Delhi District Court
Brahmaputra Infrastructure Ltd vs Income Tax Officer on 16 July, 2018
IN THE COURT OF MANOJ JAIN
SPECIAL JUDGE (PC ACT) (CBI)-04/ADDL. SESSIONS JUDGE
CENTRAL DISTRICT: TIS HAZARI COURTS: DELHI
CNR No. DLCT01-003024-2018
Criminal Revision No. 153/2018
1. Brahmaputra Infrastructure Ltd.
(Successor entity of Brahmaputra Infraproject Ltd.)
Brahmaputra House,
A-7, Mahipalpur, New Delhi.
2. Sh. Sanjeev Kumar Prithani, MD
C/o Brahmaputra House,
A-7, Mahipalpur, New Delhi.
3. Sh. Suneet Kumar Todi, Director,
c/o Brahmaputra House,
A-7, Mahipalpur, New Delhi. .... Revisionists
Versus
Income Tax Officer,
Through Ms. Mahima Arora,
ACIT, Circle 73 (3),
Income Tax Department,
Laxmi Nagar District Center,
New Delhi 110092. .... Respondent
Date of allocation of revision : 05.03.2018
Date of conclusion of arguments : 12.07.2018
Date of judgment : 16.07.2018
Memo of Appearance
Sh. Yogesh Jagia & Sh. Amit Sood, learned counsels for revisionists
Sh. Manmeet Singh, learned SPP for respondent
JUDGMENT
1. Revisionists have taken exception to order dated 8.12.2017 whereby they have been asked to face charges under Section 276-B read with Section 278-B of Income Tax Act.
CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 1 of 82. Let me give a very brief background of the case.
3. Brahmaputra Infraproject Ltd. had deducted tax of was Rs.
99,69,634/- for the financial year 2012-13 but such amount was not deposited in the Government account within the stipulated period.
4. Notice under Section 2(35) of Income Tax Act was issued to all the directors of the revisionist company asking them to show cause as to why they all be not treated as principal officers for the default in question. Besides revisionists no. 2 & 3, it was sent to Sh. Satish Chandra Gupta, Om Prakash and Rajesh Sharma.
5. All such notices were also duly replied and as per reply of revisionists no. 2 & 3, they were only "technical persons" who were involved and looking after new projects bidding and were to ensure that such projects were complete without any delay and, therefore, they were not actively participating in the functioning and management of the company on day-to-day basis and they both accordingly requested that such notices may be withdrawn and they may not be considered principal officer under Section 2(35) of Income Tax Act.
6. However, order under Section 2(35) of Income Tax Act was passed whereby all such directors, including revisionists no.2 and 3, were treated as principal officers holding that the reply given by them had not been accepted by the Income Tax Department.
7. Income Tax Department then issued show cause notice under Section 279(1) of Income Tax Act.
8. Replies were received and Revisionist no.2 in such reply Ex. PW 1/14 admitted that he was appointed Managing Director on 17.2.2016 and even annexed copy of Form 32 along with his reply but supplemented that in view of the duties assigned to him, he was not the person responsible for deducting tax at source or depositing the same. He CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 2 of 8 also claimed therein that one Mr. Rose T John was the person responsible to deduct tax and its deposit and which fact was, according to him, had even been confirmed by Mr. John himself.
9. It will also be important to mention that reply dated 3.5.2016 of Mr. John is also on record which though indicates that he (Mr. John) admitted himself to be the person responsible for TDS purpose but in the same breath, he also claimed that since he was reporting to Mr. Prithani, being Managing Director of the company, it was Mr. Prithani who was the principal officer under Section 2(35) of Income Tax Act.
10. Order under Section 279(1) of Income Tax Act (Ex. PW 1/12) was passed on 2.5.2016 whereby the Commissioner of Income Tax (TDS- I), New Delhi granted sanction against the revisionists only. He held that he was satisfied that at the relevant time, when the offence had been committed, Sh. Sanjeev Prithani, Managing Director and Sh. Suneet Kumar Todi, Director were managing the business activities and they were principal officers of the company and were incharge of the conduct of the business of the revisionist company.
11. It is in these circumstances that the complaint was filed.
12. After taking of cognizance, revisionists were summoned by the Ld. trial court and pre-charge evidence was directed to be led. CW-1 Ms. Mahima Arora and CW-2 Ms. Lata Sagar entered into witness box. Ld. trial court vide order dated 8.12.2018 held that there was sufficient material on record to frame charges against all the three revisionists for contravening provisions of Section 276B/278B of Income Tax Act.
13. Such order has been assailed.
14. The broad contentions can be enumerated as under: -
(i) There was no material on the basis of which notice under Section CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 3 of 8 2(35) of Income Tax Act could have been issued by the Income Tax Department disclosing its intention to treat them as principal officers;
(ii) The company alleged to be in default i.e. M/s Brahmaputra Infraproject Ltd. had merged with Brahmaputra Infrastructure Ltd.
and, therefore, it ceased to exist and, therefore, no prosecution could be launched against such company;
(iii) No show cause notice under Section 279 of Income Tax Act was issued to the revisionist company;
(iv) In view of the fact that revisionists no.2 and 3 were technical persons and their respective job profiles, they could not have been held as principal officers;
(v) There is nothing on record which may show that they were actively participating in functioning and management of the affairs of the company;
(vi) Reply of Mr. John Manager (Accounts) was not considered who had categorically claimed that he himself was the person responsible for TDS and deposit of tax;
(vii) As regards revisionist no.3 while according sanction, Commissioner of Income Tax had stated that there was nothing on record to exclude him from such responsibility and such observation itself indicates that there was "no sufficient positive material" to treat him as principal officer or for that matter person responsible for day to day affairs of the company.
15. Reliance has been placed on Nicholas Primal India Ltd. Vs. S. Sundarannayagam [2007(4) JCC 2587] and it has been agitated that since M/s Brahmaputra Infraproject Ltd. did not exist anymore and had met a 'civil death' on account of merger, its prosecution was not CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 4 of 8 maintainable. Reliance has been placed on Commissioner of Income Tax Vs. SPL's Sidhartha Ltd. [(2012) 345 ITR 223 (Delhi)] to claim that in the absence of any proposal to prosecute the company, sanction granted under Section 279(1) of Income Tax Act was non-est.
16. Revisionists have also relied upon Income Tax Officer Vs. Joseph & ors. [1972 (83) ITR 362] wherein it was considered whether Managing Director was the principal officer or not and it was concluded by the Hon'ble Bench that merely on the basis of statement of a Secretary, Managing Director could not be held as principal officer. Revisionists have also relied upon S. N. P. Punj Vs. DCIT [Delhi High Court in 2007 (137) DLT 608] and have contended that there is nothing on record to show as to how they were assumed to be responsible for conduct of the revisionist company.
17. It is quite evident that revisionist no.2 was Managing Director at the relevant time and revisionist no.3 was director of the revisionist company.
18. Reference be made to Sushil Suri & Ors. Vs. State (2008) 303 ITR 86 Delhi wherein it has been very specifically observed by Hon'ble Bench that Managing Director of a company by the very nature of his office would be Principal Officer for the purposes of Section 2(35) of IT Act. It was observed that Managing Director would fall within expression of Manager and, therefore, would be a Principal Officer. Holding aforesaid, the Hon'ble Bench went on to lay down that since Managing Director fell within the ambit of Section 2(35)(a) of IT Act, no notice was even required to be served upon him. Here, revisionist no. 2 is Managing Director and, therefore, cannot be heard complaining that his prosecution was bad.
19. Undoubtedly merely because of status, a Director cannot be CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 5 of 8 automatically and robotically assumed to be a principal officer. It he is to be assumed so, he is required to be served with notice under Section 2(35) of Income Tax Act.
20. In the present case, such notices were, in fact, sent and were also replied by both of them. They merely claimed themselves to be the technical persons. They have also relied upon letter sent by their Manager (Accounts). However, such letter does not come to their rescue for two reasons. Firstly, even the bare contents of such letter would indicate that Mr. John had claimed that it was Mr. Prithani, Managing Director who was to be treated as principal officer. Secondly and more importantly the statement made by any such employee, without any basis or material, cannot take place of a concrete proof. Surprisingly, on one hand, while relying on ITO Vs. Joseph (supra), defence has contended that Managing Director cannot be held as Principal Officer merely on the basis of statement of a Secretary and on the other hand, it seeks exoneration of its directors on the basis of alleged reply of its employee.
21. In the notices issued during the initial stage as well as in the complaint in question, it has been categorically claimed that revisionists no. 2 and 3 were connected with the management/administration of the company and were persons responsible and incharge of day-to-day affairs of the company. Therefore, reliance on S. N. P. Punj Vs. DCIT [Delhi High Court in 2007 (137) DLT 608] is misplaced. When both the witnesses of the complainant entered into witness box at pre- charge evidence, no suggestion was put to them that to the contrary and to the effect that they were not involved with the day-to-day affairs of the revisionist company.
22. Reference be also made to Madhumilan Syntex Limited Vs. Union of India IV (2007) SLT 14 wherein it has been held that the CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 6 of 8 proceedings against the Directors would be maintainable as long as the complaint clearly stated that they were being treated as principal officers of the company. Even otherwise for the purpose of Section 278B of the IT Act, once the offence is shown to have been committed by the company, then the liability of the directors in charge of its affairs is attracted. The burden then shifts to such directors to show that the offence occurred without their knowledge or that they had exercised all due diligence to prevent the commission of such offence.
23. Mr. Jagia has vehemently relied upon ITO Vs. Delhi Iron Works (P) Ltd. & Ors (2011) 331 ITR 3 (Delhi) and has claimed that no notice under Section 2(35) of IT Act was ever issued against the company and, therefore, company could not have been prosecuted. This argument is fallacious. Notice under Section 2(35) of IT Act is required only in relation to a person in flesh and blood. Company is a juristic person and, therefore, even if no notice was sent to the company as such, it would not make any difference at all. Said judgment of ITO Vs. Delhi Iron Works only lays down that it is not necessary to issue a separate notice or communication to all the directors and it would be sufficient compliance if show cause notice was issued to company alone in which it was mentioned that its directors were to be considered as principal officers. Therefore, defence cannot extract any advantage from the aforesaid judgment.
24. However, there is enough of merit in contention regarding maintainability of prosecution against the company which has ceased to exist after its merger with another. As per Nicholas Primal India Ltd (supra), such merger has impact of civil death and, therefore, after such merger, the prosecution could not have been launched against a body which is non-est. Even Sh. Manmeet Singh admits such aspect of the matter.
CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 7 of 825. Thus, the revision petition stands partly allowed. Name of Brahmaputra Infraproject Ltd (Accused No.1) stands expunged and deleted from the array of parties as its prosecution is no longer maintainable. However, pleas made by the two other revisionists have no merit as there is grave suspicion against both of them in view of allegations appearing on record.
26. Revision petition stands disposed of accordingly.
27. A copy of this order be sent to learned trial court along with trial court record.
28. File pertaining to revision petition be consigned to Record Room.
Announced in the open Court On this 16th day of July, 2018 (MANOJ JAIN) ASJ/Special Judge (PC Act) (CBI)-04 Central Distt: Tis Hazari Courts: Delhi Digitally signed MANOJ by MANOJ JAIN Date: JAIN 2018.07.16 15:58:21 +0530 CR No. 153/2018. CNR No. DLCT01-003024-2018 Page 8 of 8