Bangalore District Court
The Asst. Commissioner Of I.T vs M/S.Subramanya Construction And ... on 16 July, 2024
KABC090000552018
Presented on : 23-03-2018
Registered on : 23-03-2018
Decided on : 16-07-2024
Duration : 6 years, 3 months, 24 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 16th day of July 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M.,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C. No.45/2018
Complainant: The Income Tax Department,
By Assistant Commissioner of Income Tax,
TDS Circle-3(1), HMT Bhavan,
Bengaluru - 560 032.
(Reptd. By Sri. CB., Advocate (Spl. P.P)
V/s.
Accused : 1. M/s. Subramanya Construction &
Development Company Ltd.,
#42, 3rd Cross, Industrial Suburb,
2nd Stage, Yeshwanthapura,
Bengaluru - 560 022.
[A company registered under Companies
Act Reptd. by its Director Sri. K. Nagaraj
Balasubramanyam]
2 C.C.45/2018
2. Sri. K. Nagaraj Balasubramanyam,
Director,
M/s. Subramanya Construction &
Development Company Ltd.,
#4/1, Next to RNS Showroom,
Tumkur Road, Yeshwanthapura,
Bengaluru - 560 022.
(Reptd. By Sri. KSJ., Advocate)
:JUDGMENT:
The instant case emanates from the complaint filed by the complainant alleging that, the accused Nos.1 & 2 have committed an offences punishable U/s.276B r/w Section 278B of Income Tax Act, 1961 (hereinafter referred to as "the IT Act").
2. The complainant's case in nutshell is as under:
The accused No.1 is the company registered under the Companies Act, engaged in the business of construction of residential apartments. The accused No.2 is claimed to be the Director of the accused No.1 company, responsible for day to day conduct and business of the accused No.1/company. The Assessing Officer of the complainant Department issued the notice U/s.2(35) of the IT Act on 03.01.2017 treating the accused No.2 as the Principal Officer of the accused No.1/company. It is further complainant's case that, the accused No.1 company deducted the TDS in the financial year 2014-15 on various heads under Sections 194A, 192, 194I, 194J, 194C and 194H of the Act and defaulted in remitting 3 C.C.45/2018 the said TDS to the Central Government account within stipulated period of time as contemplated under Rule 30 of the IT Rules for the tune of Rs.11,25,21,243/-.
3. The survey was conducted by the complainant Department U/s.133A(2A) of the Act on 22.03.2016, which confirmed the aforesaid default by the accused No.1 company in remittance of TDS. Thereafter, the Assessing Officer again issued the show cause notice as to why accused No.1 company should not be treated as an assessee in default U/s.201(1) & 201(1A) of the Act. After hearing the accused, the Assessing Officer passed an order holding the accused as an assessee in default and imposed the interest for non- remittance/delayed remittance of TDS, wherein, the total demand liable to be paid by the accused No.1 was quantified to Rs.4,10,25,570/-. The demand was reduced to nil, on account of the assessee having paid the aforesaid dues. As such, there is no demand dues as on the date of the lodging of the complaint.
4. The Commissioner of Income Tax, TDS issued show cause notice dated 30.01.2017 calling upon the accused Nos.1 & 2 as to why the prosecution should not be launched for the aforesaid default in non-remittance of the TDS, though it was deducted under various heads, thereby having committed offences punishable U/s.276B r/w 278B of the Act. In response to the said show cause notice, the accused replied by claiming severe financial crunch and other reasons. The said reply was not acceptable to the complainant 4 C.C.45/2018 Department. The accused No.1 company being statutorily bound to remit the amount deducted as TDS, the accused No.2 being responsible for the every act of the accused No.1 company, have contravened Section 278B and 276B of the IT Act respectively. The complainant has further alleged that, the accused No.1 company being represented by its Principal Officer i.e., accused No.2 having failed to comply with the statutory provisions as mentioned supra without any justifiable cause have committed the offences punishable U/s.276B r/w 278B of the IT Act. Hence, this complaint.
5. Upon receiving the complaint, the sworn statement of the complainant was dispensed pursuant to the complainant being public servant as contemplated U/s.200(a) of Cr.P.C. Thereafter, the cognizance of the offences punishable U/s.276B r/w 278B of the IT Act has been taken and process has been issued to the accused Nos.1 & 2.
6. The accused Nos.1 & 2 being served with the summons, accused No.2 appeared through his counsel and has been enlarged on bail, pursuant to the bail application being made by the accused No.2. After having recorded Evidence before Charge as contemplated U/s.244 of Cr.P.C., in so far as the complainant witnesses on having heard before the charge, the charge has been framed and read over and explained to the accused No.2, he pleaded not guilty and claimed to be tried.
5 C.C.45/20187. The complainant has examined three witnesses on its behalf as PW's-1 to 3 and got marked in all ten documents as Ex.P-1 to Ex.P-10 and got closed its side of evidence. The statement of the accused No.2 was recorded U/s.313 of Cr.P.C., he denied the incriminating materials in the testimonies of the complainant witnesses and not chosen to adduce his defence evidence.
8. Heard the arguments canvassed by the learned Spl. PP for the complainant and learned counsel for accused persons.
9. On considering the complaint, evidence on record and arguments addressed by the either parties, the following points would arise for the determination of this court namely:
1) Whether the complainant proves beyond all reasonable doubts as to the accused No.2 being the Director of the accused No.1 company, being in-
charge of day to day conduct of the accused No.1 company, being Principal Officer U/s.2(35) of the IT Act has contravened the provisions of IT Act and defaulted in remittance of TDS being deducted in the financial year 2014-15 to the tune of Rs.11,25,21,243/- to the credit of Central Government within stipulated period and thereby accused No.2 has committed an offence punishable U/s.276B of the IT Act, 1961?
2) Whether the complainant further proves beyond all reasonable doubts as to the accused No.1 company has contravened the Rule 30 of the IT Rules and provisions of IT Act and defaulted in remittance of TDS being deducted in the financial year 2014-15 to the tune of Rs.11,25,21,243/- to the credit of Central Government within stipulated period and 6 C.C.45/2018 thereby accused No.1/company has committed an offence punishable U/s.278B of the IT Act, 1961?
3) What order?
10. The findings of this court on the above said point is as under:
Point No.1: In the Negative
Point No.2: In the Negative
Point No.3: As per final order
for the following:
REASONS
11. Point Nos.1 & 2: These points are taken up together for discussion as the said points are inter-linked to each other and also in order to avoid repetition of facts, pursuant to the facts and circumstances are arising out of the allegations being interconnected to accused, as morefully set out in the complaint in the case on hand.
12. It is the case of the complainant that, the accused No.2 being the Director of accused No.1 company is responsible for day to day affairs and business of accused No.1 company being statutorily bound to remit the TDS deducted under the various heads, though deducted the TDS, failed to remit the the same within the stipulated period of time as contemplated under rule 30 of the IT Rules to the credit of Central Government and thereby committed default as contemplated U/s.201(1) and 201(1A) of the Act for the tune of Rs.11,25,21,243/-.
7 C.C.45/201813. The complainant in order to establish the guilt of the accused Nos.1 & 2 beyond all reasonable doubts, got examined herself arrayed as CW-3 as PW-1. The said PW-1 has reiterated the complaint averments as to default by the accused No.1 company, so also, the default by the accused No.2 by virtue of being the Director, who was responsible for the day to day affairs of accused No.1 company, the survey being conducted on 22.03.2016 thereby Assessing Officer having held assessee in default and thereby the accused No.2 being guilty of having committed the offences punishable U/s.276B r/w Section 278B of the IT Act, for non-remittance of the TDS pertaining to the financial year 2014-15 to the tune of Rs.11,25,21,243/-.
14. In support of her oral testimony, the PW-1 has produced and got marked ten documents as Ex.P-1 to Ex.P-10. Ex.P-1 is the original sanction order along with corrigendum dated 09.03.2018 passed by the Commissioner of Income Tax, TDS, permitting the prosecution of the accused Nos.1 & 2 for the offences alleged in the complaint for default pertaining to the financial year 2014-15. Ex.P-2 is the certified true copy of show cause notice dated 23.11.2016 addressed to accused No.1 company seeking for explanation for failure to pay TDS with respect to financial year 2013-14 and 2014-15. Ex.P-3 is the certified true copy of show cause notice dated 03.01.2017 addressed to accused No.2 issued by the Assistant Commissioner of IT U/s.2(35) r/w Section 204 & Section 276B of the IT Act with respect to financial year 8 C.C.45/2018 2013-14 and 2014-15. Ex.P-4 is the certified true copy of the preliminary survey report dated 23.03.2016 conducted by Assistant Commissioner of IT (PW-3). Ex.P-5 is the certified true copy of show cause notice dated 29.04.2016 addressed to accused No.1 company calling upon to show cause as to why accused No.1 should not be treated as assessee in default U/s.201(1) & 201(1A) of the Act. Ex.P-6 is the certified true copy of order dated 29.07.2016 U/s.201(1) & 201(1A) of the IT Act passed by Assistant Commissioner of Income Tax (PW-2), wherein, the demand was quantified for sum of Rs.4,10,25,570/-. Ex.P-7 is the certified true copy of order U/s.220(2) of the IT Act passed by Assistant Commissioner of Income Tax, wherein, the interest payable by accused No.1 company was quantified as Rs.21,87,752/- for financial year 2014-15. Ex.P-8 is the certified true copy of the notice of demand dated 29.07.2016 U/s.156 of the IT Act addressed to accused No.1 company issued by Assistant Commissioner of Income Tax. Ex.P-9 is the certified true copy of the show cause notice dated 30.01.2017 addressed to accused No.1 company by the Commissioner of Income Tax (TDS) giving opportunity as to why the prosecution should not be launched U/s.276B r/w 278B of the IT Act and fixing the date of hearing on 16.02.2017. Ex.P-10 is the certified true copy of the response to Ex.P-9 and letter dated 06.11.2017 of the complainant Department by way of reply dated 28.11.2017 by the accused No.1 company duly signed by accused No.2, wherein, the accused No.1 company has 9 C.C.45/2018 claimed financial distress and other grounds and sought to drop the prosecution against the accused No.1 company.
15. PW-1 has been subjected to cross-examination by the counsel for the accused persons, wherein the witness has categorically admitted as to Ex.P-9 dated 30.01.2017 issued by Commissioner of Income Tax was addressed to accused No.1 company and not to accused No.2 in his individual capacity. It is specifically admitted as to the order as per Ex.P-6 U/s.201(1) & 201(1A) of the IT Act was with respect to accused No.1 company and there is no reference regarding accused No.2 in the said order. It has been elicited regarding except the documents which are marked on behalf of the complainant, there are no other documents to show the accused No.2 being responsible for day to day affairs and management of accused No.1 company. It is also admitted regarding there is no revised notice issued with respect to Ex.P-9 i.e., show cause notice addressed to accused No.1 company. It is further admitted regarding paragraph No.6 of the order as per Ex.P-6 U/s.201(1) & 201(1A) of the Act with respect to demand, the same is typographical inadvertence. It has been specifically admitted regarding no any final survey report being produced along with complaint. The witness has pleaded ignorance regarding the notice being issued to Sri. Votapalli Chandrashekar and Smt. Nanda Shivakumar U/s.2(35) of the IT Act. It is also admitted regarding the revised notice dated 16.02.2018 referred in corrigendum as per Ex.P-1 has not been submitted to the court along with 10 C.C.45/2018 complaint. It is specifically admitted regarding the arrears of TDS including the interest with respect to financial year 2014-15 has been remitted by the accused No.1 company before filing of the complaint.
16. CW-2 i.e., the then Asst. Commissioner of Income Tax, TDS, Bengaluru is examined as PW-2. This witness has accounted as to having passed an order dated 29.07.2016 U/s.201(1) & 201(1A) of the Act as per Ex.P-6 and having held accused No.1 has assessee in default.
17. PW-2 has been subjected to cross-examination, wherein, it has been admitted as to she has not obtained the details of the Directors of accused No.1 company from the ROC. It is also admitted regarding there should be a resolution by the Board of Directors to authorize particular Director to verify the returns. It is admitted regarding the witness having no any knowledge regarding the survey conducted by PW-1. It is admitted regarding the contents of paragraph No.6 of the Ex.P-6 is a typographical inadvertence and there is no any corrigendum with respect to the said paragraph. It is also admitted regarding the balance payable by accused No.1 company as per Ex.P-6 inclusive of interest is Rs.4,10,25,570/-. The witness has pleaded ignorance regarding the Principal Officer of the accused No.1 company with respect to TDS liability.
11 C.C.45/201818. CW-1 i.e., the then Asst. Commissioner of Income Tax, TDS, Bengaluru is examined as PW-3. This witness has accounted regarding having conducted survey in the premises of accused No.1 company and having found the default in remittance of TDS with respect to the financial year 2014-15 within stipulated period of time as per Rule 30 of the IT Rules. He has also accounted regarding having prepared preliminary survey report and show cause notice being issued on 29.04.2016 as to why accused should not be treated as assessee in default. The witness has identified the preliminary survey report as well as show cause notice, which are already marked as Ex.P-4 & Ex.P-5 respectively.
19. PW-3 has been subject to cross-examination by the counsel for the accused, wherein, it is admitted regarding the conclusion as per column No.11 of the preliminary survey report as per Ex.P-4 is based upon the documents subjected for examination. The witness has deposed as to accused No.1 might have remitted the arrears of TDS for sum of Rs.6,03,00,766/- prior to survey as per Ex.P-4. It is admitted regarding the TRACES portal having details regarding the payment of TDS on the quarterly basis along with details as to belated payments and interest paid by the assessee therein. It is admitted regarding at the time of survey, the TDS returns pertaining to financial year 2014-15 and 2015- 16 showing nil arrears of TDS were not carrying by the witness. It has been deposed as to there is no necessity to mention regarding the authorized person of accused No.1 12 C.C.45/2018 company, who is in-charge of TDS remittance to the complainant Department in Ex.P-4.
20. The accused have not chosen to adduce their evidence in support of their contentions.
21. The learned Spl. PP relying upon the oral and documentary evidence emphatically argued that, the delay in remittance of TDS for the financial year 2014-15, being subsequently remitted by accused No.1 company will not absolve the accused No.2 from his responsibility by virtue of being the Principal Officer of the accused No.1 company U/s.2(35) of the IT Act. The Spl. PP has vehemently argued that, the default in complying the terms of the show-cause notices as per Ex.P-3, Ex.P-5 & Ex.P-9, the same being replied by the accused and having expressed his inability to remit the TDS on account of financial distress precludes from denying accused No.2 not being the Principal Officer U/s.2(35) of the IT Act and amongst these arguments, it has been sought to convict the accused Nos.1 & 2.
22. The counsel for the accused Nos.1 & 2 profusely argued that, the accused No.2 has not willfully disobeyed the provisions of IT Act in remittance of TDS and as such it has been argued as to the accused Nos.1 & 2 are entitled to be acquitted of the offences punishable U/s.276B r/w Section 278B of the IT Act. The learned counsel for the accused persons has also emphasized that there is contradiction in so far as the sanction order and corrigendum to sanction order.
13 C.C.45/2018Ex.P-9 i.e., show cause notice is not as per the corrigendum, which discloses revised default amount. The counsel for the accused persons has also argued that, no any iota of documents have been submitted to establish the accused No.2 being responsible for the day to day conduct and business of accused No.1 company, as such, it is emphasized the accused No.2 cannot be made liable for the act of the accused No.1 company so also cannot be made liable for prosecution for having committed the offences punishable U/s.276B r/w Section 278B of the IT Act. Amongst these arguments, sought to acquit the accused Nos.1 & 2.
"Evaluation and Analysis of Evidence"
23. On overall examination of the complaint, evidence on record and arguments, this court certainly as to consider the involvement of accused No.2 in the day to day affairs of accused No.1 company and the accused No.1 company having defaulted in remittance of TDS amount though it was deducted under the various heads as stated in the complaint. Thereby accused No.2 being vicariously liable for the act of the accused No.1 company on account of being the Director of the said accused No.1 company.
24. An anxious examination of the complaint, the evidence on record so also the documents relied upon by the complainant, except the complaint allegations, there is no any iota of evidence or documents to establish the accused No.2 being the Principal Officer U/s.2(35) of the IT Act. Pursuant 14 C.C.45/2018 to the accused No.2 having denied his role in the day to day affairs of the accused No.1 company, in absence of cogent evidence to demonstrate as to accused No.2 being the Director being responsible for day to day affairs, the court cannot solely rely upon preliminary survey report as per Ex.P-4 as well as show cause notice as per Ex.P-3 addressed to accused No.2 and also cannot consider the arguments of Spl. PP as to the accused No.2 having not responded by way of reply to the Ex.P-3. This view of the court is supported by the decision of Hon'ble Apex Court reported in (2010)3 SCC 330 in National Small Industries Corporation Ltd., V/s. Harmeet Singh Paintal and others. So also, as per the decision of the Hon'ble High Court of Madras reported in (2018)92 Taxmann.com 308 (Madras) in Kalanithi Maran V/s. Union of India, New Delhi.
25. The testimony of the PW-1, who is the complainant having accounted regarding her predecessor in office having issued the show notice U/s.2(35) of the Act to the accused No.2 so also, except the documents on record there is no any document to demonstrate accused No.2 being Principal Officer of accused No.1 company, being a person responsible for the day to day affairs of the accused No.1 company is crucial to determine the crux in the case on hand. The testimony of the PW-1 does not inspires the confidence of the court in order to gather the accused No.2 being the Principal Officer as contemplated U/s.2(35) of the IT Act.
15 C.C.45/201826. Furthermore, the sanction as per Ex.P-1 is also silent as to contravention with respect to particular limb of Section 276B(a) of the Act and so also the show cause notices as per Ex.P-2, Ex.P-3, Ex.P-5 & Ex.P-9 are very much silent in these aspects. That being the case, the accused is very much entitled to benefit with respect to the sanction order not being disclosing the contravention.
27. It is also justifiable to consider the specific defence of the accused No.1 company as to the Section 276B of the IT Act only contemplates "fails to pay" wherein the overall meaning on plain reading of aforesaid provision contemplating "total or complete failure to pay" but "not failure to pay within the prescribed time" . This contention of accused No.1 in the background of accused No.1 having voluntarily remitted the arrears of TDS with interest U/s.201(1A) of the Act prior to lodging of the complaint by the complainant Department with respect to default in remittance of TDS, certainly inclines the court to accept the arguments as advanced by the counsel for accused in so far as aforesaid interpretion of Section 276B of the Act. This view of the court is supported by the following authorities viz., (1) (2007) 162 Taxmann.337 (SC) in the case of CIT V/s. Tara Agencies (2) (2007) 2 SCC 230 in the case of Raghunath Rai Baraja and another V/s. Punjab National Bank and others 16 C.C.45/2018 (3) (2019) 112 Taxman.com 220 (Kar) in the case of Dr. Viloo Patell V/s. Income Tax Department (4) Crl. M.P. No.2941/2018 in the case of M/s. Dev Multicom Pvt. Ltd. V/s. State of Jharkhand and others
28. Furthermore, the show cause notice as per Ex.P-9 being inconsonance to sanction order and without consideration of the corrigendum as specifically admitted by the PW-1 during the course of cross-examination inclines the court to hold that there is altogether non-compliance of the provisions of IT Act as well as the principles of natural justice. The said contention of the accused persons as to non- issuance of revised show cause notice to accused persons as per the corrigendum, certainly holds the field. The accused persons are entitled to the benefit of doubt as it is justifiable in the eyes of law.
"Conclusion"
29. It is settled position of law that, the complainant is bound to demonstrate the guilt of the accused beyond all reasonable doubts without giving a scope or room for doubts in so far as the complainant's case. The complainant has very much failed to establish the crucial aspect of the accused Nos.2 being the Principal Officer of accused No.1 company as contemplated U/s.2(35) of the IT Act. The testimony of the Assessing Officer/PW-2 has also not withstood the test of cross-examination in so far as the accused No.2 being solely responsible for the day to day affairs of accused No.1 company. That being the case, this court is justified to hold 17 C.C.45/2018 that, the complainant has miserably failed to bring home the guilt of the accused No.2 beyond all reasonable doubts. It is needless to point out that, the complainant's case is tainted with substantial improvements, omissions and contradictions.
30. In light of the discussion made supra, pursuant to the complainant having miserably failed to bring home the guilt of the accused No.2, by virtue of being Director of accused No.1 company, the accused No.1 company being juristic person, in absence of convincing and positive evidence incriminating accused No.1 company having defaulted in compliance of Rule 30 of the IT Rules by remitting the deducted TDS amount under the various heads within statutory period cannot be made liable to having committed the offence U/s.278B of the IT Act. In light of the reasons assigned supra, this court without any hesitation proceeds to answer Point Nos.1 & 2 in the Negative.
31. Point No.3: In view of the above findings of this court on Point Nos.1 & 2, this court proceeds to pass the following:
ORDER By exercising the power conferred under section 248(1) of Cr.P.C., the accused Nos.1 & 2 are acquitted of the offences punishable under section 276B r/w Section 278B of the Income Tax Act, 1961.18 C.C.45/2018
Consequently, accused Nos.1 & 2 are set at liberty.
The corresponding bail bonds of accused No.2 stands canceled.
(Dictated to the Stenographer directly on computer, typed by him, corrected and then pronounced by me, in open court on this the 16th day of July 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.19 C.C.45/2018
ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Smt. Rachel Kurian Modayil
PW-2 : Smt. G. Latchana
PW-3 : Sri. Mehare Yogesh Prabhakar Rao
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Original Sanction Order
Ex.P-2 : Certified True copy of Show Cause Notice
Ex.P-3 : Certified True copy of Show Cause Notice
Ex.P-4 : Certified True copy of Preliminary Survey Report
Ex.P-5 : Certified True copy of Show Cause Notice
Ex.P-6 : Certified True copy of Order
Ex.P-7 : Certified True copy of Order U/s.220(2) of the Act
Ex.P-8 : Certified True copy of Demand
Ex.P-9 : Certified True copy of Show Cause Notice
Ex.P-10 : Certified True copy of Response
List of witnesses examined on behalf of the Accused:
- Nil -
List of Documents examined on behalf of the Accused:
- Nil -
Presiding Officer, Spl. Court for Economic Offences, Bengaluru.
20 C.C.45/2018
16.07.2024
Complt: Sri. CB
A: 1 & 2: KSJ
For Judgment Smt. SMB., Advocate files memo of
appearance on behalf of complainant.
Accused No.1 company.
Accused No.2 present.
Judgment pronounced in the open court
(vide separate order)
ORDER
By exercising the power conferred under
section 248(1) of Cr.P.C., the accused Nos.1 & 2 are acquitted of the offences punishable under section 276B r/w Section 278B of the Income Tax Act, 1961.
Consequently, accused Nos.1 & 2 are set at liberty.
The corresponding bail bonds of accused No.2 stands canceled.
PRESIDING OFFICER.