Delhi District Court
M/S Penwell Traders Ltd vs Ito on 17 February, 2016
IN THE COURT OF SANJAY GARG-I: SPECIAL JUDGE-IV,
(PC ACT) CBI: DELHI.
C.A. No.:- 27/2015
I.D. No. 02401R05633702015
1. M/s Penwell Traders Ltd.,
D-124, Saket, New Delhi.
2. Sh. A.K. Ghayee,
Director M/s Penwell Traders Ltd.,
D-124, Saket, New Delhi.
3. Sh. Sanjeev Bhasin,
S/o Late Sh. A.N. Bhasin,
R/o F-11, MIG Flats, Prasad Nagar,
Karol Bagh, New Delhi - 110005
4. Sh. Nitin Kohli, Director
S/o Late Sh. Sikandar Lal Kohli,
R/o D-214, Saket, New Delhi ....Appellants
Versus
ITO ...Respondent
Date of Institution : 17.10.2015
Date of Argument : 19.01.2016
Date of order : 17.02.2016
ORDER
1. This appeal is directed against the judgement dated 20.09.2015 of Ld. ACMM (Spl. Acts) Central, vide which appellants were convicted for the offence u/s 276-C(1) and u/s 277 R/w Section 278-B of Income Tax Act. Vide order on sentence dated 01.10.2015 appellant no. 1 was sentenced to pay a fine of Rs. 50,000/- for the offence punishable u/s 276-C(1) of IT Act and further a fine of Rs. 50,000/- for the offence CA No. 27/2015 Page No. 1/17 punishable u/s 277 of IT Act. Appellant No. 2, 3 & 4 were sentenced to undergo simple imprisonment six months alongwith fine of Rs. 50,000/- each for the offence punishable u/s 276-C(1) R/w Section 278-B of IT Act and in default of payment of fine to undergo simple imprisonment for one month. Appellant No. 2, 3 & 4 are further sentenced to undergo simple imprisonment for six months alongwith fine of Rs. 50,000/- each for the offence punishable u/s 277 R/w Section 278-B of the IT Act and in default of payment of fine to undergo simple imprisonment for one month.
2. A complaint by Sh. S.B. Singh, ACIT, Circle 14 (1), Income Tax Department was filed against the appellants u/s 276-C(1)/277 R/w 278-B of Income Tax Act for block period 01.04.1989 to 09.03.1999. Brief facts of the case as summarized by Ld. Trial Court in para-2 are as follows:-
"As per the prosecution story, the accused persons are facing allegations of offence punishable u/s 276-C(1) and 277 R/w Section 278-B of IT Act with the allegations that M/s Penwell Traders Pvt. Ltd. accused no. 1 and accused no. 2 to 5 who were its Directors and responsible and incharge for the day to day affairs of the said company for the block period 01.04.1989 to 09.03.1999 filed returns declaring NIL undisclosed income. The return in the prescribed from 2B was signed and verified by accused no. 2 only. The accused company and its four directors had not declared interest amounting to Rs. 3,31,397/- on the loan given. The accused had also not recorded the purchase of 49400 shares amounting to Rs. 4,96,470/- to M/s J.P. Industries in their books of accounts and they have also failed to explain source of purchase of 178300 shares of M/s Yogi Pharmacy amounting to Rs. 10,13,310/-. However, the accused company was assessed vide order dated 30.04.2001 CA No. 27/2015 Page No. 2/17 at an income of Rs. 18,86,259/- and a penalty amounting to Rs. 1,06,507/- was imposed for concealing of income. Thus, all the accused had attempted to evade the taxes and penalty and interest under the Income Tax Act. It is further stated that the accused persons had deliberately made false verification in the returns."
3. On the basis of this complaint made by the official of the respondent, vide order dated 28.05.2010 Ld. Trial Court dispensing with examination of complainant in terms of section 200 of Cr.P.C. and took cognizance to the offence and summoned all the appellants (including Director Sh. Manohar Lal Kohli and proceedings against him stands abated) for the commission of offences u/s 276-C(1) and 277 R/w Section 278-B of I.T. Act.
4. In pre-charge evidence respondent examined three witnesses. Complainant Sh. S.B. Singh was examined as PW-1. He proved his complaint Ex. PW-1/1, authorisation / sanction accorded u/s 279(1) of I.T. Act by Commissioner, Sh. Hari Krishan as Ex. PW-1/2, list of witnesses Ex. PW-1/3, the return of income signed by appellant no. 2 (hereinafter mentioned as A-2) as Ex. PW-1/4, the order of the CIT(A) dated 10.01.2003 vide which appeal preferred by appellants was dismissed as Ex. PW-1/5, show cause notice issued to the appellants dated 08.01.2010 as Ex. PW-1/6, reply by appellants as Ex. PW-1/7, another show cause notice dated 04.02.2010 as Ex. PW-1/8 and reply to the said show cause notice Ex. PW-1/9.
5. PW-2 Sh. Kunal Singh was posted as JCIT, Spl. Range-8, New Delhi from 2000 to 2001. He proved the return of income of the CA No. 27/2015 Page No. 3/17 block period 01.04.1989 to 09.03.1999 filed by A-1 as Ex. PW-2/1, Power of Attorney in favour of Sh. Mukesh Kohli, CA as Ex. PW-2/2, his assessment order dated 30.04.2001 as Ex. PW-2/3, reply filed by A-1 during assessment proceedings as Ex. PW-2/4, copies of the various order sheets Ex. PW-2/5 (Colly), letter dated 29.01.2001 issued by him as Ex. PW-2/6.
6. PW-3 Sh. Neehar Ranjan Pandey, Deputy Secretary, Department of Expenditure, Ministry of Finance was first posted as ACIT and thereafter DCIT in Circle-14 of Income Tax Department. He proved his order dated 31.07.2003 Ex. PW-3/1 he has levied penalty u/s 158BFA(2) of the I.T. Act on A-1.
7. On the basis of incriminating evidence against the appellants, their statements were recorded u/s 313 R/w Section 281 of Cr.P.C. to which they pleaded not guilty and claimed trial. The sole plea taken by appellants is that the present complaint is not maintainable in view of the changed circumstances as Hon'ble Supreme Court has remanded the case to ITAT and they have all opportunity to put their plea/defence before the ITAT. Proceedings initiated by the respondent against them is liable to be rejected as matter is subjudice and previous order shall have no bearing at the time of arguments before the ITAT. Accused did not lead any evidence in their defence.
8. Sh. Raman Gandhi, Ld. Counsel for the appellants submitted arguments. He has filed written synopsis. Sh. Brajesh Garg, Ld. Counsel for respondent also submitted arguments and filed written synopsis in support of his submissions.
CA No. 27/2015 Page No. 4/179. The main contention raised by Ld. Counsel for appellants is that it is the admitted case of the respondent that assessment order on which this complaint is based is lying challenged before ITAT. It has been stated that though earlier appeal filed by appellants before ITAT and then before the Hon'ble High of Delhi was dismissed but the Hon'ble Apex Court vide order dated 12.07.2010 has set aside the ITAT order dated 11.09.2008 giving one more opportunity to the appellants to present their case before the ITAT. It has been vehemently urged that law is settled that since the outcome of the appeal before the ITAT will have bearing on this case, the proceedings in this case ought to have been stayed by the Ld. Trial Court. It has been submitted that the impugned order be set aside and further proceedings before the Ld. Trial Court be stayed u/s 309 Cr.P.C. till the final outcome of the proceedings pending before ITAT. It has been submitted that respondent has failed to prove that appellants were incharge and responsible for the conduct of the business of the company hence their contention u/s 276C & 277 of IT Act cannot be sustained. In support of his submission, Ld. Counsel for appellants has relied on the following judgments:-
I. Commissioner of Income, Mumbai Vs. Bhupen Champal Lal Dalal & Anr., (2001) 3 Supreme Court Cases 459 II. Tukaram Annaba Chavan & Anr. Vs. Machindra Yeshwant Patil & Anr., (2001) 3 Supreme Court Cases 33 III. Bhupen Champak Lal Dalal Vs. Sandeep Kapoor & Anr., (2001 Vol. 248 Income Tax Reports (Bombay) 827 CA No. 27/2015 Page No. 5/17 IV. P. Jayappan Vs. S.K. Perumal, First Income Tax Officer, Tuticorin, (1984) Supp. SCC 437 : AIR 1984 SC 1693 : 1984 (2) Crimes
436.
V. Sunil Mendiratta Vs. Union of India,
2001 (94) DLT 537 : 2002 (61) DRJ 545
VI. Pooja Ravinder Devidasani Vs. State of Maharashtra & Anr.,
AIR 2015 Supreme Court 675
10. Sh. Brajesh Garg, Ld. Counsel for respondent has submitted that it is the admitted case of the appellants that interest of Rs.
3,31,397/- could not be shown in the block return due to oversight, hence on account of their admission ground of appeal before the ITAT is not maintainable in this regard. It has been stated that law is settled that proceedings before the department or any appropriate appellate firm under the Act is no bar for institution of criminal proceedings and for keeping the pending criminal proceedings in abeyance. It has been submitted that appellants no. 2, 3 & 4 were Directors and responsible for day to day affairs of the company i.e. A-1 and accordingly liable for the commission of this offence. In support of his submissions, he has relied upon the following judgments:-
I. Jayappan (P) Vs. Perumal (S.K.), ITO (First), [1984] 149 ITR 0696 SC II. ACIT Vs. S.P. Bansal, (2000) 243 ITR 0406 Delhi III. Standard Chartered Bank Vs. Directorate of Enforcement, (2006) 4 SCC 278 CA No. 27/2015 Page No. 6/17 IV. Sasi Enterprises Vs. ACIT, (2014) 5 SCC 139 V. Pradip Burman Vs. Income Tax Office, CRL. M.C. 2467/2015 decided by Hon'ble High Court of Delhi on 02.12.2015 VI. Income Tax Officer Vs. Anil Batra & Ors., CRL. L.P. 241/2012 decided by Hon'ble High Court of Delhi on 23.09.2014
11. In this appeal, only two legal points have been raised on behalf of the appellants. It is relevant to mention here that all the facts containing allegations against the appellants for the commission of offences u/s 276C & 277 of IT Act have not been disputed by the appellants. All the three witnesses i.e. PW-1 to PW-3 examined by respondents were not cross examined on facts but they were only cross examined regarding pendency of their appeal before ITAT in view of the orders of the Apex Court.
12. One of the contention raised by appellants is that respondent has failed to prove if appellant no. 2 to 4 were in any manner incharge and were responsible for the conduct of the business of the company which is one of the essential ingredients of the offence committed by company as provided u/s 278B of IT Act. For better appreciation of facts section 278B of IT Act is reproduced as follows:-
"278B. (1) Where an offence under this Act has been committed by a company, every person who, at the time of offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company CA No. 27/2015 Page No. 7/17 shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-
section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section (1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-section (1), or the director, manager, secretary or other officer of the company referred to in sub-section (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act.
Explanation. - For the purpose of this section, -
(a) "company" means a body corporate, and includes-
(i) a firm, and
(ii) an association of person or a body of individuals whether incorporated or not;
and CA No. 27/2015 Page No. 8/17
(b) "director", in relation to -
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof."
13. As per case of respondents, appellant no. 1 is a company and appellant no. 2 to 4 were Directors and at the relevant time they were incharge and responsible for the conduct of business of the company hence liable to be prosecuted for the offences u/s 276C & 277 of IT Act. PW-1 has deposed that appellant no. 2 has signed the return of income Ex. PW-1/4 as Director, appellant No. 3 has signed the Income Tax Returns for the A.Y. 1990-1991 and appellant no. 4 has appeared before assessment proceedings before the Assessing Officer alongwith their CA, hence appellant no. 2 to 4 were the persons responsible and incharge of day to day affairs of appellant no. 1 company. No suggestion has been put either to PW-1 or PW-2 & PW-3 examined by respondent that appellant no. 2 to 4 were not incharge and responsible for conduct of the business of appellant no. 1 company.
14. The proviso of section 278B(1) puts the burden to prove on the accused if he takes the plea that offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. Absolutely no evidence was led by appellants in the defence.
15. In support of their contentions appellants have relied upon the observations made by the Apex Court in Pooja Ravinder Devidasani CA No. 27/2015 Page No. 9/17 Vs. State of Maharashtra (Supra). This case is under Negotiable Instruments Act. Apex Court has observed that in absence of any evidence on record to show that appellant was incharge or involved in day to day affairs of the company at the relevant time of commission of alleged offences, no reasonable inference can be drawn that appellant could be vicariously held liable for the offence she was charged. In Income Tax Officer Vs. Anil Batra & Anr. (Supra) Hon'ble High Court of Delhi has not accepted the contention where two Directors have signed company's balance sheet that they were not incharge of the affairs of the company.
16. It is further relevant to mention here that this point was not raised before the Ld. Trial Court and for the first time it is raised before this court. However, keeping in view the reasons mentioned above, it stands proved on record that appellant no. 2 to 4 were responsible for conduct of the business of appellant no. 1 company at the relevant time and hence they can be held liable for any offence committed by appellant company during the relevant period.
17. The other legal point raised on behalf of appellants is that since their appeal is pending adjudication before ITAT, the Ld. Trial Court should not have proceed to pass a final order i.e. impugned order.
18. The order of the Apex Court dated 12.10.2010 allowing appeal filed by appellants is as under:-
"With a view to give one more opportunity to the assessee, who is ready to deposit, under protest, a CA No. 27/2015 Page No. 10/17 sum of Rupees twenty nine lakhs, including interest, within three weeks from today, the ex-parte order dated 11th September, 2008, passed by the Tribunal, is hereby set aside. The amount will be deposited within three weeks, as a condition precedent, with the Joint Commissioner of Income Tax, Special Range-8, New Delhi. If Rupees twenty nine lakhs is not deposited within three weeks, the order of the Tribunal dated 11th September, 2008, will remain in operation.
Subject to above, the civil appeals are disposed of."
19. In support of his submissions, Ld. Counsel for appellants has relied upon the various judgements. Commissioner of Income Tax Mumbai Vs. Bhupen Champak Lal Dalal & Anr. (Supra) is a case relating to prosecution under Income Tax Act, during pendency of appeal before Appellate Authority the court stayed framing of charge, discharge of accused or acquittal of accused during pendency of such appeals. Income Tax Department took this order to Sessions Court and then to Hon'ble High Court but did not get any desirable order. Finally the department took the matter to Apex Court. The relevant observation made in para-3 are as follows:-
"3. The prosecution in criminal law and proceedings arising under the Act are, undoubtedly, independent proceedings and, therefore, there is no impediment in law for the criminal proceedings under the Act. However, a wholesome rule will have to be adopted in matters of this nature where Courts have taken the view that when the conclusions arrived at by the Appellate Authorities have a relevance and bearing upon the conclusions to be reached in the case necessarily one authority will have to await the outcome of the other."CA No. 27/2015 Page No. 11/17
20. The Apex Court dismissed the appeal observing that when result to come out of the proceedings before the Appellate Authority have a definite bearing on the cases alleged against the respondent, they find that High Court is justified in granting the interim order and they do not think that such an interim order calls for interference at their hands.
21. In Tukaram Annaba Chavan case (Supra), it was held:
"10. The controversy raised in the case relates to the election of the Board of Directors of the Modern Education Society, Atpadi which is registered under the provisions of the Bombay Public Trusts Act, 1950. We were informed by the learned Counsels for the parties that the matter is pending before the Assistant Charity Commissioner, Sangli, who is to determine the validity or otherwise of the change report submitted by the appellants. On a perusal of the record we find that a contention that in the proceeding relating to the confirmation or otherwise of the change report a contention has been raised that the documents on the basis of which the report has been submitted have been forged and fabricated by the appellants. In all probability that question will also arise for consideration by the authority.
11. In the facts and circumstances of the case, it is our considered view that in the interest of justice and for a fair trial the proceedings in the criminal case should remain suspended till the proceeding pending before the Assistant Charity Commissioner, Sangli is disposed of by him. Accordingly, it is ordered that further proceedings in regular Criminal Case No. 82 of 1994 pending in the Court of Judicial Magistrate, 1st Class, Atpadi shall remain stayed till disposal of CA No. 27/2015 Page No. 12/17 the proceeding in CR (changed report) No. 385 of 1991 by the Assistant Charity Commissioner, Sangli, the appeal is disposed of on the terms aforesaid."
"It is to be noted that in almost all these decisions what has been indicated is the proper course to be adopted in case it is brought to the notice of the Court that a decision in any adjudicating proceedings would have relevance and bearing on the pending issues involved in the criminal case."
22. In P. Jayappan case (Supra) in para-10 the Apex Court held as under:-
"10. It may be that in an appropriate case the Criminal Court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under Section 309 of the Code of Criminal Procedure if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may take also into consideration the order to be passed therein. Even here the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes it necessary for a Criminal Court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only because some proceedings which may have some bearing on it is pending elsewhere. But this, however, has no relevance to the question of maintainability of the prosecution. The prosecution in those circumstances cannot be quashed on the ground that it is a premature one."
23. In Sunil Mendiratta Vs. Union of India (Supra) Hon'ble Delhi High Court has discussed all these judgements mentioned above relied CA No. 27/2015 Page No. 13/17 upon by the appellants and has observed that it is to be noted that in almost all these decisions what has been indicated is the proper course to be adopted in case it is brought to the notice of the court that a decision in any adjudicating proceedings would have relevance and bearing on the pending issues involved in the criminal cases; it is not the view expressed in any of the cases that whenever there is an adjudicating proceeding, pending a criminal case per force has to be stayed.
24. In Sunil Mendiratta Vs. Union of India (Supra) prayer was made for keeping the proceeding in abeyance because of the pendency of proceeding before adjudicating authority. Considering the observations made by Apex Court in various judgements (as discussed above) the directions were given to the Ld. ACMM to consider the application filed in terms of section 309 Cr.P.C., adjourn the case to such date, as deemed proper and expedient taking into account all relevant aspects, like pendency of the adjudication proceeding, its relevance, if any, to the criminal trial.
25. This is an appeal seeking setting aside of the order on conviction and not seeking setting aside of the order of Ld. ACMM where he has declined to stay the proceedings awaiting out come of the appeal filed by appellants before the ITAT. As per the ratio of these various judgements relied upon by appellants it was for the Ld. Trial Court to decide keeping in view the circumstances of this case that whether to keep the proceeding in abeyance till the out come of the decision of ITAT or to proceed with the trial. Ld. Counsel for appellants has failed to produce any judicial pronouncement setting aside the conviction CA No. 27/2015 Page No. 14/17 recorded by Ld. Trial Court during the pendency of appeal of the accused persons before the ITAT, arising out of the same set of circumstances.
26. Ld. Counsel for respondent in support of his submissions has relied upon the observations made by Apex Court in P. Jayappan's case (Supra) and ACIT Vs. S.P. Bansal (Supra). Both these judgements were considered in right perspective by the Ld. Trial Court in para-21 of the impugned judgement. In P. Jayappan's case (Supra) the Apex Court has categorically observed that pendency of reassessment proceedings could not act as a bar to the institution of criminal prosecution for the offence punishable u/s 276C or 277 of IT Act. The court has to judge case independently on the evidence placed before it. In ACIT Vs. S.P. Bansal (Supra), the court has observed that mere expectation of success in the fresh assessment proceedings could not come in the way of continuance of the criminal proceedings u/s 276C, 276CC & 277 of IT Act.
27. In Pradip Burman's case (Supra), the order of ACMM dismissing application of the accused was under challenge. In this case prosecution of the accused was also u/s 276C & 277 of IT Act. The appeal had been filed challenging the assessment order and consequential out come of imposition of penalty u/s 271(1)(c) of IT Act. The relevant para-18 of this judgement is as follows:-
"18. Accordingly, it can be safely stated that proceedings once initiated in a warrant trial case, there is no provision under the Code of Criminal Procedure, 1973, except U/s 258 Cr.P.C., where the CA No. 27/2015 Page No. 15/17 proceedings of the case can be stayed by the Magistrate suo moto or upon the application filed on behalf of the accused, however, Section 258 Cr.P.C. relates only to summons trial cases. Moreover, the application filed by the petitioner did not mention under which provision of Act it is filed. Thus, the learned Trial Court has rightly dismissed the application filed by the petitioner."
28. Another contention raised by appellants, though not addressed during oral submissions, is that section 275(1)(a) bars levy of penalty untill the appeal against quantum addition or assessment has been disposed of by the Appellate Authority. It is contended that penalty was imposed by Assessing Officer in erroneous manner including this provision of the Act.
29. Appellants have been prosecuted for their willful attempt to evade tax and submitting false statement in verification. Keeping in view the facts of this case, the bar of section 275(1) appears to be not relevant for the purposes of this case. Even otherwise order of CIT (A) is dated 10.01.2013 and penalty order is dated 31.07.2003, which is perfectly permitted as per section 275(1)(a) of the Act.
30. In view of the aforesaid reasons, the various grounds of appeal raised by appellants are found without merit. Appeal is thereby dismissed. Appellants are directed to surrender before Ld. Trial Court on 26.02.2016 for undergoing the sentence imposed vide impugned order.
CA No. 27/2015 Page No. 16/1731. Copy of this order be provided to all the appellants.
32. Copy of this order with TCR be sent back to Ld. Trial Court.
33. Appeal file be consigned to Record Room.
Announced in open court on 17th February, 2016 (SANJAY GARG-I) SPECIAL JUDGE-IV, CBI (PC Act) TIS HAZARI COURTS,DELHI CA No. 27/2015 Page No. 17/17