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CASE NO.: Appeal (crl.)  212-213 of 1998

PETITIONER: K.C. Builders & Anr.                                     

RESPONDENT: The Assistant Commissioner of Income Tax                 

DATE OF JUDGMENT: 28/01/2004

BENCH: B.N. Agrawal & Dr. AR. Lakshmanan.

JUDGMENT: JUDGMENT

Dr. AR. Lakshmanan, J.

       These appeals are directed against the final judgment passed by the High Court  of Judicature at Madras in Criminal Revision Case No. 508 of 1997 and Criminal Misc.  Petition No. 3411 of 1997 dated 13.08.1997 by which the High Court dismissed the  criminal revision under Section 397 read with Section 401 of the Code of Criminal  Procedure, 1973.   The facts giving rise to these appeals are as under:-

       The appellant is a partnership firm engaged in the business of construction and  sale of flats.  The construction of some of the projects started in the year 1981-82 and  was completed in the year 1986-87.  The appellants filed the returns of income  disclosing the assessed income as the income.  The cost of construction was shown as  under:- Assessment Year 1983-84         -       Rs.4,72,860/- Assessment year 1984-85         -       Rs.5,77,590/- Assessment year 1985-86         -       Rs.7,28,531/- Assessment year 1986-87         -       Rs.7,03,002/-

The appellants filed revised returns as per the approved valuer’s report for  assessment years 1983-84 to 1986-87 on 04.11.1987 in the following manner as the  earlier returns were found to be defective with regard to cost of construction.

Assessment year 1983-84         -       Rs.8,76,000/- Assessment year 1984-85         -       Rs.5,42,000/- Assessment year 1985-86         -       Rs.13,47,229/- Assessment year 1986-87         -       Rs.10,37,920/-

The revised returns were accepted by the Department and assessments were  completed.         The respondent/assessing authority treated the difference between the income  as per original return and revised income as concealed income. The Assistant  Commissioner of Income-Tax levied penalties under Section 271(1)(c) of the Income  Tax Act, 1961 (hereinafter referred to as "the Act") for all the aforesaid four assessment  years.  Accordingly, penalty proceedings were initiated.  The first appeal against the  order of penalties levied for concealment of income against the appellants were  confirmed by the C.I.T. (Appeals).  As per the directions of the Chief Commissioner of  Income Tax, four complaints were filed in the Court of Additional Chief Metropolitan  Magistrate, Egmore, Chennai for offences under Sections 276C (2), 278B of the Act  and Sections 120B, 34, 193, 196 and 420 of the Indian Penal Code.         The gist of the prosecution case was that a conspiracy was entered into between  the accused/appellants and they filed false returns of income before the Department  which led to concealment of income to evade tax.  On  24.10.1996, the appellants had  preferred an appeal before the Income-Tax Appellate Tribunal against the consolidated  order passed by C.I.T. (Appeals) on 18.07.1990 for assessment years 1983-84 to 1986- 87.  It was contended that the Assessing Officer referred the matter relating to valuation  of the Departmental Valuation Cell which reportedly estimated the cost of construction  at Rs.50,96,750/-.  If that were to be adopted then the income would result in a loss.  It

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was contended that the Department has not brought out any material to show that there  was concealment of income.   The Tribunal, after verifying the records, found that the  additions were on the basis of settlement between the assessees and the Department  and represents voluntary offer made by the assessee and, therefore, in such  circumstances the Tribunal applying the principles laid down by this Court in the Case  of Sir Shadilal Sugar and General Mills Ltd. & Anr. Vs. C.I.T., Delhi [1987] 168 I.T.R.  705 held that there was no concealment of income by the assessee and accordingly the  penalties were cancelled and allowed the appeals.  The appellants thereupon moved an  application before the Additional Chief Metropolitan Magistrate, (E.O.II), Egmore,  Chennai by filing M.P. No.614 of 1996 in C.C. No. 425 of 1990 praying the Court for  adjourning the proceedings in the above case to enable them to move the necessary  petition and to file the copy of the order of the Tribunal dated 24.10.1996 which allowed  the appeals preferred by the Ist accused against the levy of penalty upon them.   However, the learned Magistrate permitted the appellants to mark the order of the  Tribunal in evidence at the appropriate stage of trial for which prosecution has no  objection.           Giving effect to the Income Tax Appellate Tribunal’s order in I.T.A. Nos. 3129- 3132, the penalties levied under Section 271(1)(c) of the Act were cancelled by the  respondent on 27.01.1997.  In the meanwhile, the Revenue Department filed an  application under Section 256(1) of the Act for reference of the question of law which  had arisen out of Income Tax Appellate Tribunal’s Order dated 24.10.1996.  The  application of the Revenue Department was rejected.  Thereupon, the appellants  preferred a Criminal Revision under Sections 397 and 401 of the Criminal Procedure  Code, 1973 before the High Court for setting aside the order passed by the Additional  Chief Metropolitan Magistrate dated 21.7.1997.  The learned Single Judge of the  Madras High Court rejected the criminal revision vide his impugned order holding that  the Income Tax Appellate Tribunal’s order was not applicable since it was not marked  as defence document whereas the fact remains that the order was passed at a  subsequent date.  Before the High Court, the decision of this Court in K.T.M.S.  Mohammed and Anr. Vs. Union of India, [1992] 197 I.T.R. 196 was cited.  The High  Court after observing that the observation in the case of K.T.M.S. Mohammed & Anr.  (supra) helps the appellants to the extent that the trial Court should have given due  regard to the Tribunal’s order but clearly made an error by distinguishing the said  judgment on the ground that the Tribunal’s order was marked as a defence document  whereas in the instant case it was not marked as a defence document.  Whereas the  fact remains that the defence documents were marked earlier to the order dated  24.10.1996 passed by the Appellate Tribunal which was immediately thereafter brought  to the notice of the trial Court even by the prosecution in their own application.           We have perused the pleadings, the order passed by the High Court, copy of the  complaints, copy of the order dated 24.10.1996 passed by the Income Tax Appellate  Tribunal, Madras, order dated 11.12.1996 passed by the Additional Chief Metropolitan  Magistrate, Chennai, copy of the proceedings of the Income Tax Officer cancelling the  penalty levied under Section 271(1)(c) of the Act, copy of the application filed on  12.12.1996 by the appellants and copy of the order passed thereupon on 21.07.1997  and copy of the order dated 4.8.1997 passed by the ITAT Bench Madras in Reference  Application Nos. 32-35 for assessment years 1983-84 to 1986-87.  We also perused the  relevant provisions under the Income Tax Act, 1961 and of the Indian Penal Code.         On the above pleadings and facts and circumstances of the case, the following  questions of law arise for consideration by this Court:- (a)     Whether a penalty imposed under Section 271 (1) (c) of the Income Tax Act  and prosecution under Section 276C of the Income Tax Act are simultaneous? (b)     Whether the Criminal prosecution gets quashed automatically when the Income  Tax Appellate Tribunal which is the final Court on the facts comes to the  conclusion that there is no concealment of income, since no offence survives  under the Income Tax Act thereafter? (c)     Whether the High Court was justified in dismissing the Criminal Revision  Petition vide its impugned order ignoring the settled law as laid down by this  Court that the finding of the Appellate Tribunal was conclusive and the  prosecution cannot be sustained since the penalty after having been cancelled  by the complainant following the Income Tax Appellate Tribunal’s Order no  offence survives under the Income Tax Act and thus the quashing of the  prosecution is automatic?   (d)     Whether the finding of the Income Tax Appellate Tribunal is binding upon the  Criminal Court in view of the fact that the Chief Commissioner and the  Assessing Officer who initiated the prosecution under Section 276C (1) had no

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right to overrule the order of the Income Tax Appellate Tribunal.  More so when  the Income Tax Officer giving the effect to the order cancelled the penalty  levied under Section 271 (1) (c).   (e)     Whether the High Court’s order is liable to be set aside in view of the errors  apparent on record. We heard Mr. Ajit Kumar Sinha, learned counsel appearing for the appellants  and Mr. R.P. Bhatt, learned senior counsel appearing for the respondent.         Learned counsel appearing for the appellants submitted that the learned single  Judge of the High Court has failed to appreciate that under Section 254 of the Act an  order by the Income Tax Appellate Tribunal not only superseded the order passed by  the Assessing Officer under Section 143(3) of the Act but also set aside the finding of  the Assessing Officer under the provisions of the Act.   He further submitted that the  High Court has failed to appreciate that both the penalty proceedings and the  prosecution are simultaneous and any prosecution launched on the basis of the order of  the Assessing Officer under Section 143(3) of the Act became void and it knocks down  the very basis for prosecution under Section 276C of the Act and it is in this background  the Assessing Officer giving effect to the order of the Appellate Tribunal, cancelled the  penalty levied.  Learned counsel further submitted that the learned single Judge has  failed to see that the findings of the appellate Tribunal that there was no concealment of  income and the same became conclusive and hence prosecution could not have been  sustained.  The High Court has also further failed to see that even the application for  reference by the Revenue Department under Section 256(1) of the Act was rejected on  the ground that it is a pure question of fact and no question of law was involved.    It  was also further contended that the High Court failed to note that the order passed by  the income Tax Appellate Tribunal though marked as Exhibit through the defendants  witness was not considered by the Courts below.           Mr. R.P. Bhatt, learned senior counsel appearing for the respondent, vehemently  opposed the contentions raised by learned counsel for the appellants.  He submitted  that the penalty proceedings and the prosecution proceedings are clearly independent  and that the result of proceedings under the Act is not binding on the Criminal Court  and that the Criminal Court has to judge the case independently on the evidence placed  before it.  He would further submit that the complaints were filed in March, 1990 under  Sections 276C (1), 277 & 278B of the Act before the Additional Chief Metropolitan  Magistrate which were registered as E.O.C.C. Nos. 422 to 425 of 1990, charges were  framed against the accused firm and its partners in September, 1993 and by October,  1996, nine prosecution witnesses had already been cross-examined and the  prosecution witness No.10 was examined on 8.10.1996.  At this stage, the appellants  filed a petition for dropping the prosecution proceedings and, therefore, the High Court  was justified in dismissing the petition of the appellants on the facts and circumstances  of the case.    It was further submitted that the discretion should be exercised judicially  and in such a way as not to frustrate the object of the criminal proceedings and,  therefore, the High Court is justified in dismissing the petition of the appellants.    Concluding his submissions, learned senior counsel submitted that on the facts and  circumstances of the case, the order of the High Court is neither erroneous nor against  the principles of law.         Before proceeding to consider the rival submissions, it is beneficial to refer to  some important provisions of the Act under which the proceedings have been  initiated:-         Section 147 of the Act deals with income escaping assessment.  Section 148  deals with issue of notice where income has escaped assessment.  Section 254 deals  with orders of Appellate Tribunal.  Section 256 deals with statement of case to the High  Court (reference).  Section 271 (1)(c) reads as follows:- "Section 271. Failure to furnish returns, comply with notices, concealment  of income, etc. \026 (1) If the Assessing Officer or the Commissioner(Appeals) in  the course of any proceedings under this Act, is satisfied that any person \026  (a)     \005\005\005\005\005\005.. (b)     \005\005\005\005\005\005\005\005. (c)      has concealed the particulars of his income or furnished inaccurate  particulars of such income, he may direct that such person shall pay by way of penalty, - (i)     \005\005\005\005. (ii)    \005\005\005\005 (iii)   in the cases referred to in clause (c), in addition to any tax  payable by him, a sum which shall not be less than, but which  shall not exceed three times, the amount of tax sought to be  evaded by reason of the concealment of particulars of his

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income or the furnishing of inaccurate particulars of such  income." One of the amendments made to the abovementioned provisions is the omission  of the word "deliberately" from the expression "deliberately furnished inaccurate  particulars of such income".  It is implicit in the word "concealed" that there has been a  deliberate act on the part of the assessee.  The meaning of the word "concealment" as  found in Shorter Oxford English Dictionary, 3rd Edition, Volume I, is as follows:- "In law, the intentional suppression of truth or fact known, to the injury or  prejudice of another."   The word "concealment" inherently carried with it the element of mens rea.   Therefore, the mere fact that some figure or some particulars have been disclosed by  itself, even if takes out the case from the purview of non-disclosure, it cannot by itself     take out the case from the purview of furnishing inaccurate particulars.  Mere omission  from the return of an item of receipt does neither amount to concealment nor deliberate  furnishing of inaccurate particulars of income unless and until there is some evidence to  show or some circumstances found from which it can be gathered that the omission  was attributable to an intention or desire on the part of the assessee to hide or conceal  the income so as to avoid the imposition of tax thereon.  In order that a penalty under  Section 271(1)  (iii) may be imposed, it has to be proved that the assessee has  consciously made the concealment or furnished inaccurate particulars of his income.   Where the additions made in the assessment order, on the basis of which penalty for  concealment was levied, are deleted, there remains no basis at all for levying the  penalty for concealment and, therefore, in such a case no such penalty can survive and  the same is liable to be cancelled as in the instant case.  Ordinarily, penalty cannot  stand if the assessment itself is set aside.  Where an order of assessment or  reassessment on the basis of which penalty has been levied on the assessee has itself  been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot  stand by itself and the same is liable to be cancelled as in the instant case ordered by  the Tribunal and later cancellation of penalty by the authorities.         Section 276C of the Act   deals with wilful attempt to evade tax, etc.  Section 277  deals with false statement in verification, etc.  and Section 278B deals with the offences  by companies. Four complaints were filed by the Assistant Commissioner of Income Tax,  Central Circle III(1) against the appellants on the basis of the sanction ordered by the  Commissioner of Income Tax under Section 279(1) of the Act for the prosecution of the  accused/appellants for the offences punishable under Sections 276 C (1), 277 and  278B of the Act..  It is stated in the complaint that the accounts and documents seized  during the course of search showed that the accused had suppressed the true receipts  from sale of flats, action under Section 148 of the Act was taken and in response to the  said notice, the return of the respective accounts were delivered to the Income Tax  Officer which was signed and verified by the accused concerned and that the Income  Tax Officer further made the enquiries and investigations and summoned various  persons for their statements.  When the enquiry was in progress, the accused knowing  that the suppression of receipts has been found out by the Income Tax Officer filed  another revised return on 4.11.1987 showing different income as against the original  return.  It was submitted that the appellants with a view to wilfully evade tax and to  defraud the exchequer of its legitimate revenue and to deceive the Income Tax Officer,  acting in consort and in furtherance of the common intention, all the accused conspired  to fabricate false evidence in the form of Books of Accounts containing false entries  with a view to using them as genuine evidence in Income Tax assessment proceedings  for the assessment year 1983-84.  Thus it was stated that the appellants had  committed offence punishable under the provisions above-quoted. A consolidated order was passed by the Commissioner of Income Tax (Appeals)  on 18.7.1990 for the assessment years 1983-84 to 1986-87.  In all these appeals, the  assessee disputed the imposition of penalty under Section 271(1)(c) of the Act.  The  assessments were initially completed under Section 143(3) of the Act.  On 20.3.1986,  the business premises of the firm as well as the residential premises of two of its  partners were searched under Section 132 of the Act.  In response to the same, the  assessee filed the returns of income disclosing the income assessed as the income.    After filing the returns in accordance with these books, the assessee came to know that  the Books of Accounts were defective with regard to the cost of construction.   Therefore, on 04.11.1987, the assessee filed a revised return estimating the cost of  construction on the basis of the approved valuer’s report.  The revised returns were  accepted by the Department and the assessments were completed.  The difference

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between the income as per the original returns and the income shown in the revised  returns was treated as concealed income and the Assessing Officer has levied the  penalty under Section 271(1)(c) of the Act in all these years.  The assessees were  unsuccessful before the Commissioner of Income Tax (Appeals).  Therefore, the  assessee filed the appeals before the Income Tax Appellate Tribunal, Madras in I.T.A.  Nos. 3129 to 3132/Mds/90.  Before the Tribunal, it was pointed out that since there  were defects in the Books of Accounts with regard to the cost of construction, the  assessee voluntarily referred  the matter to the approved valuer and has revised the  returns accordingly.  All this was done with a view to buy peace with the Department  and the returned income does not represent any concealed income.  It was also  pointed out by the learned counsel that the Department has not made any addition  beyond what has been returned by the assessee.  In other words, it was pointed out  that the returned income has been accepted by the Department and there is no  concealment of any income.  It was stressed by the counsel that the returns were  revised in pursuance of the settlement with the Department only to buy peace.  Learned  counsel appearing for the Department, on the other hand, strongly supported the  imposition of penalty in the facts and circumstances of the case.  The Tribunal allowed  the appeal and cancelled the penalty.  It is useful to reproduce the concluding part of  the order passed by the Tribunal which is as under: "We have carefully considered the rival submissions and perused the materials  brought on record.  Although there is a discussion by the Assessing Officer that  the assessee has received some on-money in respect of sale of flats but he has  not mentioned what is the exact quantum of such on-money receipts.  The mere  fact that though the receipt of on-money is a prevalent practice in the case of  transaction in flats, it cannot be presumed that there was a concealment of  income or evasion of taxes.  The Department must bring out material to indicate  the actual concealment of income.  The whole discussions in the assessment  order clearly shows that the Department has proceeded only on the basis of the  cost of construction.  At the stage when enquiries were made, the assessee has  got the valuation done by an approved valuer and filed the revised returns and  paid the taxes thereon.  This conduct clearly shows that there was some sort of  settlement between the assessee and the Department.  The assessment of  income is based purely on estimate basis.  Without adequate materials, it is  impossible to accept the Department’s contention that some part of the  estimated income represents concealed income.  The assessee has filed the  revised returns.  By so revising the returns, the assessee has substituted the  income of the original return with that of the revised returns vis-‘-vis the revised  return there is no concealment of any income.  The department has accepted all  these revised income which clearly shows that the assessments are based on  the basis of the voluntary offer made by the assessee.  There is no material  brought before us even at this stage to show that there was any concealment of  income by the assessee and therefore find force in the stand taken by the  assessee that the entire revision of income was as a result of voluntary offer  made by the assessee.  Keeping in view the ratio laid down by the Supreme  Court in the case of Sir Shadilal Sugar and General Mills Ltd. And Another vs.  CIT (165 ITR 705), we hold that in the facts and circumstances of the case  there is no concealment of income by the assessee.  Accordingly, the penalties  are cancelled. In the result, the appeals are allowed. Sd/-                                            Sd/-                                               (G. Chowdhury)                          (G.E.Veerabhadrappa)        Judicial Member                                 Accountant Member Madras,                                                                                                           Dated, the 24th October, 1996"                                            (emphasis supplied ) The above order of the Tribunal was not appealed against and thus has become  final and conclusive. The Additional Chief Metropolitan Magistrate, on an application moved by the  appellants, permitted the appellants to mark the copy of the order of the Tribunal dated  24.10.1996 in evidence at the appropriate stage of trial.         It is also very useful, in the present context, to refer to the proceedings of the  Income Tax Officer, City Ward-II (2), Chennai cancelling the penalty.  One sample order  reads thus:-

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"GIR.No: 279-K/CW.II(2)/83-84                           Dt: 27-1-97 Sub: Penalty under section 271(1)(c) \026 Asst. year 1983-84 \026 in the case of M/s K.C.  Builders, 26, Nynar Nadar Road, Chennai \026 600 004 \026 reg \026  Ref: I.T.A.T’s Order in I.T.A.No: 3129 to 3132/Mds/90 dt. 24-10-1996. :O R D E R :         Giving effect to the Income-tax Appellate Tribunal’s Order in I.T.A.No: 3129 to  3132 the penalty levied under section 271 (1)(c) is hereby cancelled. U/s.271(1)(c), Rs.1,43,181/- is hereby cancelled."         Learned counsel appearing for the appellants cited the following decisions in  support of his submissions at the time of hearing:-         The first in the series is the judgment in Uttam Chand & Ors. Vs. Income Tax  Officer, Central Circle, Amritsar, (1982) 2 SCC 543.  In this case, the registration was  cancelled on the ground that the firm was not genuine and prosecution initiated for filing  false return.  The Tribunal rendered the finding that the firm to be genuine and on the  basis of the finding of the Tribunal, this Court held that the prosecution must be  quashed.  The short judgment reads thus:- "Heard counsel, special leave granted.  In view of the finding recorded by the  Income Tax Appellate Tribunal that it was clear on the appraisal of the entire  material on the record that Shrimati Janak Rani was a partner of the assessee  firm and that the firm was a genuine firm, we do not see how the assessee can  be prosecuted for filing false returns.  We, accordingly, allow this appeal and  quash the prosecution. There will be no order as to costs"         In the case of G.L. Didwania & Anr. Vs. Income Tax Officer & Anr. 1995  Supp(2) SCC 724, the prosecution was levelled against the assessee for making false  statement.  The Assessing Authority held that the assessee had intentionally concealed  his income derived from ‘Y’ company which belonged to him, initiating prosecution  against him.  The appellant filed the appeal against the assessment order and the  Tribunal set aside the assessment holding that there was no material to hold that ‘Y’  company belonged to the assessee.  The assessee thereupon filed a petition before  the Magistrate to drop the criminal proceedings and the application before the High  Court under Section 482 to quash the criminal proceedings which were dismissed.  On  appeal, this Court held that the whole question was whether the appellant made a false  statement regarding the income which according to the assessing authority had  escaped assessment and so far as this issue was concerned, the finding of the  appellate Tribunal was conclusive and hence the prosecution cannot be sustained.   Accordingly, this Court quashed the criminal proceedings and allowed the appeal filed  by the assessee. The above judgment squarely applies to the facts and circumstances of the case  on hand.  In this case also, similarly, the application was moved by the assessee before  the Magistrate to drop the criminal proceedings which were dismissed by the Magistrate  and the High Court also on a petition filed under Sections 397 and 401 of the Code of  Criminal Procedure, 1973 to revise the order of the Additional Chief Metropolitan  Magistrate has also dismissed the same   and refused to refer to the order passed by  the competent Tribunal.  As held by this Court, the High Court is not justified in  dismissing the criminal revision vide its judgment ignoring the settled law as laid down  by this Court that the finding of the appellate Tribunal was conclusive and the  prosecution cannot be sustained since the penalty after having been cancelled by the  complainant following the appellate Tribunal’s order, no offence survives under the  Income Tax Act and thus quashing of prosecution is automatic.            In the instant case, the penalties levied under Section 271(1)(c) were cancelled  by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in  I.T.A. Nos. 3129-3132.  It is settled law that levy of penalties and prosecution under  Section 276C are simultaneous.  Hence, once the penalties are cancelled on the  ground that there is no concealment, the quashing of prosecution under Section 276C  is automatic.         In our opinion, the appellants cannot be made to suffer and face the rigorous of  criminal trial when the same cannot be sustained in the eyes of law because the entire  prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no  concealment of income becomes devoid of jurisdiction and under Section 254 of the  Act, a finding of the Appellate Tribunal supercedes the order of the Assessing Officer  under Section 143(3) more so when the Assessing Officer cancelled the penalty levied.             In our view, once the finding of concealment and subsequent levy of penalties  under Section 271(1)(c) of the Act has been struck down by the Tribunal, the Assessing  Officer has no other alternative except to correct his order under Section 154 of the Act

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as per the directions of the Tribunal.  As already noticed, the subject matter of the  complaint before this Court is concealment of income arrived at on the basis of the  finding of the Assessing Officer.  If the Tribunal has set aside the order of concealment  and penalties, there is no concealment in the eyes of law and, therefore, the  prosecution cannot be proceeded with by the complainant and further proceedings will  be illegal and without jurisdiction.  The Assistant Commissioner of Income Tax cannot  proceed with the prosecution even after the order of concealment has been set aside  by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal  proceedings against the appellants cannot survive for further consideration.  In our  view, the High Court has taken the view that the charges have been framed and the  matter is in the stage of further cross-examination and, therefore, the prosecution may  proceed with the trial.  In our opinion, the view taken by the learned Magistrate and the  High Court is fallacious.  In our view, if the trial is allowed to proceed further after the   order of the Tribunal and the consequent cancellation of penalty, it will be an idle and  empty formality to require the appellants to have the order of Tribunal exhibited as a  defence document inasmuch as the passing of the order as aforementioned is  unsustainable and unquestionable.          The same view as that of ours has been taken by this Court and the various  other High Courts in catena of decisions.   1.      Commissioner of Income-Tax vs. Bahri Brothers Pvt. Ltd.                  [1987] 167 I.T.R. 880 "Held, that the penalty was based on the earlier assessment order  wherein the amount representing cash credits was included.  Since  that order had been set aside and the cash credits deleted from the  assessment, the consequent order of penalty had been rightly  cancelled."

2.      Commissioner of Income-Tax vs. Bhagwan Ltd. [1987] 168 I.T.R. 846 "Held, that the orders of reassessment on the basis of which penalties were  levied had been set aside by the Tribunal.  Hence, the order of penalty could  not stand by itself.  The cancellation of penalty was justified."  3.      Commissioner of Income-Tax vs. Bengal Jute Mills Co. Ltd.                  [1988] 174 I.T.R. 402 "Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs  to the assessee’s total income and the addition was deleted by the Tribunal: Held, that it was evident from the material on record that the penalty had  been imposed solely on the basis of the addition of Rs. 4 lakhs to the  assessee’s income.  If the addition was deleted, the charge of concealment  of income could not be sustained.  Imposition of penalty under section  271(1)(c) of the Income-tax Act, 1961, was, therefore, not valid."  4.      Commissioner of Income-Tax vs. Madanlal Sohanlal                           [1989] 176 I.T.R. 189 "Penalty cannot stand on its own independently of the assessment. Where, in an appeal against the assessment reopened under section 147 of  the Income-tax Act, 1961, the Appellate Tribunal deleted the addition on  account of deemed dividend under section 12(1B) read with section 2(6A)(e)  of the Indian Income-tax Act, 1922, the deemed dividend which had been  deleted could not form the subject-matter of imposition of penalty under  section 271(1)(c) of the Income-tax Act, 1961, because, the basis for  imposition of penalty had ceased to exist.  Therefore, the Tribunal was  correct in cancelling the penalty imposed on account of the addition." 5.      Commissioner of Income-Tax vs. Bedi and Co. (P) Ltd.                       [1990] 183 I.T.R. 59 "Held, that, in view of the conclusion reached by the High Court that the  amount in question was not assessable, there was no basis for the  imposition of penalty.  The cancellation of penalty was valid. [The Supreme Court has dismissed the special leave petition filed by the  Department against this judgment of the High Court in relation to penalty  under section 271(1)(c) arising out of an assessment, wherein the addition of  a loan has been cancelled by the High Court as reported in [ 1983] 144 ITR  352 : See [ 1990] 181 ITR (St.) 19-Ed.]   

6.      Commissioner of Income-Tax vs. Agarwalla Brothers                       

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[1991] 189 I.T.R. 786 "Held, (i) that the fact a particular construction had not been shown in the  accounts of the assessee was not relevant since this circumstance had not  been recorded as one of the reasons for initiating the proceedings under  section 147(a); (ii) that the Tribunal had found, after examining the entire record, that there  had been no failure to disclose primary facts on the part of the assessee.   The reassessment was, therefore, not valid; (iii) that penalty had been imposed consequential to the re-assessment.   Since the reassessment had been set aside, the order of the Tribunal  cancelling the penalty levied under section 271(1)(c) of the Act was also  legal."  7.      Additional Commissioner of Income-Tax vs. Badri Prasad Kashi Prasad  [1993] 200 I.T.R. 206 "Held, that the levy of penalty was based on the addition to income made by  the Income-tax Officer.  The addition was deleted by the Tribunal.  Hence,  the Tribunal was justified in cancelling the penalty." 8.      Commissioner of Income-Tax vs. Roy Durlabhji [1995] 211 I.T.R. 470 "Held, dismissing the application for reference, that the Tribunal had set  aside the penalty on the ground that the additions to income had already  been deleted.  Since there was no liability to tax, no penalty could be levied.   The Tribunal was justified in cancelling the penalty and no question of law  arose from its order"         The very recent judgment in the case of Hira Lal Hari Lal Bhagwati vs. C.B.I.   New Delhi, JT 2003 (4) SC 381,in which one of us (Dr. AR. Lakshmanan,J.) was a  member, this Court while considering the scope of the immunity granted under the Kar  Vivad Scheme - Whether criminal proceedings could be initiated in respect of  declaration filed under the Scheme and accepted by the Excise Department can  proceed  further with the prosecution and criminal conspiracy and cheating against the  appellants therein.  Allowing the appeals, this Court held that since the alleged criminal  liability stood compounded on settlement with respect of the civil issues, the FIR was  erroneous and unwarranted and, therefore, the continuation of the proceedings would  tantamount to double jeopardy.  This Court further held that the Collector of Customs  had exonerated the appellants there was no warrant for any fresh investigation and  prosecution on a matter which stood settled.  Further since no prima facie case of  cheating and criminal conspiracy was made out the process issued is liable to be  quashed.  It is to be noticed that as per the Kar Vivad Samadhan Scheme, 1998  whoever is granted the benefit under the said Scheme is granted immunity from  prosecution from any offence under the Customs Act, 1962 including the offence of  evasion of duty.  In the circumstances, the complaint filed against the appellants is  unsustainable.  This Court further held that under the penal law, there is no concept of  vicarious liability unless the said statute covers the same within its ambit.  In that case,   the appellants have been wholly discharged under the Customs Act, 1962 and the GCS  granted immunity from prosecution.         In this instant case, the charge of conspiracy has not been proved to bring home  the charge of conspiracy within the ambit of Section 120-B of I.P.C.  It is also settled  law that for establishing the offence of cheating, the complainant is required to show  that the accused had fraudulent or dishonest intention at the time of making promise or  misrepresentation.  From his making failure to keep up promise subsequently, such a  culpable intention right at the beginning that is at the time when the promise was made  cannot be presumed.  As there was absence of dishonest and fraudulent intention, the  question of committing offence under Section 420 of the I.P.C. does not arise.         The High Court without adverting to the above important questions of law  involved in this case and examined them in the proper perspective disposed of the  revisions in a summary manner and hence the impugned orders passed by the High  Court and the learned Magistrate warrant interference.           It is a well-established principle that the matter which has been adjudicated and  settled by the Tribunal need not be dragged into the criminal courts unless and until the  act of the appellants could have been described as culpable.   For the aforesaid discussions and reasons adduced, the questions of law  formulated above are answered accordingly and the appeals stand allowed.