Bangalore District Court
The Assistant Commissioner Income Tax vs M/S.K.B.R. Infratech Ltd on 4 May, 2018
1 CC.No.62/2015
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 4th day of May 2018
: Present:
Sri. SHANTHANNA ALVA M., B.A., LL.B.,
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC. No. 62-2015
Complainant: The Assistant Commissioner Income Tax,
Income Tax Department, TDS Circle -16 (2),
H.M.T. Bhavan, Bangalore.
(By Spl. P.P. Sri. J.J.N.)
.Vs.
Accused: 1.M/s.K.B.R. Infratech Ltd.,
No.1, 1st Floor, 8th Main, Balaji Layout,
Kodigehalli Main Road, TATA Nagar,
Bangalore.
(Company Registered under Companies
Act rep., by its Mg. Director - Babu Raju)
2. Babu Raju, Managing Director,
49 Years, M/s. K.B.R. Infratech Ltd.,
No.1, 1st Floor, 8th Main, Balaji Layout,
Kodigehalli Main Road, TATA Nagar,
Bangalore.
(By Sri. B.R.R., Advocate)
JUDGMENT
1. The complainant/Assistant Commissioner of Income Tax, Income Tax Department, TDS Circle-16(2), H.M.T. 2 CC.No.62/2015 Bhavan, Bangalore, on the basis of sanction order dated:
28.08.2014 accorded by the Commissioner of Income Tax (TDS), Bangalore, filed the complaint u/s. 200 of Cr.P.C.
alleging that the accused No.1 and 2 have committed the offence punishable u/s.276B, R/w.Sec.278B of Income Tax Act, 1961. (Herein after referred as the 'I.T. Act').
2. The complainant's case in brief is that the accused No.1 - M/s. K.B.R. Infratech Ltd., Bangalore is a company engaged in the business of construction of buildings, roads etc., Accused No.2 is the Managing Director of accused No.1 company and he is responsible for the day to day conduct of accused No.1 company. The Assessing Officer (A.O) vide notice dated:25.07.2013 issued u/s.2(35) of the I.T. Act treated accused No.2 as the Prl. Officer of accused No.1 company and accused No.2 admitted that position in accused No.1 Company. The complainant conducted the survey u/s. 133A of the I.T. Act in the premises of accused No.1 Company on 25.07.2013. The survey disclosed that the accused No.1 had deducted the tax at source amounts to Rs. 2,05,55,719/- for the Financial Year 2012-13 and Rs.15,39,059/- for the Financial Year 2013-14. After the 3 CC.No.62/2015 survey, the A.O issued a letter dated: 25.07.2013 calling upon the accused to show cause as to why the accused No.1 Company should not be treated as an assessee in default u/s.201 (1A) of the I.T. Act and fine should not be imposed. The accused No.1 company gave reply stating that due to blocking of funds, the TDS could not be remitted. Then, the order u/s. 201(1) of the I.T. Act was passed and the accused remitted the TDS along with interest. The penalty was also levied. The accused failed to remit the tax deducted at source within stipulated period of time and thereby accused No.1 committed the offence punishable u/s. 276B of the I.T. Act. Accused No.2 is the Managing Director and he failed to comply with the statutory provisions, thus, liable for the offence committed by accused No.1 Company by virtue of Sec. 278B of the I.T. Act, hence the complaint.
3. On presentation of the complaint, cognizance was taken and the case registered against accused No.1 and 2 for the offence punishable u/s. 276B, R/w.Sec.278B of the Income Tax Act, 1961.
4 CC.No.62/2015
4. In response to the summons, the accused No.1 and 2 appeared through his counsel and enlarged on bail. Copies of the complaint and other documents were furnished to him. Then, the evidence before charge was recorded as required u/s.244 of Cr.P.C. and then on hearing the learned counsels of the complainant and the accused No. 1 & 2, charge was framed for the offence punishable u/s. 276B, R/w. Sec.278B of the Income Tax Act, 1961 and read over to Accused No.1. The accused No.2 pleaded not guilty for himself and also on behalf of accused No.1 company and claimed for trial.
5. To prove the charge leveled against the accused, the complainant got examined himself as P.w.2 and another witness examined as P.w.1 and got marked the documents Ex.p.1 to 12.
6. After closure of complainant's side evidence, the statement of accused No.2 and also on behalf of accused No.1 was recorded as provided u/s. 313 of Cr.P.C. The accused No.2 and also on behalf of accused No.1 company denied incriminatory evidence found against him. 5 CC.No.62/2015 The accused No.2-Babu Raju himself got examined as D.w.1 and got marked Ex.D.1 to 6.
7. Heard the arguments of the learned counsels of the complainant and accused. Perused the complaint and the evidence on record. The points that arise for my consideration are:
Point No.1: Whether the complainant has proved that without justifiable reason, the accused No.1 not remitted the collected TDS amount of Rs. 2,20,94,778/- of the Financial Year 2012-13 and 2013-14 and thereby committed the offence u/s. 276B of the I.T. Act and accused No.2 being the Managing Director/Prl. Officer of accused No.1 company also held to be the guilty of offence punishable u/s. 278B of the I.T. Act?
Point No. 2: What order?
8. My findings on the above said points are as under:
Point No.1: In the Negative, Point No.2: As per the Final orders for the following:
REASONS
9. Point No.1: Accused No.1 - M/s. K.B.R. Infratech Ltd., Bangalore is a registered company and accused No.2 is it's Managing Director. Accused No.1 admitted that it has 6 CC.No.62/2015 deducted the TDS amount of Rs. 2,20,94,778/- for the Financial Year 2012-13 and 2013-14 as required u/s.192, 194C and 194J of the I.T. Act at various sources such as from the salaries, contract and professional fees. Accused No.1 ought to have remitted deducted TDS amount within stipulated period of time as contemplated under Rule. 30 of the I.T. Act. Accused No.1 not remitted the TDS within stipulated time i.e., within one week from the last day of the month in which the deduction is made and they were remitted with interest after passing of assessment order dated: 30.07.2013.
10. Sec. 276B of the I.T. Act deals with criminal consequence of not remitting the deducted TDS within the stipulated time and it says that if a person fails to pay to the credit of the Central Government Account, the tax deducted at source by him as required by or under the provisions of Chapter-XVII-B, he shall be 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. The accused taken up the contention that due to the withholding of funds by the Government Organization, the 7 CC.No.62/2015 deducted TDS amount could not be deposited within stipulated time and there is no willful fault on the part of accused No.1. Learned counsel of the accused argued that the Commissioner of Income Tax (TDS) not considered these aspects while according the sanction. In the reply dated: 29.07.2013, the accused No.1 stated that due to blocking of funds by their employers in various departments, the TDS amounts were not remitted. Before the A.O. also the accused No.1 has taken up similar contention. To the reply given to notice issued before according the sanction, the accused No.1 stated that because of serious financial crises, the deducted TDS were not remitted.
11. C.w.1 - Mr. K.R. Narayan, examined as P.w.1 deposed about the conducting of survey and passing of assessment order. The preliminary survey report dated:
26.07.2013, copy of the notice dated: 25.07.2013 issued u/s.2 (35) of the I.T. Act, the reply dated: 27.07.2013 given by the accused No.2, copy of the notice dated:25.07.2013 issued to accused, the reply dated:27.07.2013 given by the accused and certified copy of the order u/s.201 (1) of the 8 CC.No.62/2015 I.T. Act are produced marked as Ex.p.1 to 9. The certified copy of order of penalty u/s.221 of the I.T. Act is marked as Ex.p.10. C.w.2 - Mr. Hari Prasad Rao examined as P.w.2 deposed that he has filed the complaint based on the sanction order is marked as Ex.p.11.
12. Accused No.2 deposed that because of blocking of funds, the TDS amount couldn't be remitted. Copies of the letters marked as Ex.D.1 to 5 addressed to various agencies whose works accused No.1 has undertaken, disclose that the accused No.1 was in due of amounts from various agencies. Ex.D.6 is the order dated: 10.09.2015 wherein, the Appellate Authority accepted the contention of the accused No.1 that it had faced genuine difficulties during relevant period and for the reason of remitting of TDS along with interest u/s. 201(1A) @.1.5% per month, the penalty levied at 5% per month u/s. 221 of the I.T Act was deleted.
13. The learned complainant counsel argued that once the TDS is deducted, then it has to be remitted to the Central Government Account. The accused No.1 had no right to retain the TDS amount and use the same for their 9 CC.No.62/2015 other purposes. It is argued that mens-rea is not pre- requisite ingredient to constitute the offence u/s.276B of the I.T. Act. The learned counsel of the complainant argued that the financial constraints couldn't be made as grounds to evade the penal consequences. Once the TDS amount is deducted, then the deductor is legally bound to remit the same to the Government. The learned counsel relied upon the ruling rendered by the Hon'ble Punjab & 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 that "mens-rea is not a requisite ingredient of the offence under Section.194a /200/276b of the Act. If the accused fails to make deduction of tax at source, he is liable to be punished for the said offence. If the firm accused fails to pay tax deducted at source, the prosecution and punished under Section.276B is valid." The Madras High Court in the case of Rayala Corporation Pvt., Ltd., Vs. V.M. Muthuramalingam, Income Tax Officer, reported in 1981 ITR 129 675, the Madras High Court has held that "Sec.276B of the Income Tax Act, 1961, attracts to the delayed payments and not 10 CC.No.62/2015 only to the case of total failure to pay the tax deducted tax. The Hon'ble Delhi High Court in the case of Rishikesh Balkishan Das Vs. I.D. Manchanda reported in 1987 ITR (167) 49 which 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. Therefore, in a case under Section.276B read with Section.194A of the Act, mens-rea was not required."
14. Sec. 276B o of the I.T Act not says that there must be willful default, thus, there is no need of proving the mens-rea. In the rulings relied by the referred above, then legal aspect has been reiterated. In the ruling reported in 1987 ITR (167) 49 (Delhi) referred above, by relying upon the ruling of the Hon'ble Apex Court, in the case of Maharastra Vs. Mayer Hms Goerge, reported in AIR 1965 SC 722, At Para No.27, it is held that "offence created u/s.276B of the Act excludes the application of doctrine of 11 CC.No.62/2015 mens-rea." Thus, the contention of the accused No. 1 & 2 that they had no willful intention in not remitting the TDS, hence entitle for acquittal is not sustainable. However, the amendment made to Section.278AA on 01.04.1989 added Section .76B also. That means if a person who charged for the offence punishable under section 276B proves that there was reasonable cause for such failure, then he is not punishable for such offence. Thus the contention of the complainant that non remittance of collected TDS ipso facto resulted in commission of offences punishable under section 276B of the I.T. Act is not sustainable.
15. In the case on hand, the penalty imposed on accused No.1 was dropped. The consequence of deleting of penalty on factual basis is having the direct nexus on the criminal proceedings. The existence of sufficient and reasonable cause for non-payment of tax deducted at source within the prescribed time is an essential ingredient to levy finality under Sec.201, R/w. Sec. 221 of the I.T Act. The finding given in this aspect is one of the aspects to be considered in the criminal case. Hon'ble Apex Court in the case of P. Jayappan Vs S.K. Perumal reported in (1984) 149 ITR 12 CC.No.62/2015 696 (SC) held that "the criminal court, no doubt, has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and, in an appropriate case, it may drop the proceedings in the light of an order passed under the Act." Rajastan High Court, in the case of S.G. Kale vs. Union of India, reported in (2001) 168 CTR Raj. 214, held that "in the case penalty deleted, then criminal proceedings cannot be launched for the offence punishable u/s 276B of the Act." The Hon'ble Delhi High Court, in the case of Sequoia Construction Co., (P) Ltd., & others Vs. P.P. Suri, reported in ITO (1986) 158 ITR 496 (Del.), wherein, the court has held that "where the penalty is imposed on the assessee u/s. 201(1) R/w. Sec.221 of the I.T. Act, for failure to deposit tax deducted at source to the credit of the Central Government Account within the prescribed time are cancelled on merits after accepting the case of the assessee that there was good and sufficient reason for not depositing the tax within time. The milder proof of "reasonable case" contemplated by Sec.276B for an offence for the same defect should be taken to have been established and it would be a sheer 13 CC.No.62/2015 exercise in futility and harassment of the accused/assessee to allow criminal prosecution to proceeding against him. The Special Leave Petition preferred against the above decision was dismissed and it was reported in (198) 171 ITR 257.
16. Here, in this case also, the penalty imposed u/s. 221 of the I.T Act was deleted with or specific finding that because of the financial difficulties, the accused No. 1 couldn't credit the deducted TDS. In the above citied rulings, it has to be held that if penalty is deleted with such finding then, criminal proceedings for the offence punishable u/s. 276B of the I.T. Act cannot be proceeded with. The accused No.1 produced the documents and evidence to the effect that the accused No.1 had the financial difficulties. Only for the reason that the accused No.1 used the deducted TDS for its financial difficulties, it cannot be held that accused No.1 committed the offence punishable u/s. 276B of the I.T. Act.
17. It is not in dispute that the accused No.2 was in charge of accused No.1 company at the relevant period. Thus, had the complainant succeeded in proving that the 14 CC.No.62/2015 accused No.1 committed the offence punishable u/s. 276B of the I.T. Act, then accused No.2 would have been held liable for the said offence by virtue of Sec. 278B of the I.T. Act. But, the complainant failed to prove that first part of point No.1, consequently 2nd part also goes. Accordingly, this point is answered in negative.
18. Point No.2: In view of my findings on Point No.1, I proceed to pass the following:
ORDER By exercising the power conferred u/s. 248(1) of Cr.P.C. accused No.1 and 2 are acquitted for the offence punishable u/s. 276B, R/w.Sec.278B of the Income Tax Act, 1961.
Bail bonds of accused No.1 and 2 shall stand cancelled.
(Dictated to Stenographer directly on computer, typed by her corrected and then th pronounced by me, in open court on this the 4 day of May - 2018) PRESIDING OFFICER.15 CC.No.62/2015
ANNEXURE:
ON BEHALF OF THE COMPLAINANT: Witnesses:-
P.w.1 - K.R. Narayan, P.w.2 - Hariprasad Rao.
Documents:-
Ex.p.1 - C/c of Survey Report, Ex.p.2 - C/c of Notice, Ex.p.3 - C/c of Reply dated:29.07.2013, Ex.p.4 - C/c of Show Cause Notice, Ex.p.5 - C/c of Reply Letter, Ex.p.6 - C/c of Order, Ex.p.7 - C/c of Order, Ex.p.8 - C/c of Order, Ex.p.9 - C/c of Order, Ex.p.10 - C/c of Order, Ex.p.11 - C/c of Sanction Order, Ex.p.12 - Complaint.
MATERIAL OBJECTS: Nil.
ON BEHALF OF THE ACCUSED: Witnesses:-
D.w.1 - Babu Raju.
Documents:-
Ex.D.1 - Notarized O/c of Letter dated: 30.05.2013, Ex.D.2 - Notarized O/c of Letter dated: 23.04.2013, Ex.D.3 - Notarized O/c of Letter dated: 24.05.2013, Ex.D.4 - Notarized O/c of Letter dated: 20.04.2012, Ex.D.5 - Notarized O/c of Letter dated: 29.06.2013, Ex.D.6 - Copy of Order.
(SHANTHANNA ALVA M.) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.16 CC.No.62/2015
04.05.2018 Complt., - J.J.N., A.1 Co., rep. by A.2, A.2 - BRR., For Judgment.
(Judgment pronounced in open court vide separate order) ORDER By exercising the power conferred u/s. 248(1) of Cr.P.C. accused No.1 and 2 are acquitted for the offence punishable u/s. 276B, R/w.Sec.278B of the Income Tax Act, 1961.
Bail bonds of accused No.1 and 2 shall stand cancelled.
PRESIDING OFFICER.