JUDGMENT
T.L. Viswanatha Iyer, J.
1. The petitioner is an assessee to income-tax on the files of the second respondent against whom a prosecution exhibit P-7, namely, C. C. No. 63 of 1987, on the file of the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam, has been launched. The allegation is of commission of offences under Sections 276C(1) and 277 of the Income-tax Act, 1961. The case is pending.
2. The assessment year concerned is 1977-78. Alleging that the petitioner had not correctly posted all his receipts in the account books, an amount of Rs. 5,50,000 was added to the income returned. Details thereof are given in exhibit P-7. There was also an addition of Rs. 58,443.93 on account of alleged sales of rationed articles, which, according to the assessing authority, had not been effected by the petitioner on the dates mentioned. The order of assessment was followed by levy of penalty under Section 271(1)(c) of the Act, which was taken in appeal before the Income-tax Appellate Tribunal by I. T. A. No. 860/(Coch) of 1990. The Tribunal allowed the appeal and set aside the penalty.
3. In the meanwhile, the petitioner had made an application to the Commissioner of Income-tax under Section 273A of the Act for waiver of the penalty imposed on him under Section 271(1)(c). But this was rejected by the proceedings, exhibit P-6, of the Commissioner stating that the case was not a fit one for waiver of penalty in exercise of the power vested under Section 273A(4) of the Act. The petitioner made a further representation, exhibit P-8, which is stated to be pending. But the Central Board of Direct Taxes had earlier and by the proceedings, exhibit P-9, dated April 14, 1986, informed the Commissioner of Income-tax that the petitioner’s case was not a fit one for waiver of penalty and that prosecution proceedings may be taken against him. The original petition was filed on the basis that exhibit P-6, which is a one line order, is not one passed in accordance with law and, therefore, the application, exhibit P-4, must be deemed to be pending. According to the petitioner, so long as the question of waiver of penalty had not been finally disposed of, a prosecution under Sections 276C and 277 could not be launched.
4. The writ petition was amended by producing the order of the Income-tax Appellate Tribunal, exhibit P-13, on the penalty appeal and claiming relief on the basis thereof. The petitioner refers to the conclusions of the Tribunal in exhibit P-13 that it was not a case where the petitioner had not offered any explanation regarding the additions made. The explanation was there, but the veracity of the explanation was not tested by the assessing authority for the reason that the petitioner was anxious to purchase peace and, therefore, agreed to the additions. There was also the fact that he had extended his co-operation to the Department in the matter of finalisation of the assessment. Paragraph 8 of the petitioner’s letter dated December 15, 1979, and paragraph 3 of his other letter of even date clearly showed that the petitioner had agreed to the additions on the understanding that there will not be any penal action against him. True to his word, the petitioner did not appeal against the additions and accepted them. The Tribunal was, therefore, of the view that the additions made in the assessment were agreed additions and, in the circumstances, the levy of penalty was not legal.
5. Even apart from this, the Tribunal noted that penalty was to be levied only if there was no explanation or the explanation given was proved to be false or remained unsubstantiated. The Tribunal went into the question as to whether the explanation given by the petitioner was false and came to the conclusion that the falsity of the explanation offered by the petitioner had not been established. The Tribunal reiterated the position that the petitioner agreed to the additions on condition that no penalty proceedings will be initiated against him. This was the understanding of both the petitioner and of the Assessing Officer and, therefore, the levy of penalty was not sustainable. The appeal was, therefore, allowed.
6. When the original petition came up for hearing, counsel for the petitioner laid great stress on this order of the Appellate Tribunal to plead that, since the Tribunal had found that the falsity of the explanation offered by the petitioner has not been established, the very basis of the prosecution C. C. No. 63 of 1987 goes and, therefore, the complaint, exhibit P-7, ought to be quashed.
7. Counsel for the respondents, however, submitted that the Department has not accepted the order, exhibit P-13, and that though an application under Section 256(1) had been dismissed by the Tribunal, the Department was challenging the proceedings by approaching this court under Section 256(2) of the Act. The time for filing the said application
is not yet over. It was, therefore, contended that the quashing of the proceedings at this stage will be premature. It was also mentioned that exhibit P-13 related to penalty proceedings and the findings therein were for purposes of considering the sustainability of the order of penalty and could not, therefore, be attracted in relation to the prosecution proceedings.
8. The entire matter relating to prosecution for violation of the provisions of the Income-tax Act, 1961, was considered by Manoharan J, in Madras Spinners Ltd, v. Deputy CIT (Assessment) [1993] 203 ITR 282 ; [1993] 1 KLT 482. No doubt, that was a case where the order of assessment which formed the basis of the prosecution stood set aside and, in that context, the learned judge stated that, so long as the decision of the Tribunal was in force, the criminal court cannot come to a contrary conclusion as the effect of the decision of the Tribunal is to take away the very basts of the prosecution. Accordingly, the learned judge quashed the prosecution proceedings safeguarding the right of the Revenue to file a fresh complaint in case the order of the Tribunal was set aside consequent upon the decision under Section 256(2) of the Act. In reaching this conclusion, the learned judge referred to the decision of the Supreme Court in Uttam Chand v. ITO [1982] 133 ITR 909, which he stated stood reaffirmed by the subsequent decision in P. Jayappan v. S.K. Perumal, First ITO [1984] 149 ITR 696. The learned judge also referred to the subsequent decisions in Parkash Chand v. ITO [1982] 134 ITR 8 of the Punjab and Haryana High Court and of the Supreme Court in K. T. M. S. Mohammed v. Union of India [1992] 197 ITR 196, and distinguished the decision of the Madras High Court in Hema Mohnot v. State by Chief CIT [1992] 198 ITR 410. In view of the elaborate discussion made by Manoharan J. in the aforesaid decision, it is unnecessary for me to go through the matter over again since I am in agreement with the view taken by Manoharan ). As stated earlier, counsel for the Revenue-respondents seeks to distinguish this decision on the ground that the decision which was set aside by the Tribunal in that case was the order of assessment itself while, in the instant case, the order of the Tribunal pertained to the imposition of penalty. True, exhibit P-13 sets aside only the order of penalty and different considerations do arise in the matter of imposition of penalty. But the Tribunal, in its order, exhibit P-13, has conclusively held that the additions made in the order of assessment were on the basis of the agreement between the parties, which agreement was honoured by the petitioner by not filing an appeal against the order of assessment. The Tribunal, in the concluding portion of its order, exhibit P-13, has stated that both the petitioner and the Assessing Officer had acted on the understanding that
it was an agreed assessment. This finding of the Tribunal, though in an appeal against the order of imposition of penalty, is wide in its terms. The Tribunal has also held that the falsity of the explanation rendered by the petitioner had not been established. If these two findings stand, the position is that the very basis of the prosecution of falsification of accounts goes. As stated by Manoharan J., so long as this decision of the Tribunal stands, a criminal court cannot reach a contrary conclusion. In view of the agreed nature of the assessment and the non-establishment of the falsity of the explanation offered by the petitioner, the very basis of the prosecution goes. It has accordingly to be quashed.
9. However, and since the time for filing an application under Section 256(2) is not over, the interests of the Revenue have to be safeguarded by directing, as Manoharan J. did, that the quashing of the complaint will be without prejudice to the rights of the respondents to file a fresh complaint if the order of the Tribunal is set aside in the further proceedings arising consequent on the application under Section 256(2) of the Act.
10. Accordingly, I allow the original petition and quash the complaint, exhibit P-7. This will not, however, preclude the respondents from filing a fresh complaint, if the order of the Tribunal is set aside consequent upon the proceedings initialed under Section 256(2) of the Income-tax Act, 1961.