agrawal and Hon’ble Justice Dr. Ar. Lakshmanan passed the said judgment.

Brief facts of the case:

The appeals were directed against the judgment passed by the Hon’ble High Court at Madras in Criminal Revision Case No. 508 of 1997 and Criminal Misc. Petition No. 3411 of 1997 dated 13.08.1997 wherein the criminal revision under Section 397 read with Section 401 of the Code of Criminal Procedure, 1973 was dismissed.
The facts stated in the appeals were that the appellant was a partnership firm having the business of construction and sale of flats. Some of their projects started in the financial year 1981-82 and were completed in the financial year 1986-87. The appellants filed the returns of income stating its assessed income. The cost of construction was also shown in the return.
The appellants filed revised returns according to an approved valuer’s report for the assessment years 1983 – 84 to 1986 – 87 on 04.11.1987 due to the fact that the earlier returns filed by the assessee were defective relating to the cost of construction. The revised returns were accepted by the Department. Accordingly the assessments were completed.
The department treated the difference between the income stated in the original return and that stated in the revised income as concealed income of the appellant. Penalties were levied under Section 271(1) (c) of the Income Tax Act, 1961 for four assessment years and penalty proceedings were initiated against the appellant.
The first appeal was directed against the order of penalties which were levied by the authorities for concealment of income against the appellants. The penalties were confirmed by the C.I.T. (Appeals). According to the directions of the C.C.I.T., four complaints were filed in the Court of Additional Chief Metropolitan Magistrate at Chennai for offences under Sections 276C (2), 278B of the Income Tax Act and Sections 120B, 420, etc. of the I.P.C.
The prosecution case alleged that a conspiracy was entered into between the appellants and they filed incorrect returns of income which was an attempt on their behalf to evade tax. On 24.10.1996 the appellants preferred an appeal before the Appellate Tribunal against the order passed by C.I.T. (Appeals) on 18.07.1990 for the assessment years 1983 – 84 to 1986.
The appellants contended that the Assessing Officer referred the issue to the Valuation Cell of the Department which estimated the cost of construction at Rs. 50,96,750/- and sent the report to that effect. It was further contended that the Department did not furnish any material to prove that there was concealment of income by the appellant. The Tribunal found that the additions were on the basis of settlement between the appellant and the Department which was a voluntary offer made by the assessee and the Tribunal applied the principles of the Case of Sir Shadilal Sugar and General Mills Ltd. & Another vs. C.I.T., Delhi (1987) 168 I.T.R. 705 and held that there was no concealment of income. Accordingly the penalties were cancelled and the appeals were allowed by order dated 24.10.1996.
The appellants moved an application before the Additional Chief Metropolitan Magistrate at Chennai by filing M.P. No.614 of 1996 in C.C. No. 425 of 1990 praying for adjournment to enable them to file the copy of the order of the Tribunal which allowed the appeals preferred by the accused against the order of penalty. However, the learned Magistrate allowed the appellants to mark the said order of the Tribunal in evidence against which the prosecution had no objection.
Accordingly the penalties levied against the appellants under Section 271(1) (c) of the Act were cancelled on 27.01.1997. The Revenue filed an application under Section 256(1) of the Act for reference of the question of law arisen in the Tribunal’s Order dated 24.10.1996. The said application was rejected.
Thereafter the appellants preferred a Criminal Revision as per Sections 397 and 401 of the Criminal Procedure Code, 1973 before the Hon’ble High Court for setting aside the order dated 21.7.1997passed by the Learned Magistrate.
The Madras High Court rejected the criminal revision holding that the Tribunal’s order was not applicable as it was not marked as a document on behalf of the appellants and the order was passed on a subsequent date. The High Court observed the view in the case of K.T.M.S. Mohammed & Another (supra).

Arguments by the parties to the appeal:

The Learned counsel appearing for the appellants submitted that the High Court has failed to appreciate the case of the appellants.
The Revenue submitted that the High Court was justified in dismissing the petition of appeal. The learned counsel submitted that as per the facts and circumstances of the case, the order of the High Court was neither erroneous nor against law.

Issues raised by the High Court:

The Apex court perused the pleadings, the order of the High Court, the complaints, the order dated 24.10.1996 passed by the Appellate Tribunal at Madras, order passed by the learned Magistrate at Chennai, copy of the proceedings cancelling the penalty levied against the appellants, copy of the application filed on 12.12.1996, the order passed on 21.07.1997 and copy of the order passed by the ITAT at Madras in Reference Application . The relevant provisions under the Income Tax Act, 1961 and that of the I.P.C. were also considered. In view of the facts and circumstances of the case, the following issues were raised for consideration;
(a) Whether a penalty imposed under Section 271 (1) (c) and prosecution under Section 276C of the Act could be applied simultaneously?
(b) Whether the Criminal prosecution is quashed automatically when the Income Tax Appellate Tribunal finds that there is no concealment of income?
(c) Whether the High Court was justified in dismissing the Criminal Revision Petition ignoring that the findings of the Appellate Tribunal was conclusive?
(d) Whether the findings of the Appellate Tribunal are binding upon the Criminal Courts?
(e) Whether the High Court’s order should be set aside?

The judgment:

After hearing the learned counsel appearing for the appellants and the learned senior counsel appearing for the respondent, it was held that the High Court has failed to observe that even the application for reference by the Revenue under Section 256(1) of the Act was rejected on the ground that a pure question of fact involved.
Applying the principle laid down by the Supreme Court in Sir Shadilal Sugar and General Mills Ltd. and Another vs. CIT (165 ITR 705), it was held that there was no concealment of income by the assessee. The penalties were cancelled and the appeals were allowed.