Bangalore District Court
The Income Tax Officer (Tds) vs M/S. Vega Cargo Logistics Pvt on 6 January, 2020
1 CC.No.33/18
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 6th day of January 2020.
: Present:
Sri. SHANTHANNA ALVA M.
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC. No. 33-2018.
Complainant: The Income Tax Officer (TDS),
Income Tax Department, Ward -3(4),
H.M.T. Bhavan, No.59, Bellary Road,
Bangalore - 560 032.
[(By Sri. S.S.H., Advocate (Spl.P.P)]
. Vs.
Accused: 1. M/s. Vega Cargo Logistics Pvt., Ltd.,
No.64/2, Manipal Country Club Road,
Singasandra, Bangalore - 560 068.
(A Company registered under Companies Act
Represented by its Chairman and Managing
Director - H. Krishna)
2. H. Krishna, Chairman and Managing
Director, M/s. Vega Cargo Logistics Pvt.,
Ltd., No.64/2, Manipal Country Club Road,
Singasandra, Bangalore - 560 068.
(By Sri. R.B.H., Advocate)
JUDGMENT
1. The Complainant/Income Tax Officer (TDS), Income Tax Department, Ward-3(4), Bangalore filed the complaint under section 200 of Cr.P.C. alleging that Accused No.1 by not remitting the deducted TDS pertaining to the Financial 2 CC.No.33/18 Years 2009-10, 2010-11 and 2011-12 within the stipulated time, committed the offence punishable under section 276B of the Income Tax Act, 1961 (Herein after referred as "the Act"). The Accused No.2 being the Chairman and Managing Director of Accused No.1, responsible for the day today business and conduct of Accused No.1, thus liable to be convicted for the offence committed by the Accused No.1 by virtue of Section 278B of the Act.
2. The Complainant's case in brief is that the Accused No.1-M/s.Vega Cargo Logistics Pvt., Ltd., Bangalore is a company, registered under the Companies Act and engaged in the business of Cargo handling forwarding Agents and Customs House Agents. Accused No.2 being the Chairman and Managing Director and principal officer and he has been treated as principal officer of Accused No.1 vide notice dated:15.03.2013 and 07.01.2014 issued under section 2(35) of the Act. Perusal of the TDS returns submitted for the Financial Years 2009-10, 2010-11 and 2011-12, revealed that the Accused No.1 had deducted tax of Rs.4,21,100/-, Rs.3,36,792/- and Rs.1,55,078/- at source from payments made towards salary under section 192B of the Act, commission under section 194H of the Act, 3 CC.No.33/18 contracts under section 194C of the Act and rent under section 194I of the Act, but failed to remit the same to the Central Government Account within the time stipulated under Rule 30 of the Income Tax Rules. The delay in remittance is more than one year and the amount involved is more than Rs. One lakh. The Accused No.1 failed to remit the TDS within the stipulated period of time and caused delay in remitting the TDS, the Assessing Officer had issued the show cause notice dated: 12.02.2013 and 07.01.2014 for the Financial Years 2009-10, 2010-11 and 2011-12 to the Accused calling upon them to show cause as to why it should not be prosecuted for the offence punishable under section 276B of the Act. For that Accused No.1 replied that admitting the delayed remittance of TDS along with interest and requested to drop the proceedings. After that Assessing Officer issued the notice under section 2(35) of the Act treating Accused No.2 as the principal officer of the Accused No.1. In response to the show cause notice issued to A.2 proposing to treat him as principal officer of Accused No.1, Accused No.2 gave a reply dated:
29.08.2013 stating that due to delayed receivables and financial crunch, the TDS was remitted belatedly, hence, he 4 CC.No.33/18 requested for condonation of delay and dropping of proceedings. The Commissioner of Income Tax (TDS), Bangalore before passing the sanction order, issued the show cause notice to the Accused No. 1 and 2 calling upon them to show cause as to why the prosecution should not be initiated for the offence punishable under section 276B of the Act for non-remittance/delayed remittance of TDS.
The Accused gave reply dated: 17.01.2017 stating that constrained cash flow and financial crunch, as the major reason for delay in remittance of TDS, hence, he requested for condonation of delay and dropping of the prosecution proceedings and after going through the submission, the Commissioner of Income Tax (TDS), Bangalore passed the sanction order authorizing the Complainant to file the complaint against the Accused No.1 and 2 and accordingly, the complaint is filed. It is averred that the payer acts in fiduciary capacity, in such circumstances, it is his bound duty to remit the TDS to the Government Account. The belated remittance of TDS made by the Accused No.1 will not absolve the Accused from penal consequences. The Accused No.1 without justifiable reasons failed to remit the deducted TDS within the stipulated time. The Accused 5 CC.No.33/18 No.2 being in charge of and responsible of the day today affairs of the Accused No.1, liable for the offence committed by the Accused No.1.
3. On presentation of the complaint, cognizance was taken and the case was registered against Accused No.1 and 2 for the offence punishable under section 276B, R/w. Section 278B of the Act and summons was issued.
4. In response to the summons, the Accused No.2 on his behalf and as representative of Accused No.1 appeared through his counsel and enlarged on bail. Copies of the complaint and other documents were furnished to him. Thereafter, the evidence before charge was recorded as required under section 244 of the Cr.P.C. Then after hearing the learned Spl. P. P. and Accused, charge was framed against Accused No. 1 and 2 for the offence punishable under section 276B of the Act and read over to them. The Accused No.2 for himself and also on behalf of Accused No.1 pleaded not guilty and claimed for trial.
5. To prove the charge leveled against the Accused person, the Complainant examined 3 witnesses as P.w.1 to 3 and got marked the documents as Ex.p.1 to 13. 6 CC.No.33/18
6. After closure of complainant's side evidence, the statement as provided under section 313 of Cr.P.C was recorded. The Accused No.2 denied incriminatory evidence found against him and Accused No.1. On behalf of the Accused, the Retired Corporate Manager, Finance and Accounts, Bangalore, Sri.R.Subramani examined as D.w.1 and got marked documents as Ex.D.1 to 9.
7. Heard the arguments of the Ld counsels of the Complainant and Accused person. Perused the complaint and the evidence on record. The points that arise for my consideration are:
Point No.1: Whether the sanction accorded by the Commissioner of Income Tax (TDS) to prosecute the Accused No.1 and 2 is valid? Point No.2: Whether the complainant has proved that the Accused No.1 failed to remit the tax of Rs.4,21,100/-, Rs.3,36,792/- and Rs.1,55,078/- deducted at source of the Financial Years 2009-10, 2010-11 and 2011- 12 and thereby committed the offence punishable under section 276B of the Act?
Point No.3: Whether the complainant has proved that the Accused No.2 was in charge and responsible to Accused No.1 for the conduct of its business, thus liable for the offence committed by the Accused No.1?
Point No.4: What order?
7 CC.No.33/18
8. My findings on the above said points are as under:
Point No.1: In the Affirmative, Point No.2: In the Affirmative, Point No.3: In the Negative, Point No.4: As per the Final orders for the following:
REASONS
9. Point No.1: The Accused taken up the contention that there is valid sanction to prosecute them for the offence punishable under section 276B of the Act. Ld counsel of the Accused by referring to the circulars issued by the CBDT argued that TDS Commissioner had no power to accord the sanction. Ld counsel relied upon the ruling rendered by the Orissa High Court, in the case of Doki Sriramulu Vs. Assistant Collector of C.E. and C., reported in 1988 (36) ELT 247 (Ori.) wherein, it is held that "sanction is not empty formality - Prosecution must establish that the facts constituting the offence were to be considered by the sanctioning authority before sanctioning the prosecution." In the case of Nanjappa Vs. State of Karnataka, in Criminal Appeal No.1867/2012, Hon'ble Apex Court, wherein, it has been held that "valid sanction is 8 CC.No.33/18 essential for taking the cognizance by the court and validity of such order could be raised at the stage of final argument after the trial and even at the appellate stage." In the case of Asstt. Collector of CUS., R and I (P) Vs. Hussain Abbas Shaikh and others, reported in 1992 (59) ELT., 394 (Bom), wherein, it is held that "existence of a valid sanction is a pre-requisite to the taking of cognizance of the enumerated offences alleged to have been committed by the Accused." In the case of Mohd. Iqbal Ahmed Vs. State of Andhra Pradesh, reported in (1979) 4 SCC 172, wherein, it has been held that "in absence of any valid sanction, the whole prosecution is to be held invalid." Ld. Counsel relied upon several others rulings wherein, similar finding is given. There is no need of referring all those rulings. The sum and substance of the rulings are that there must be valid sanction to prosecute the offences for which sanction is required.
10. The complaint was filed on the basis of the sanction accorded by the Commissioner of Income Tax (TDS). Section 279(1) of the Act mandates the previous sanction of the Principal Commissioner or Commissioner is required to file the complaint for the offence punishable under 9 CC.No.33/18 section 279B of the Act. Ex.p.5 is the sanction order dated:26.09.2017, wherein, it is has been stated that after going through the records and the reply given by the Accused No.1, the sanction was accorded to prosecute the Accused No.1 and 2 for the offence punishable under section 276B of the Act.
11. The complaint was filed on the basis of the sanction accorded by the Commissioner of Income Tax (TDS). The contention being taken that the Commissioner of Income Tax (TDS) has no authority to accord the sanction and only jurisdictional Commissioner of Income Tax is empowered to accord the sanction. The complainant asserted that by virtue of Notification No.224/2007 dated: 10.08.2007 issued under section 120(4) of the Act, the Commissioner of Income Tax (TDS) assumed the jurisdiction to accord the sanction for prosecution. Ld counsel of the Accused argued that in the said notification, it is only stated that all the powers and functions relating to deduction of tax or collection of tax under Chapter-XVII, Chapter-XVII-B and Chapter-XVII-BB of the Act, other than section 194E, 195, 196A, 196B, 196C, 196D and 197 of the Act were given to the Commissioner of Income Tax (TDS), but the power of 10 CC.No.33/18 according the sanction which falls under Chapter-XVII of the Act was not conferred under the notification.
12. Ld counsel of the Complainant argued that the sentence that all the powers and functions relating to deduction of tax or collection of tax under Chapter-XVII, Chapter-XVII-B and Chapter - XVII-BB of the Act, includes the according of sanction for prosecution. For non- mentioning it in explicit words will not effect the authority to accord the sanction. It is argued that according of sanction is official function and in this case, the Commissioner verified all the records and accorded the sanction.
13. The first argument that the Commissioner of Income Tax (TDS) has no jurisdiction to accord the sanction to prosecute the Accused for the offence punishable under section 276B of the Act has to be negatived for the reason that empowering portion of the notification begin with the words as "all the powers and functions relating to deduction of tax and collection." There is no need of mentioning the power of according the sanction in explicit words. The offence punishable under section 276B of the Act relating to the non-remittance of collected TDS. Had, the Chapter- XXII relates to only the offence and prosecutions relating to 11 CC.No.33/18 TDS, then the argument of the Accused counsel would have been accepted. There would not be dispute over the settled legal proposition that panel statute has to be interpreted strictly, but that does not mean that interpretation should be by extending the benefit of non said aspects in favour of the Accused. The entire provision has to be read to realize the true intend of the proviso.
14. It is argued that the Sanctioning Authority has not applied its mind while according the sanction. The argument that the Sanctioning Authority has to apply its mind while according to the sanction is settled and this principle has been reiterated in the rulings relied by Ld counsel of the Accused. Here, the perusal of the sanction marked as Ex.p.5 discloses that the sanction was accorded after going through the records. In the sanction, it has been stated that connected documents were carefully perused. Only for the reason that submission of the Accused is not accepted, it cannot be held that there is no application of mind. There is no requirement of assessing the evidence available in support of the charged offence. By keeping in mind of the principle laid down in the rulings relied by Ld counsel of the Accused, the court is of the considered view 12 CC.No.33/18 that there is no merit in the contention that the sanction was accorded without looking into the relevant materials.
15. As far as argument that Circular No.24/2019 mandated the seeking of prior administrative approval for initiation of prosecution for non-payment of tax deducted at source is Rs.25 lakhs or below, and delay in deposit is less than 60 days from the due date is concerned, that requirement was not there, at the time of initiating the proceedings. Thus, question of compliance of that requirement not arises. As far as financial limit is concerned in the Circular at Sl.No.5, it has been specifically stated that circular applies to all pending cases where complaint is yet to be filed. Thus, this argument not holds good.
As the contentions raised by the Accused in respect of the sanction are not sustainable either in law or on facts, for the reasons sated above, the point under consideration is to be answered in affirmative.
16. Point No.2: The complaint is filed alleging that the Accused No.1 had deducted the tax at source from the payments made towards salary, commission, contracts and rent and the total amount deducted is Rs.4,21,100/-, 13 CC.No.33/18 Rs.3,36,792/- and Rs.1,55,078/- for the Financial Years 2009-10, 2010-11 and 2011-12. The Accused No.1 denied this allegation and taken up the contention that the TDS was not deducted on the dates shown in the TDS returns. The complaint is filed based on the TDS returns which were prepared on the basis of the accounts maintained under the Mercantile System of Accounting.
17. The Complainant and the Deputy Commissioner of Income Tax examined as P.w.1 to 3 deposed that on verification of returns filed by the Accused No.1, it found that Accused No.1 had deducted the tax at source from the payments made towards the salary, commission, contracts and rent to the tune of Rs.4,21,100/- Rs.3,36,792/- and Rs.1,55,078/- for the Financial Years 2009-10, 2010-11 and 2011-12, but not remitted the deducted TDS within the stipulated time. The notice dated:12.02.2013 issued to Accused No.1 for the Financial Years 2009-10 and 2010- 11, notice date:15.03.2013 issued to Accused No.2 by treating him as principal officer for the Financial Year 2009- 10 and 2010-11, sanction order, replies given by Accused dated:29.08.2013, wherein under Accused asked time to pay the TDS, Accused addressed a letter dated:02.09.2013 14 CC.No.33/18 intimating the deposit of TDS, notice dated:07.01.2014 treating Accused No.2 as the principal officer of Accused No.1 for the Financial Year 2010-11, acknowledgement and Accused send the reply by admitting the liabilities marked as Ex.p.1 to 13.
18. Sri. R. Subramani examined as D.w.1 deposed that he was working as Corporate Manager, Finance and Accounts at Accused No.1 from June-2003 to February- 2019. During that period, he was in charge of accounts and financial dealings of Accused No.1. On the last day of every month, they use to make the provisions for expenses and TDS deductions were also shown simultaneously. Because of the financial constraints, the payments were not being paid on the dates mentioned in the accounts. The payments were made in later stage i.e., before filing the annual returns. There was no actual deduction of TDS and deducted TDS were remitted before filing the annual TDS returns. The responsibility of deducting the TDS and remittance of TDS to the Government Account was entrusted to him. D.w.1 produced the statement showing the TDS pad and returns uploaded for the Financial Years 2009-10, 2010-11 and 2011-12 and challans, quarterly 15 CC.No.33/18 returns and challans, notice dated: 18.11.2016 issued by the Commissioner of Income Tax, reply given by Accused No.1, accounts statement showing the loan availed from the banks and financial institutions, annual reports of the years 2009-10 and 2011-12, reliving letter and certificate issued by Accused No.1 marked as Ex.D.1 to 9.
19. Ld counsel of the Complainant argued that Accused No.1 admitted the delay in remittance of TDS and that itself amounts to commission of offence punishable under section 276B of the Act and Complainant not required to prove any thing more. The financial constraints or loss cannot be justifiable reason for non-remittance of the deducted TDS. It is argued that once the deduction is shown in the returns of TDS, then no other defense is not available. Ld counsel by referring to the statements marked as Ex.D.1 argued that Accused No.1 admitted the delay in remittance of TDS.
20. In support of the arguments, Ld counsel of the Complainant relied upon the ruling rendered by the Madras High Court, in the case of Income Tax Officer Vs. Sreevatsa Trading Co., and anr., reported in 2001 252 ITR 133 Mad., it is held that "the accused firm had come 16 CC.No.33/18 forward with two excuses, namely, that during the relevant time the firm was running at a loss; and the tax deducted, which had been paid over later on to the Revenue had in fact been directed to be refunded to the depositor himself on the ground that the depositor is not liable to pay tax. These excuses, in my opinion, would not be of any use to the accused firm. The accused firm had deducted the tax and the firm is legally bound to pay it over to the Government. The fact that the firm is running at a loss cannot come to the advantage of the accused with reference to the funds of the depositor, namely, the tax deducted at source which would have otherwise been payable to the depositor. As already stated, the two excuses put forward by the accused firm cannot be excuses in the eye of law to avoid the liability that has to be fastened upon him under section 276B of the Income Tax Act." In the case of Jag Mohan Singh vs. Income Tax Officer, reported in 1992 196 ITR 473 PH, it is held that "
Under Section 194A of the Act, read with Rule 30 of the Income Tax Rules, the tax deducted at source has to be deposited within the stipulated period. It is not disputed that the deposit was made late. Since the offence was complete 17 CC.No.33/18 on the due date on which the amount should have been deposited but not deposited, the late deposit will not absolve the company and its officers from the criminal charge." In the case of Jubilee Investments Vs. Assistant Commissioner of Income Tax, reported in 1999 238 ITR 648 (Cal.), it is held that "the Assistant Commissioner has rightly pointed out that once the TDS is deducted from the income of somebody, the assessee is merely a custodian of the TDS amount. He cannot touch the amount. That amount is to be deposited within the time prescribed in the Central Government Account and any loss or profit in the business of the assessee has nothing to do with deposit of the TDS amount. In view of these aforesaid facts and relevant provisions discussed above, we do not find any merit in this appeal and no case is made out for interim order." In the case of Reliance Industries Ltd., Vs. CIT, decided on 20.07.2015, Bombay High Court held that "Section 221: penalty for failure to pay TDS in time can be levied even if the assessee voluntarily pays the TDS. Financial hardship, diverse locations and lack of computerization are not good excuses. The fact that CIT (A) decided in favour of the assessee and deleted the 18 CC.No.33/18 penalty does not necessarily mean that two views are possible." In the ruling rendered by the Hon'ble Apex Court, in the case of Madhumilan Syntex Ltd., Vs. Union of India in Criminal Appeal No.1377/1999, decided on 23.03.2007, it is held that "Once a statute requires to pay tax and stipulates the period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the Act." It further held that "the Act provides for imposition of penalty for non-payment of tax. That, however, does not take away the power to prosecute accused persons if an offence has been committed by them."
21. Ld counsel of the Accused argued that the initial burden of proving the ingredients of Section 276B of the Act is entirely upon the Complainant. It is argued that Complainant has to establish the initial onus by proving the ingredients of the section and the required ingredients have to be pleaded and proved. After discharging of initial onus, then the burden shifts on the Accused persons to show that they had reasonable cause for failure to deduct or to 19 CC.No.33/18 deposit the tax provided in Section 278AA of the Act. In support of this line of argument, relied upon the ruling rendered in the case of P.V.Devassy Vs. Commissioner of Income Tax, reported in LAWS (KER) 1971 8 39, wherein, it is held that "there was reasonable cause for the assessee in not filing the return within the time allowed and that the imposition of the penalty was not warranted - The question referred in the negative and infavour of the assessee." In the case of Sequoia Construction Company Vs. P.P.Suri (ITO), reported in LAWS (DLH) 1984 11 41, wherein, it is held at Para No.17 that "the complaint has next made reference to Section 279 (1A) and pointed out that the legislature has made specific provision for cases where prosecution cannot be maintained when penalties have been reduced or waived. The prosecution under section 276-B it is next pointed out is not included under that provision and in the circumstances it is pleaded that the cancellation of penalty can have no effect on the prosecution in my opinion, however Section 279(1A) creates legal bar. The same, however, does not preclude or exhaust cases which are otherwise on merits found to be already adjudicated under 20 CC.No.33/18 the Income Tax Act and there is no possibility of nor the judicial propriety would permit taking a different view. The present are such cases." It is argued that even if, it is held that there was delay in remittance of TDS, Accused No.1 has the justifiable reasons for non-remitting the TDS. Accused No.1 was in financial crunch. The TDS with interest was remitted voluntarily without there being a demand.
22. The provisions contained in Chapter-XVII of the Act fixes the statutory duty on the assessee who makes the payments to deduct the portion of payment as TDS and remit the same to the Government. Section 200(1) of the said Chapter says that any person deducting any sum in accordance with the foregoing provisions of this Chapter shall pay within the prescribed time; the sum so deducted to the credit of the Central Government or as the Board directs. The proviso - 2 and 2A deals with salary payments. Rule 30 of the Income Tax Rules prescribes the time and mode of payment of the tax deducted at source to the Government Account. Section 201 of the Act empowers the Assessing Officer to levy penalty for the failure to remit the deducted TDS. Section 201(1A) of the Act, says that 21 CC.No.33/18 assessee in default is liable to pay the interest at one percent for every month. Section 276B (a) of the Act says that if a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter-XVII-B, then, it is punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.
23. The reading of the provisions makes it clear that the assessee who deducted the TDS from the payment made to third party shall remit the amount within the time prescribed under Rule 30 of the Income Tax Rules. The non-compliance of the said requirements results in commission of offence punishable under section 276B of the Act. The person who deducted the TDS is legally bound to remit the said amount within the time prescribed in Rule 30 of the Income Tax Rules. Only for the reason that section 43B of the Act as contemplates the extension of time for certain deduction or for the reason that assessee entitle to claim the TDS payments as expenditure on filing the income tax returns, it cannot be held that the time get 22 CC.No.33/18 extended and this provision prevails over Rule 30 of the Income Tax Rules.
24. The next legal question arises is whether the remittance has to be made after actual deduction or from the date of entry made in the accounts by following Mercantile System of Accounting and shown in the TDS returns. The reading of section 201 and 276B of the Act amplifies the facts that TDS has to be remitted on its actual deduction and not from the entry made in the books of account maintained under Mercantile System of Accounting. Of course, the assessee liable to pay the interest on delayed payment, but not the penalty and criminal prosecution for the non-remittance of TDS on the payments not actually made. The argument that the Accused No.1 in its TDS statement shown the deduction on particular date and then within stipulated period of time, the TDS has to be remitted and if not, it attracts the rigour of Section 276B of the Act, is not legally sustainable.
25. The document on record discloses that the complainant issued notice to the Accused No.1 by raising the issue of delay in remittance of TDS. Ex.p.7 and 8 are the reply issued by the Chartered Accountants and wherein 23 CC.No.33/18 it was stated that TDS was not remitted within time due to financial problems and cash flow company incurring losses. In that it was not contended that there was no actual deduction and only in books of accounts, the deduction was shown. During the course of trial, the Accused No.1 did take up the contention that there was no actual deduction, but to substantiate that the Accused No.1 not produced the evidence. On the contrary, the Accused No.1 produced the chart showing deductions on each head, the due date and the month on which they were remitted marked as Ex.D.1. The documents produced by the Complainant demonstrate that TDS were not remitted within the stipulated time under Rule 30 of the Income Tax Rules. This being the case there is no need for the Complainant by producing the documentary evidence that there was delay in remitting the deducted TDS.
26. The argument is advanced that there is no willful default in causing the delay in remitting the TDS. In Section 276B of the Act, the word "willful" is not used. The Punjab and Harayana High Court, in the case of Deputy Commissioner of Income Tax Vs. Modern Motor Works, reported in 1996 ITR (220) 415 (P & H), wherein it is held 24 CC.No.33/18 that "mens-rea is not a requisite ingredient of the offence under Section.194(a)/200/276B of the Act. If the accused fails to make deduction of tax at source, the prosecution and punishment under Section.276B is valid." The Delhi High Court in the case of Rishikesh Balkishan Das Vs. I.D. Manchanda reported in 1987 ITR (167) 49, wherein, it is held that "Section.276B of 'the Act', also does not contain the word 'knowingly'. It provides punishment for contravention of the provisions contained in Section 194A(1) etc., Section.194A requires the person making any payment of interest to deduct the tax at the rate in force. This liability is an absolute liability. Deficient deduction or non-deduction was a conscious Act." This being the case, the argument that there was no intention, motive or knowledge, hence, the charge under section 276B of the Act is not sustainable, cannot be accepted.
27. The alleged loss or financial constraints are not the justifiable defence for non-remittance of deducted TDS within the stipulated time. In the case of Income Tax Officer Vs. Sreevatsa Trading Co., and anr., reported in (2001) 125 Taxman 131 (Mad.,), wherein, it has been held that "the accused firm had deducted the tax and it was 25 CC.No.33/18 legally bound to pay it over to the Government. The fact that the firm was running at a loss could not come to the advantage of the accused with reference to the funds of the depositor, namely the tax deducted at source which would have otherwise been payable to the depositor. The two excuses put forward by the accused firm could not be excuses in the eye of law to availability."
28. The evidence on record did show that Accused No.1 not remitted the deducted TDS within stipulated time and that resulted in commission of offence punishable under section 276B of the Act. Section 278AA of the Act says that notwithstanding anything contained in Section 276A, 276AB or Section 276B, 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. The burden of proving the existence of reasonable cause is upon the assessee who committed the default, here it is Accused No.1. The non-remittance of mens-rea and financial difficulties cannot be considered as reasonable cause. Actual non-deduction of TDS or in a case where the bank accounts was freezed and not allowed to be operated can be considered as reasonable cause. In the case on 26 CC.No.33/18 hand, these aspects are not proved. Thus, it has to be held that Accused No.1 failed to show that justifiable reason for the failure to deposit the deducted TDS within time so as to claim the acquittal.
29. Thus, on appreciation of oral and documentary evidence on record, I hold that the Complainant succeeded in proving that Accused No.1 not deposited the entire deducted TDS amount within time and thereby committed the offence punishable under section 276B of the Act. Accordingly, this point is answered in affirmative.
30. Point No.3: The Complainant succeeded in proving that Accused No.1 committed the offence punishable under section 276B of the Act. The Complainant's case is that Accused No.2 is the Chairman and Managing Director of Accused No.1 Company and in that capacity, he is responsible for the day today business and conduct of the Accused No.1. According to the Complainant, by issuing the notice dated: 15.03.2013, the Accused No.2 has been treated as the "Principal Officer" of the Accused No.1. Accused No.2 taken up the contention that he had not received the notice issued under section 2(35) of the Act. It 27 CC.No.33/18 is further contended that he was not in charge of day today affairs of Accused No.1 Company.
31. The Ld counsel of the Complainant argued that the word Managing Director itself shows that he was in charge of day today affairs of Accused No.1 and he squarely fall under provision of Section 278B of the Act which deals with vicarious liability. Ld counsel relied upon the Judgment of the Delhi High Court rendered in the case of Income Tax Officer Vs. Anil Batra and anr., reported in TS-636-HC- 2014(DEL)-O, wherein, it is held that "the Directors signed balance sheet cannot contend that hey were in charge of day today affairs of the company." In the case of M.R.Pratap Vs. V.M. Muthukrishnan, reported in AIR 1994 SC 674, wherein, it is held that "the Managing Director becomes the Principal Officer of the company."
32. Section 278B of the Act says that the person who was in charge of, and responsible to, the company for conduct of the business of the company has to be treated as guilty along with the company. The burden of proving this aspect is upon the Complainant. The Bombay High Court, in the case of Homi Phiroze Ranina Vs. State of Maharashtra, reported in (2003) 263 ITR 634, wherein, it is 28 CC.No.33/18 held that "there must be credible material to show their active involvement in the conduct and management of the business of the firm." Here, there is no material to the effect that Accused No.2 is in charge of day today affairs of the Accused No.1. The documents produced by the Accused No.1 and 2 disclose that Accused No.1 appointed the officers to look after the day today affairs of the Accused No.1. It is not the case of the Complainant that Accused No.2 verified the TDS returns and submitted in Form No.26AS. Except the complaint averments, there is no other evidence to the effect that Accused No.2 was in charge and responsible for the business of Accused No.1.
33. The documents on record show that Accused No.1 appointed the accountants to look after the financial matters of the Accused No.1. High Court of Patna, in case of Om Prakash Katyal & Ors., Vs. Union of India, reported in (2009) 310 ITR 0174, wherein it is held that in a case where "the company had appointed competent officers and consultants to deal with the company's account who were responsible for depositing the tax amount deducted at source at Patna where its local officer is situated - Petitioner - directors reside in New Delhi where 29 CC.No.33/18 the company has its registered office and are not responsible for every Act and day to day conduct of the business of the company." Thus, Accused No.2 cannot be held guilty for the offence committed by Accused No.1. Accordingly, this point is answered in negative.
34. Point No.4: In view of my findings on Points No.1 to 3, I proceed to pass the following:
ORDER By exercising the power conferred under section 248 (1) of Cr.P.C. the Accused No.2 is acquitted from the charge of offence punishable under section 276B of the Income Tax Act, 1961.
By exercising the power conferred under section 248 (2) of Cr.P.C. the Accused No.1 convicted for the offence punishable under section 276B of the Income Tax Act, 1961.
Bail bond of Accused No.2 shall stand cancelled. To hear regarding sentence on Accused No.1. (Dictated to the Stenographer, directly on computer, typed by her corrected and then pronounced by me, in open court on this the 6th day of January - 2020.) PRESIDING OFFICER.
30 CC.No.33/1808.01.2020 ORDER ON SENTENCE
35. Heard on sentence of the Ld counsels of Accused No.1 and Spl. P. P.
36. The learned counsel of Accused No.1 Company submitted that Accused No.1 is a startup company and it was mainly into the Cargo handling forwarding Agents and Customs House Agents and it was not generating any income from the sales and that resulted in loss. The deducted TDS amount with interest was paid voluntarily. The learned counsel of the Complainant argued that the Accused No.1 Company willfully neglected to deposit the TDS, hence prayed to impose maximum possible fine.
37. The Accused No.1 is juristic person; hence substantial sentence cannot be awarded. The reasons assigned for the delay in remittance of deducted TDS appears to be genuine though not the grounds to avoid the conviction. Admittedly, the Accused No.1 paid the due TDS with interest voluntarily without there being a demand. Accused No.1 is a startup company and growing by facing the challenges. Considering all these aspects, I hold that fine of Rs. 10,000/- has to be 31 CC.No.33/18 imposed. The Accused No.2 shall pay the fine imposed on Accused No.1. Accordingly, the court has to pass the following:
ORDER The Accused No.1 company is sentenced to pay fine of Rs. 10,000/- (Rupees Ten Thousand only) for having committed the offence punishable under section 276B of the Income Tax Act, 1961.
(Dictated to the Stenographer, directly on computer, typed by her corrected and then pronounced by me, in open court on this the 8th day of January - 2020) PRESIDING OFFICER.
ANNEXURE:
ON BEHALF OF THE COMPLAINANT: Witnesses:
P.w.01 - Ujjawal Kumar, P.w.02 - Smt.Amudha D., P.w.03 - Smt.Shilpa N.C. Documents:-
Ex.p.01 - C/c of Notice dated:12.02.2013, Ex.p.02 - C/c of Notice dated:12.02.2013, Ex.p.03 - C/c of Notice dated:15.03.2013, Ex.p.04 - C/c of Notice dated:15.03.2013, Ex.p.05 - Sanction order, Ex.p.06 - A/c of Notice dated:18.07.2013, Ex.p.07 - Reply, Ex.p.08 - Reply, 32 CC.No.33/18 Ex.p.09 - Letter dated:02.09.2013, Ex.p.10 - A/c of Notice dated:07.01.2014, Ex.p.11 - A/c of Notice dated:07.01.2014, Ex.p.12 - A/c of Postal Acknowledgment, Ex.p.13 - A/c of Replies.
MATERIAL OBJECTS: Nil.
ON BEHALF OF THE ACCUSED:- Witnesses :-
D.w.01 - R.Subramani.
Documents:-
Ex.D.01 - TDS Statement and Challans, Ex.D.02 - Quarterly returns and Challans, Ex.D.03 - Copy of Notice dated:18.11.2016, Ex.D.04 - Copy of Reply Ex.D.05 - Account Statements, Ex.D.06 - Annual Report of Year 2009-10, Ex.D.07 - Annual Report of Year 2011-12, Ex.D.08 - Reliving Letter, Ex.D.09 - Certificate.
(SHANTHANNA ALVA M.) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.33 CC.No.33/18