Delhi District Court
Ito vs M/S Lancho Infratech India Ltd on 8 February, 2021
DLCT020059922016
IN THE COURT OF SH. ABHILASH MALHOTRA :
ADDL CHIEF METROPOLITAN MAGISTRATE (Spl.Acts):CENTRAL
TIS HAZARI COURTS, DELHI
Ct.Case No.530366/2016
ITO vs M/s Lancho Infratech India Ltd
JUDGMENT
(a) Sr. No. of the Case Ct.Case No.530366/2016
(b) Complainant Income Tax Department
Through Mr.Mandeep Panwar (ACIT),
Circle75(1), Income Tax Department,
District Centre, Delhi110092.
(c)
Name, parentage and (1) M/s. Lanco Infratech India Ltd
residence/address of 35A1, Prithviraj Road,
accused New Delhi110003
2) Sh. G. Venkatesh Babu Gangarap
Managing Director
M/s Lanco Infratech India Ltd
35A1, Prithviraj Road,
New Delhi110003
(d) Offence complained of U/s 276 B r/w 278B of Income Tax Act,
1961.
(e) Plea of accused Pleaded Not guilty
(f) Final Order Accused no.1 & 2 Acquitted
(g) Date of Institution 31.03.2016
(h) Date of reserving 14.01.2021
judgment
(i) Date of judgment 08.02.2021
Ct. Case No. 530366/2016 Page No. 1 of 23
ITO Vs M/s Lancho Infratech India ltd
Brief facts and reasons for the decision:
1. The present complaint case is filed u/s 276 B read with Section 278 B of the Income Tax Act 1961. The complaint was filed by the Income Tax office through Mr. Mandeep Panwar ACIT. It is stated that the sanction to file the complaint was accorded u/s 279 (1) of the Income Tax Act vide order dated 02.03.2016 by Dr. Vipin Chandra Commissioner of Income Tax (TDS)01.
2. It is alleged in the complaint that on the basis of report generated by ITD System, it revealed that the accused company had deducted the TDS amounting to Rs. 37,90,87,796/ during the financial year 20122013. The said TDS amount was required to be deposited within the stipulated period i.e on or before 07th day from the end of the month in which deduction was made, as per rule 30 of the Income Tax Rules. It is stated that the accused persons were the custodian of the TDS amount and it was to be kept in trust till it was deposited with the Income Tax Department.
3. It is alleged in the complaint that the accused persons failed to deposit the TDS amount within the stipulated period. A showcause notice dated 15.12.2015 Ex. CW1/5 u/s 2(35) was issued to accused no. 2 to treat him as Principal Officer of the accused no. 1 company. Thereafter, reply dated 28.12.2015 and 06.01.2016 Ex.CW1/6 (colly) were received and considered and not found satisfactory. Thereafter order dated 07.01.2016 u/s 2(35) of the I.T.Act was passed against accused no. 2 treating him as Principal Officer of the accused no. 1 company which is Ex. CW1/7. It is stated that thereafter a proposal dated 08.01.2016 Ex. CW1/8 was sent to CIT (TDS)01 to initiate Ct. Case No. 530366/2016 Page No. 2 of 23 ITO Vs M/s Lancho Infratech India ltd prosecution u/s 278 B of I.T.Act against accused no. 1 and 2.
4. Thereafter, showcause notice u/s 279 (1) of the I.T.Act dated 14/15.01.2016 and 08/.09.02.2016 Ex. CW1/9 and Ex. CW1/10 respectively were issued to accused no. 2. It is stated that reply was not found satisfactory and thereafter sanction u/s 279 (1) of I.T.Act was granted by order dated 02.03.2016 Ex. CW1/2 by the office of CIT (TDS)01.
5. The present case was filed in the Court on 31.03.2016. My Ld. Predecessor vide order dated 31.03.2016 took cognizance of the offence and summoned accused no. 1 and 2. By order dated 01.02.2017, the application seeking discharge was dismissed and on 01.02.2017 charge u/s 276 B read with 278 B of Income Tax Act 1971 was framed against accused no. 1 and 2.
6. Complainant examined CW1 Mr. Mandeep Panwar in precharge as well as post charge evidence. He proved documents i.e complaint Ex. CW1/1, sanction Ex. CW1/2, list of witnesses Ex. CW1/3, tax deducted during the financial year Ex. CW1/4, showcause notice u/s 2(35) of the Income Tax Act dated 15.12.2015 Ex.CW1/5, replies to the showcause notice dated 28.12.2015 and 05.01.2015 Ex. CW1/6, order u/s 2(35) of the Income Tax Act dated 07.01.2016 Ex.CW1/7, proposal for initiation of prosecution dated 08.01.2015 Ex. CW1/8, showcause notice u/s 279(1) of the Income Tax Act dated 14/15.01.2016 issued by the CIT (TDS)1 Ex. CW1/9, two showcause notices u/s 279(1) of the Income Tax Act issued by the CIT (TDS)1 Ex. CW1/10 and reply to the said showcause notices dated 23.02.2016 Ex. CW1/11. Statement of the accused u/s 313 Cr.P.C of accused no. 1 and 2 was recorded on Ct. Case No. 530366/2016 Page No. 3 of 23 ITO Vs M/s Lancho Infratech India ltd 18.12.2019 and 14.03.2019 respectively.
7. In defence evidence, accused no. 2 examined himself as DW1. Accused also examined DW2 Adi Babu Tokala who proved on record document i.e Restructuring Proposal approved under CDR system dated 16.01.2014 Mark A, copy of final report of corporate debt restructuring of M/s Lanco Infratech Limited Mark B, photocopy of intimation from Income Tax Department dated 01.06.2014 Mark C, copy of DD No. 306709 dated 08.01.2014 Mark D, original counterfile dated 08.01.2014 Ex. DW2/B, copy of DD No. 306710 dated 08.01.2014 issued in favour of Lanco Infratech Limited Mark E, original counter file dated 08.01.2014 related to DD No. 306710 Ex. DW2/C, grievance petition dated 14.08.2013 by Lanco Infratech to the Chairman CBDT Mark F, original reply dated 20.01.2014 sent from Special Cell on grievance Ex. DW2/D, original letter issued by Brescon dated 27.06.2013 Ex. DW2/E and copy of 26 AS statement in respect of refund Mark G.
8. It is argued by Ld. Special Public Prosecutor for the complainant that the accused company and its Principal Officer have failed to deposit the TDS within the statutory period and committed the offence u/s 276 B read with 278 B of the Income Tax Act. It is submitted that accused no. 2 has admitted that he is the Principal Officer for the relevant period. It is submitted that the details of the tax deducted at source is apparent from the report generated from the ITD System which is Ex. CW1/4. It is submitted that no reasonable cause is shown by the accused company for nondeposit of TDS.
9. The accused no.1 company is under liquidation and was represented by Ct. Case No. 530366/2016 Page No. 4 of 23 ITO Vs M/s Lancho Infratech India ltd the Ld. Counsel for the liquidator. It is submitted Mr. Vijyanat Paliwal Ld. Counsel for the liquidator / accused company that the company went into Corporate Restructuring Programe and the winding up proceedings is continuing. It is submitted that the official incumbent in the company during the relevant assessment year will be in a position to explain for the alleged lapse.
10. It is argued by the Ld. Counsel for accused no. 4 that the sanction order dated 02.03.2016 Ex. CW1/2 is invalid and void abintio because it did not took into account the revised income tax returns filed by the accused company. It is submitted that the case is covered by the provisions of section 278 AA of the Income Tax Act as the company was facing financial constraints and reasonable cause is shown for nondeposit of the tax. It is also submitted that in view of the circular dated 27.12.2014 issued by CBDT the prosecution is not maintainable as admittedly the tax was deposited before the issuance of showcause notice. It is submitted that Ex. CW1/4 i.e that record showing the TDS details is not admissible in evidence as it is not supported by certificate u/s 65 B of the Indian Evidence Act. It is argued that there was no malafide intent on the part of the accused and he is implicated falsely. I have heard the arguments and perused the record. The issue raised in the present case are dealt as follows: Validity of Sanction order u/s 279 (1) of Income Tax Act 1961.
11. It is argued by the Ld. Defence Counsel that accused vide letter dated 05.01.2015 Ex. CW1/6 informed the complainant department that the date of deduction was wrongly mentioned for four entries which they have corrected Ct. Case No. 530366/2016 Page No. 5 of 23 ITO Vs M/s Lancho Infratech India ltd and revised return is filed on 04.01.2016 for all the four quarters for financial year 2012 and 2013.
12. It is submitted that CW1 Sh. Mandeep Panwar ACIT in his cross examination has admitted that whenever assessee files a revised return, the same become available in CPC / TDS system. CW1 further admitted that the decision to initiate prosecution was taken on the basis of default details available on the date of identification of the case. CW1 further admitted that the revised data of TDS return filed by the accused persons was not placed before the sanctioning authority prior to obtaining the sanction. It is submitted by Ld. Defence Counsel that as the revised return was not considered at the time of grant of sanction u/s 279 of the Income Tax Act, therefore, the sanction is bad in law and the prosecution is vitiated.
13. In order to appreciate this argument, it will be prudent to appreciate the documents placed on record by the complainant in totality. CW1/4 furnishes the detail of the TDS deducted by the accused on various dates. It is comprehensive document generated by the computer which gives the date of deduction as well as period of delay. In this document hundred of entries of TDS deduction are reflected in respect of financial year 20122013. Out of these bunch of entries the accused in letter dated 05.01.2015 only referred to the four entries in respect of which only the date of deduction was mentioned and the revised return was filed on 04.01.2016. A plain reading of letter dated 05.01.2015 clearly shows that the accused never disputed the amount of TDS liability in respect of those four entries. It is also not in dispute that the tax in respect of these four entries was also not deposited in time. CW1 Sh. Mandeep Ct. Case No. 530366/2016 Page No. 6 of 23 ITO Vs M/s Lancho Infratech India ltd Panwar in his cross examination clarified that the changed data in the revised return was a small amount as compared to the whole TDS amount. I concur with the clarifications given by the CW1 that the changes made in the revised return were petty in nature and did not go to the root of the matter to impact the sanction.
14. Apart from that before issuing of the sanction order dated 02.03.2016 Ex. CW1/2 showcause notice u/s 279 of the Income Tax Act dated 14/15.01.2016 Ex. CW1/9 and 08/09.02.2016 Ex. CW1/10 were issued to the accused. A reply dated 23.02.2016 Ex. CW1/11 to the aforesaid showcause notices was sent by the accused persons wherein nowhere any objection regarding nonconsideration of the revised return have been taken. Therefore, merely because the revised return in respect of four entries was not considered in the sanctioning order dated 02.03.2016 Ex. CW1/2, the same does not go to the root of the matter and the contention that the sanction is void abentio is rejected.
Certificate u/s 65 B of the Indian Evidence Act.
15. It is argued by Ld.Defence Counsel that the complainant has relied upon the report Ex. CW1/4 generated from ITD System of Income Tax Department. It is stated that no certificate u/s 65 B of the Indian Evidence Act has been filed alongwith the said report and accordingly, the same can not be read in evidence.
16. It is not in dispute that form 65 B of the Evidence Act is necessary to prove the computer generated record. In present case, income tax department Ct. Case No. 530366/2016 Page No. 7 of 23 ITO Vs M/s Lancho Infratech India ltd has relied upon Ex. CW1/4 which is a computer generated document showing the details of the TDS deductions and delayed payment. The said document was exhibited on record by CW1 Sh. Mandip Panwar. The objections as to mode of proof was taken at the time of tendering of document during the examination in chief. But despite that the complainant did not place on record the certificate u/s 65 B of the Indian Evidence Act to remove the deficiency. It is clear that the document is hit by the provisions of Section 65 B of Indian Evidence Act.
17. The essence of Ex. CW1/4 was to show and prove the TDS default and nonpayment by the accused company within the stipulated statutory period. In the reply Ex. CW1/6 and Ex. CW1/11 filed by the accused persons, they nowhere disputed their TDS amount and the liability to deposit the same with the department. DW1 in his examination in chief did not disputed the TDS payment, but only cited the financial exigencies due to which the payment could not be made. Therefore, even if Ex. CW1/4 the computer generated record is hit Section 65 B of the Indian Evidence Act, the fact in respect of nonpayment of delayed payment of TDS is admitted and undisputed in this case. In his cross examination, DW1 Sh. G.Venkatesh Babu admitted the contents of Ex. CW1/4 and also admitted that the company had deducted the TDS.
Reasonable cause u/s 278 AA of the Income Tax Act
18. It is argued by Ld. Counsel for the accused that the case of the accused persons is covered under Section 278 AA of the Income Tax Act as the company during the financial year 20122013 was facing severe cash flows due Ct. Case No. 530366/2016 Page No. 8 of 23 ITO Vs M/s Lancho Infratech India ltd to fall in business as there was recession in infrastructure sector due to non supply of gas and coal by the government to the power plants. It argued that accused company in all the replies submitted to the Income Tax Department it had highlighted the facts of financial crisis since very beginning. Due to financial crisis the company went into restructuring and a Corporate Debt Restructuring (CDR) proposal was initiated on September 2012 and the sanction was completed in December 2013. It is stated that based on the CDR process, consortium of banks sanctioned a sum of Rs. 2500 Crore as a priority loan to the company to make payments of the statutory dues and creditors. It is stated that due to recession the business of company in financial year 2012 2013 was reduced to Rs. 4741 Crore as compared to the budgeted target of Rs. 9601 Crores which was a reduction of almost 50 % bringing the company into acute financial crisis. It is stated that the net sale was Rs. 4741 Crores in financial year 20122013 as compared to Rs. 8650 Crores in previous year.
19. To appreciate these contentions, it will be appropriate the reproduce the provisions of Section 276 B and 278 AA of the Income Tax Act, 1961.
Section 276 B : If a person fails to pay to the credit of the Central Government within the prescribed time, as above, the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years alongwith fine.
Section 278 AA: Notwithstanding anything contained in the provisions of Section 276 A, Section 276 AB, or Section 276 B, no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.
20. A bare reading of section 278 AA of the Income Tax Act shows that no Ct. Case No. 530366/2016 Page No. 9 of 23 ITO Vs M/s Lancho Infratech India ltd person shall be punishable for any failure refer to in Section 276 B of the Income Tax Act, if the person proves that there was reasonable cause for such failure. To understand the concept of "reasonable cause" and the burden of proof to be discharged by the accused, it will be prudent to refer to the following judgments of various High Courts.
21. In Shaw Wallace and Company Limited v. Commissioner of Income Tax (TDS), 2003 SCC OnLine Cal 345 Hon'ble High Court of Calcutta held that:
"23. The provisions of section 278AA of the Income Tax Act, 1961, will no doubt be available to the appellant to its benefit if it is able to prove that it had sufficient and good reasons for committing the default contemplated in section 200 of the said Act."
22. In K.R.M.V. Ponnuswamy Nadar Sons (Firm) v. Union of India, 1989 SCC On Line Mad 394 Hon'ble High Court of Madras held that: \ "7. ..........In other words, the assessee will have to show that there was a reasonable cause for such failure. Only then the question of prosecution will arise. This is undoubtedly a sufficient safeguard. Yet another safeguard, as we are able to see from section 279, which we have already extracted, is that the prosecution is to be at the instance of the Chief Commissioner or the Commissioner. Where, therefore, the highest functionary in the Incometax Department is entrusted with the power, that itself takes away the sting of arbitrariness."
23. In Banwarilal Satyanarain v. State of Bihar, 1989 SCC OnLine Pat 137 Hon'ble Patna High Court held that:
Ct. Case No. 530366/2016 Page No. 10 of 23ITO Vs M/s Lancho Infratech India ltd "33. Now it has to be seen as to what is the effect of the amendment. Can it be said that after amendment, the question whether an accused had any reasonable cause or not for not deducting and paying tax within time is of academic importance and not relevant for a criminal court?
My answer is emphatically in the negative. Section 278AA is nothing else but a proviso to section 276B of the Act, but a separate section has been inserted in the Act, as similar provisions have been made with respect to prosecution under sections 276A, 276AB, 276DD and 276E. Cumulative effect of the amendment, in my view, is that in case of prosecution under section 276B of the Act, two things have to be shown; firstly, that there was failure on the part of the assessee in deducting or paying the tax within time and, secondly, that the failure was without any reasonable cause.
"36. In order to appreciate the import of the words "good and sufficient reasons" within the meaning of section 201 read with section 221 of the Act, "reasonable cause or excuse" as used in section 276B prior to 1986 amendment and "reasonable cause" as used in section 278AA, it would be necessary to refer to the dictionary meanings of the expression "reasonable", "good" and "sufficient". In of libel English Dictionary (first edition published in 1933 and re printed in 1961volume VIII), the expression "reasonable"
has been defined to mean "fair, not absurd, not irrational and not ridiculous". Likewise, the expression "good" has been defined in the said Dictionary in volume IV to mean "adequate, reliable, sound". Similarly, the expression "sufficient" has been defined under the same very Dictionary in volume: X to mean "substantial, of a good standard".
37. From the definitions referred to above, it would appear that reasonable cause or excuse is that which is fair, not absurd, not irrational and not ridiculous. A cause which is reasonable within the meaning of sections 276B and 278AA of the Act may not be sufficient and good reason within the meaning of sections 201 and 221 of the Act as sufficient reason would mean a substantial reason or a reason of good Ct. Case No. 530366/2016 Page No. 11 of 23 ITO Vs M/s Lancho Infratech India ltd standard would mean a reason which is adequate, reliable and sound. A cause may be reasonable but the same may not be necessarily good and sufficient. On the other hand, if a reason is good and sufficient, the same would necessarily be a reasonable cause. These facts show that the obligation which an accused has to discharge in a criminal prosecution under section 276B of the Act in showing that he had reasonable cause for not deducting the tax or paying the same within time is much more lighter than the obligation to be discharged by him in a penalty proceeding under section 201 read with section 221 of the Act."
24. In Greatway (P) Ltd. v. Assistant Commissioner of IncomeTax, 1991 SCC OnLine P&H 1353 Hon'ble Punjab & Haryana High Court held that:
"11. The words "without reasonable cause or excuse" as they occur in section 276B are significant. The act of non deduction or nonpayment was an offence only if the act was done without any reasonable cause or excuse. The initial onus remains on the prosecution to establish all the ingredients of an offence and, for a charge under section 276B, this necessary ingredient has to be alleged and proved by the respondent. In case the prosecution is able to discharge the initial onus, then of course, the onus will shift to the accusedpersons to show that he/they had a reasonable cause for failure to deduct or to deposit the tax. It is significant to note that section 278AA provides that the proof of reasonable cause for failure will be a complete defence for offences under section 276A. Section 278AA was inserted on September 10, 1986, that is to say, at the time amendment to section 276A was made and the words "without reasonable cause or excuse" were deleted. The section, as framed, did not absolve the prosecution of its obligation to allege and prove the absence of reasonable cause or excuse for the default in deduction of the tax and its due deposit. "Ct. Case No. 530366/2016 Page No. 12 of 23
ITO Vs M/s Lancho Infratech India ltd
25. In Sonali Autos Private Limited vs State of Bihar and Others, 2017 SCC OnLine Pat 3620 the Hon'ble High Court of Patna held that:
"26. The petitioners have stated in the petition that the aforesaid tax could not be deposited within time due to oversight on the part of the Accountant, who was appointed to deal with the Accounts and Income Tax matters. This mistake was detected at the time of audit of Books of Accounts by the Statutory Auditors of the petitioner company in August, 2010. Thereafter, the petitioner immediately deposited the amount of tax along with interest in the year 2010 itself. Section 278 AA of the Act specifically says that no person shall be punished for any failure referred to under the said provisions if the assessee proves that there was reasonable cause for such failure. Reasonable cause would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bonafides."
26. In Sasi Enterprise Vs. The Union of India, 2006 SCC OnLine Mad 1087 Hon'ble High Court of Madras held that:
63. Apart from these, before the introduction of Section 278E, the prosecution also had to prove that the person or the assessee committed the above default "wilfully". Now, that responsibility has been lifted from the shoulders of the prosecution and placed on the person or the assessee. It is true that the Section says that it is for the assessee to prove the absence of culpable mental state, but what exactly does this mean? It means that the assessee will have to prove the circumstances which prevented the assessee from filing the return as above in due time as per Section 139(1) or in response to the notices under Sections 142, 148 and 153A, as the case may be. Previously, it was the duty of the prosecution to prove the absence of such circumstances.
Now, if there are circumstances which prevent an assessee from discharging his duty, as provided for under the Income Ct. Case No. 530366/2016 Page No. 13 of 23 ITO Vs M/s Lancho Infratech India ltd Tax Act, it is something specially within his knowledge and he is required to prove it. The Indian Evidence Act and the law laid down by Indian Courts as well as the Courts elsewhere with regard to proof of facts specially within the knowledge of the accused provides that the burden must necessarily be cast on that person. At the same time, it was, of course, vehemently contended on behalf of the petitioners that in the present case the presumption amounts to proof of guilt and it was submitted, and with much force, that the impugned provision is a legislative presumption of guilt. I am afraid not. The law does not presume and the law has not presumed that the assessee is guilty. The law has only asked the Court to presume that nothing prevented the assessee from filing his return in accordance with law and in response to the notices and therefore, the failure is wilful. If there were such compelling circumstances, it is always open to the assessee to prove them in accordance with law. That does not seem to be and cannot be a difficult thing to do. In fact, obviously, the Parliament found that it was well nigh impossible for the prosecution to prove the absence of compelling circumstances which prevented the assessee from what in law the assessees were bound to, i.e., prove the negative, so in its wisdom, decided that it would be easier and more practicable, and in the context of the objects sought to be achieved, require the assessee to show those facts which would lead the Court to infer that act 'A', namely filing the return in due time was not possible. If the assessee proves it, then the prosecution will fail. Can it be said that this is arbitrary or unreasonable? I think not.
27. From the aforesaid judgments, it is clear that the case of accused will be covered u/s 278 AA of the Income Tax Act, if he is able to prove the reasonable cause existed when the default was committed. Only upon the satisfaction that there is no reasonable cause in respect of failure to deposit the TDS amount within stipulated period, the question of prosecution will arise. There is initial onus on prosecution to establish the ingredients of offence Ct. Case No. 530366/2016 Page No. 14 of 23 ITO Vs M/s Lancho Infratech India ltd alleged and prove absence of the reasonable cause on the part of the accused / assessee. The reasonable cause may not be sufficient and good as may be required u/s 201 or 221 of the Income Tax Act. The obligation to be discharged u/s 276 B read with Section 278 AA of the Income Tax Act is much lighter than the obligation u/s 201/221 of the Income Tax Act. The reasonable cause shall be fair, not absurd, not irrational and not ridiculous. Reasonable cause would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or for want of bonafides.
28. Coming back to the facts of this case, the prosecution proceedings in the present case were initiated when notice dated 15.12.2015 Ex. CW1/5 u/s 2(35) of the Income Tax Act was issued to the accused persons. The accused company filed its reply dated 28.12.2015 Ex. CW1/6 to the said notice. In very first response to the Income Tax Department, the accused company has highlighted the financial stress it was undergoing due to reduction in turn over / business impacting the cash flows and also informed about the Corporate Debt Restructuring (CDR) process which was already initiated to revive the company. The company also clarified that the nondeposit of the TDS within stipulated time is unintentional and due to financial constraints faced by the company because of recession in the power sector. The relevant portion of the reply is reproduced below: "Lanco Infratech Ltd is one of the biggest EPC contractors in the power sector and has completed construction of many power plants in the country. Our company has been very diligent in discharging the statutory liabilities with in due dates and we have remitted TDS amounts of Rs. 75.73 Crore, 106.83 Crores and 127.36 Crores in financial year Ct. Case No. 530366/2016 Page No. 15 of 23 ITO Vs M/s Lancho Infratech India ltd 20092010, 20102011 and 20112012 respectively without any delays. We have paid corporate Income Tax of Rs.
224.83 Crores, 170.20 Crores and 140.74 Crores for financial year 20092010, 20102011 and 20112012 respectively. As the infrastructure sector was affected severely due to many issues at the country level, the business of the company has been affected badly, brining the business down from Rs. 8604 Crores in financial year 20112012 to Rs. 4741 Crores for financial year 20122013, to Rs. 2236 Crores for the financial year 20132014 and Rs. 1396 Crores for the financial year 20142015. This has impacted the cash flow position of the company which forced us to defer the payment of salaries of our employees for more than 6 months during this period and also delay in the deposit of Tax deducted at source (TDS).
To ride over the crisis in the industry and more specific to our company, LITL has applied to Corporate Debt Restructuring (CDR) to Corporate Debt Restructuring Cell as per Reserve Bank of India guidelines which was approved by CDR EG on December 11,2013.
Further we would like to bring to your notice that our company has to receive an income tax refund of Rs. 132 Crores including interest of Rs. 25 Crores for the last 3 Assessment year which is long pending.
Without prejudice to above, we would like to submit that we got show cause notice u/s 2(35) dated 03.09.2015 for the financial year 20122013 for depositing the interest on taxes deducted at source after the due date prescribed under provisions or Income Tax Actt, 1961. In response to that notice, we requested your office to provide the backup working of Rs. 11,58,946/ to enable us for proper submissions. In this regard, we visited your office on September 30, 2015 and on October 19,2015. However, we could not get the backup working of Rs. 11,58,946/ from your office. The copies of notice dated 03.09.2015 and submission filed with your office on 21st October 2015 are attached herewith for your reference as AnnexureI and Annexure2 respectively.
We would like to reiterate that LITL has been always very Ct. Case No. 530366/2016 Page No. 16 of 23 ITO Vs M/s Lancho Infratech India ltd diligent in discharging the statutory liabilities within the timelines. During the Financial year 20122013, there was an unintentional delay in the deposit of TDS only because of the severe cash flow problems being faced by the company. I would like to mention that there is no malafide behind nonpayment / delay of TDS liability".
29. Thereafter, showcause notice u/s 279(1) of the Income Tax Act dated 14/15.01.2016 and 08/.09.02.2016 Ex. CW1/9 and Ex. CW1/10 were issued to the accused company. Accused company submitted its reply dated 23.02.2016 Ex. CW1/11. In the said reply also, the company reiterated the position regarding the financial stress it was undergoing. The figures in respect of loss of turn over was also informed to the Income Tax Department in the said reply. It was again reiterated that the delay in deposition of TDS was unintentional due to severe cash flow faced by the company.
30. After submission of this reply dated 23.02.2016 Ex. CW1/11, the sanctioning order dated 02.03.2016 Ex. CW1/2 was passed. Para 2 of the sanctioning order also record the submissions of the accused company that it was undergoing Corporate Debt Restructuring due to financial crisis and delay in deposit of TDS is unintentional. But despite that the sanction to prosecute the company and its Directors was granted u/s 279 (1) of the Income Tax Act and thereafter, the present prosecution was launched.
31. CW1 Mr. Mandeep Panwar DDIT in his cross examination admitted that the amount due towards the TDS default was paid by the assessee prior to issuance of showcause notice u/s 279 of the I.T.Act. CW1 also admitted that the accused company was undergoing Corporate Debt Restructuring when he Ct. Case No. 530366/2016 Page No. 17 of 23 ITO Vs M/s Lancho Infratech India ltd sought the prosecution sanction from CIT (TDS). Neither in the sanctioning order nor in the complaint, there were allegations or avernments in respect of the reasonable cause if any shown by the assessee / accused company. The complainant department nowhere alleged that the assessee failed to show any reasonable cause. At this juncture it will be relevant to refer to circular dated 27.12.2014 issued by CBDT the relevant paragraphs are reproduced below: "Considering the representations and with a view to address genuine concerns of the assesses in such matters, the following clarifications visavis the guidelines dated 07.02.2013 are issued.
i) Section 278 AA of the Act provides that for the purposes of Section 276 B, no person shall be punishable for any failure referred to in the said provision if he proves that there was a reasonable cause for such failure. The fact that the deductor has remitted the money with interest before detection may be taken note of amongst other submission of the defaulter while deciding to launch prosecution .While processing the cases for prosecution u/s 276 B/ 276 BB, a fair and judicious view should be taken in view of the provisions of section 278 AA before filing of complaints".
32. The said guidelines were again reiterated in circular dated 18.10.2016 issued by CBDT where it was directed that the CIT concerned shall arrive at a judicious decision in respect of action u/s 276 B of the Income Tax Act and mandatory processing does not mean mandatory filing of prosecution.
33. In present facts, it is clear that prior to grant of sanction u/s 279 (1) of the Income Tax Act, the assessee company had already paid the tax dues and informed the department about the reasons / financial exigencies and the Corporate Debt Restructuring, due to which the tax could not be paid. The said Ct. Case No. 530366/2016 Page No. 18 of 23 ITO Vs M/s Lancho Infratech India ltd factor was not considered in the sanction order as per the guidelines issued by the CBDT in the aforesaid circulars and the reasonable cause tendered by the assessee company was not appreciated by the sanctioning authority.
34. Section 278 AA of the Income Tax Act casts the burden on the accused to prove that there exists a reasonable cause for delayed payment. In statement u/s 313 Cr.P.C, accused no.2 G.Venteshbabu who is the Principal Officer of accused no. 1 company for the relevant period stated that be TDS dues were paid by the accused company but the delay occurred due to slowdown in infrastructure and because the company was undergoing Corporate Debt Restructuring, whereby banks were to decide and allow the company for operation of funds who stated that the delayed payment of TDS were intentional. He also examined himself as DW1 and deposed that due to Government policy, gas and coal were not made available to the power plants which led to tremendous cash flow issue in the company leading to delay the payment of salaries and loans etc. He stated that due to these problems there was delay in payment of TDS which was paid within the year 20122013 alongwith delayed payment interest of Rs. 2 Crores. He also deposed that the company was undergoing Corporate Debt Restructuring which was initiated in September 2012 and the sanction was completed in 2013. He stated that based on Corporate Debt Restructuring process, the consortium of banks sanctioned a sum of Rs. 2500 Crores of a priority loan to the company so that tenable payment of statutory dues, creditors and business related payments can be made. He reiterated that the delayed payments were unintentional because of tremendous cash flow issues in the infrastructure sector at that time. No cross examination was conducted by the complainant department in respect of the Ct. Case No. 530366/2016 Page No. 19 of 23 ITO Vs M/s Lancho Infratech India ltd deposition regarding the supply of gas and coal leading to slowdown in infrastructure sector and the avernments in this regard remained unrebutted. DW1 denied the suggestions that despite having surplus money the company failed to make the TDS payment timely. However, in his SA u/s 313 Cr.P.C, DW1 categorically stated that the company was waiting for decision of consortium bank to allow the company for operation of funds.
35. Accused persons also examined DW2 Mr. Adi Babu Tokala who was authorized by the official liquidator of accused no. 1 company vide authorization letter Ex. DW2/A. He placed on record the restructuring proposal of accused no. 1 company which was approved under Corporate Debt Restructuring system on 16.01.2014 Mark A, final report of Corporate Debt Restructuring Mark B and other documents. Perusal of the final report of Corporate Debt Restructuring Mark B para 1.5.1 (Page No. 18) clearly records the hardships faced by the company due to government policy and slowdown in the power sector especially due to nonavailability of fuel and clearances. Para 2.1 (page 38) also shows that the net sale were reduced from Rs. 8605 Crores in year 2012 to Rs. 4741 Crores in year 2013 showing a decline of around 50 % impacting the finances of the company. Para 5 (page 81) of the report also records the reasons for poor performance of the company and it also endorses the fact that the revenue of the company was declined by 45 % in financial year 2013 due to decline in EPC business in power sector on account of slowdown in sector. Para 1.6 (page 25) also shows that the company has requested a priority loan of Rs. 2750/ Crores to pay of its liabilities. Page 103 shows that through priority loan the company also intended to clear its outstanding statutory liabilities including the TDS dues and also the salary dues Ct. Case No. 530366/2016 Page No. 20 of 23 ITO Vs M/s Lancho Infratech India ltd of the employees which was Rs. 75.77 Crores. Document Mark A dated 16.01.2014 issued by Corporate Debt Restructuring Cell shows that the restructuring proposal of accused company was approved under the CDR system and the company was placed under borrower class B. Point (IX) refers to the term loan of Rs. 2500 Crore for pressing creditors, statutory liabilities and employees dues etc.
36. From the evidence brought on record by the accused, it is apparent that during the financial year 20122013, the net sale of accused no. 1 company has fallen around 50 % thereby impacting the finances and the Corporate Debt Restructuring was also initiated in the same year to revive the financial health and a priority loan of Rs. 2500/ Crore was also sought by the company to make the payment of statutory dues as well as salaries. From the CDR report Mark B, it is clear that the company was not even able to make payment of salaries of its employees and was undergoing huge financial stress. It is also recorded in the CDR report that the slowdown occurred in infrastructure sector due to the issue regarding the supply of gas and coal because of the government policy. The documents on record clearly go to show that the financial health of the company was in perils due to the slowdown in the infrastructure sector, thereby causing hardships to make the payment of liability, salaries as well as statutory dues of TDS. The aforesaid facts regarding the financial hardships was highlighted by the accused company to the Income Tax Department from the day one and the CW1 in his cross examination also admitted that he was aware about the accused / assessee company undergoing Corporate Debt Restructuring when the prosecution sanction was being sought. But despite that the authorities did not consider the Ct. Case No. 530366/2016 Page No. 21 of 23 ITO Vs M/s Lancho Infratech India ltd financial plight of the company and the reasons beyond its control without even a discussion as to the reasonable cause tendered u/s 278 AA of the Income Tax Act as mandated by the CBDT circular dated 27.12.2014. The sanction was granted under section 279 (1) of the Income Tax Act despite the fact that there existed a reasonable cause for delay in payment of tax dues and also the fact that the tax dues were cleared and paid prior to the issuance of the showcause notice and grant of sanction.
37. Apart from that the Court also can not ignore the fact that the financial hardships of the company was aggravated in the financial year 20122013 due to inertia on the part of the complainant department to refund the TDS amount of around Rs. 119 Crores as per the claim made by the accused company. DW 1 in his testimony stated that the said amount was only paid after 12 months of the claim and due to delayed refund and financial crunch, the company suffered cash flow issues and the payment of TDS in this case was delayed. DW2 also stated that a grievance petition dated 14.08.2013 was also filed by the accused company before the CBDT which is marked as Mark F. Perusal of the said document shows that the company highlighted that due to slowdown in infrastructure sector, they are facing severe cash flow issues and are unable to pay the statutory dues, salary and vendor dues and the Corporate Debt Restructuring had also been initiated. The company also represented that the dues of Rs. 119.67 Crores pertain to assessment year 20112012 and despite various representations, the income tax department has failed to take any steps for refund. DW2 stated that the said payment was finally received on 08.01.2014 vide demand draft Mark D and Mark E. It is strange preposition that on the one hand the complainant department fails to refund the TDS Ct. Case No. 530366/2016 Page No. 22 of 23 ITO Vs M/s Lancho Infratech India ltd amount of Rs. 119.67 Crore to the complainant company despite various representation and on the other hand it choses to prosecute the same company for delayed TDS payment of Rs. 37 Crores which was admittedly paid alongwith the interest before the issuance of showcause notice. It is clear that the complainant department has adopted two different yardsticks for itself and the assessee.
38. From the evidence on record, it is clear that the evidence on record it is clear that the assessee / accused has been able to show reasonable and sufficient cause that there were financial exigencies beyond its control which further got aggravated due to timely nonrefund of the TDS refund, thereby pushing the accused company for Corporate Debt Restructuring and leading to an unavoidable delay in payment of TDS. The facts shows that the aforesaid financial constraints could have prevented any other company to fulfill financial objections in normal circumstances without negligence or inaction or for want of bonafides. Accordingly, the ingredients of Section 278 AA of the Income Tax Act stands satisfied and the accused no. 1 company M/s Lancho Infratech India Ltd as well as accused no. 2 G.Venkatesh Babu Gangarap are able to prove the existence of reasonable cause for nonpayment of tax within the stipulated statutory period and are acquitted for the offences punishable u/s 276 B read with Section 278 B of the Income Tax Act.
39. Copy of the judgment be given free of cost.
Digitally signed by ABHILASH ABHILASH MALHOTRA
Announced in Open Court MALHOTRA Date: 2021.02.10
16:55:12 +0530
on 08.02.2021 (ABHILASH MALHOTRA)
ACMM(Special Acts) CENTRAL
TIS HAZARI COURTS DELHI
Ct. Case No. 530366/2016 Page No. 23 of 23
ITO Vs M/s Lancho Infratech India ltd