V.S.KOTWAL, J. - (1.) An entry in the accounts is responsible for initiating two proceedings on the parallel track, one before the Income Tax Official while the other on the forum of Criminal Court. The other peculiarity of the proceedings is that the concerned party was visited not only with the discarding of his explanation vis-a-vis that entry but also with imposition of penalty on the ground that there has been wilful suppression or concealment of income whereafter, a criminal prosecution is launched on the basis of the same entry and more or less on the same platform with the existence of another. The texture of the litigation gets a further turn due to the peculiar development occurring during the pendency of the criminal proceedings wherein the highest authority in the hierarchy of the structure of income tax Department construed the same entry in favour of the party under which not only the penalty was quashed but the said party has been completely exornerated. These are some of the landmarks in these proceedings carrying with them such peculiar features. The first petitioner herein is the Firm in question while petitioners Nos. 2 and 3 are the parties who are landed in these difficulties on account of having filed the Returns before the Income Tax Department signing the verification. The criminal complaint lodged by the Income Tax Officer A-11 Ward, Bombay against the three petitioners is the subject matter of Case No. 42-S of 1983 under sections 277, 278 and 276-C of the Income Tax Act, 1961 ("the Act") in the Court of the learned Metropolitan Magistrate, 28th Court, Esplanade, Bombay, where the learned Magistrate was pleased to issue process on all the counts which Order is being placed under challenge in this petition invoking the inherent powers of this Court under section 482 of the Code of Criminal Procedure, 1973.
(2.) The first petitioner is the Partnership Firm dealing in Import and Export of Cotton Textiles and also Commission Agent carrying on the said business in this metropolis. Initially, the second petitioner and one Ratilal D. Shah were the partners of the said Firm under the Deed of Partnership dated 7th September, 1951. The later however retired under the Deed of Retirement executed on July 15, 1970, and was replaced by the third petitioner constituting a new structure of the said partnership though continuing the same business. For the Assessment year of 1974-75, the Firm filed the Return of Income on June 29, 1974 which was signed by the second petitioner and it was accompanied by Profit and Loss Account and Balance Sheet. The income of the Firm was declared to the tune of Rs. 22,229/-. The concerned Income Tax Officer who had the jurisdiction to deal with the said case called for the accounts of the Firm for the said period. On production of the relevant books of account, the said Officer placed those under scrutiny on November 21, 1976 and he observed certain discrepancies in the Gujarati ledger and English ledger. On the scrutiny of the Statement of Account it was revealed that the Firm had credited Rs. 99,151/- in the Trading Account as cash incentive received by the Firm during the relevant period i.e. for the year 1974-75 vis-a-vis export of cotton textiles made to Middle East Countries. There is a small difference of about Rs. 2,000/- in this category in the Gujarati and English Ledger as the former suggests Rs. 1,41,984/- while the latter as Rs. 1,43,895/-. The Officer noted on the scrutiny of these accounts that out of the total amount of Rs. 1,43,895/- an amount of Rs. 44,743/- was transferred in the name of the ex-partner Shri R.D. Shahs Capital Account and thereby leaving the balance of Rs. 99.151/- shown in the Trading Account. The Income Tax Officer was of the opinion that the amount of Rs. 1,43,895/- was really the cash incentive received by the Firm for the export of textiles and as such it was nothing but the income of that firm and not of the individual partners and consequently it is the entire amount which was assessable as being in the possession of the Firm. Though this was detached on a scrutiny of the accounts and ledgers etc. still, no information about the transfer of the said amount of Rs. 44.743/- in favour of the retired partner to his capital Account which was out of the amount of Rs. 1,43,895/- as the total cash incentive received by the Firm were indicated in the profit and Loss Account and Balance Sheet that was produced along with the Return. In the same documents and the Returns, the cash incentive received by the Firm were shown to the tune of Rs. 99,151/-.
(3.) After undergoing this exercise of scrutiny of the relevant documents, the Income Tax Officer opined that the receipt of total cash incentive of Rs. 1,43,895/- was dishonestly and intentionally split up by the Firm and by that process, there has been a concealment of the income in that category to the tune of Rs. 44,743/-. Which obviously was flowing out of the construction of the situation as per the officer that this could not be credited in favour of the retired partner as this was deemed to be the income of the Firm. Armed with this material and the formulation of the opinion, the Assessment was complete under which the total income of the Firm was held at Rs. 74,563/- parallel to that the officer also initiated penalty proceeding under section 271(1)(c) of the Act.;