Delhi District Court
Ito vs M/S Allied Perfumers (P) Ltd. & Ors. on 28 April, 2018
IN THE COURT OF SH. PAWAN SINGH RAJAWAT:
ADDL CHIEF METROPOLITAN MAGISTRATE (Spl. Acts): CENTRAL
TIS HAZARI COURTS: DELHI
ITO vs M/s Allied Perfumers (P) Ltd. & Ors.
CC No.526216/16
JUDGMENT
(a)Date of commission of offence : Date of filing of return 30.9.11
(b)Name of complainant : Sh. Bhawani Shankar Assistant Commissioner of Income Tax.
(d)Name, parentage, residence : 1)M/s Allied Perfumers (P) Ltd.
of accused E-3, 1st Floor, Phase-II,
Mangolpuri Industrial Area,
Delhi-110 034.
2) Sh. Sanjeev Aggarwal,
Director
C/o Surya Vinayak Industries
Ltd.
E-3, 1st Floor, Phase-II,
Mangolpuri Industrial Area,
Delhi-110 034 and
R/o Flat No. D-310, Karoor,
CGHS Ltd., Plot No. 39C,
Sector-6, Dwarka, New Delhi.
(e)Offence complained of/ proved : U/s 276C(2)/277 r/w 278B IT
Act
(f)Plea of accused : Pleaded not guilty
(g)Final order : Convicted
(h)Date of such order : 28.04.2018
Date of Institution of complaint : 03.09.2012
Date of Reservation of Judgment : 23.04.2018
Date of Pronouncement of Judgment : 28.04.2018
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Brief statement of the reasons for the decision:-
1. The complainant Mr.Bhawani Shankar, the then Asstt, Commissioner of Income Tax filed the present complaint against the aforesaid accused persons for the offences u/s 276C(2)/277 read with section 278B of Income Tax Act (hereinafter to be referred as the Act).
2. As alleged in the complaint, accused no.2 was the Director of the accused no.1 during the period relevant to the assessment year 2011-12 and the accused no.1 filed e-return of income for AY 2011-12 through digital signature of accused no. 2 declaring total income of Rs.34,69,77,030/- and has shown to have paid self assessment tax u/s 140-A amounting to Rs. 12,77,37,310/-. It is further alleged that when the said payment was verified from the AST, it was found that no such payment was made and the accused have willfully attempted to evade the payment of tax and have thus committed offence punishable U/s 276-C(2) r/w 278-B of the Income Tax Act (IT Act). It is further stated in the complaint that accused have willfully mentioned the false BSR Code, false Challan deposit date and false Challan seq. Number and thus committed offence punishable U/s 277 r/w 278-B of the I.T. Act.
3. Accused were summoned. Copies of complaint and of documents were supplied.
4. In order to substantiate the allegations against the accused, the prosecution examined the complainant Sh. Bhawani Shankar DCIT as PW1, Sh. B.M. Singh as PW2, Sh. Sanjoy Paul as PW3.
ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 2 of 15
5. PW1 Sh. Bhawani Shankar was the complainant who proved on record the complaint as Ex.PW1/1 and his authorization to file the present complaint as Ex.PW1/2, list of witnesses as Ex. PW-1/3, return of income filed by the accused as Ex. PW1-/4, showcause notice dated 12.06.12 Ex. PW-1/5, its reply dated 19.06.2012 as Ex.
PW-1/6. He further deposed that another letter dated 03.02.12 was received from the accused admitting that they have actually not paid the self assessment tax copy of which is Ex. PW-1/7 and the same was verified from the system section of the department vide their letter dated 10.07.12 which is Ex. PW-1/8. He further deposed that a showcause notice Ex. PW-1/9 dated 26.07.12 for launching of prosecution was issued to the accused by the CIT and reply Ex. PW- 1/10 was duly received from the accused. He further deposed that accused have committed offence punishable U/s 276C(2) of the IT act and by making falsely verification in the return and deliberately giving false information the accused has committed offence punishable U/s 277 of the IT.Act r/w Sec. 278-B of the said Act. The cross examination of the witness will be discussed at a later stage.
6. PW2 is Sh. B.M. Singh Deputy Director (Systems), New Delhi who identified his signatures on Ex. PW-1/8 which he wrote to the CIT, Central-II in the case of M/s Surya Vinayak Industries Ltd. He deposed that if there is any amount of tax payable as per the return income and has been shown as payable, the system accepts the said return as will be filed by the assessee, if the tax is shown as payable, it will accept as payable. He further deposed that the system will not change the nature of tax payable to tax paid and if the facts of the case are the same, the system will work the same as in the case of Surya Vinayak. The cross examination of the witness will be ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 3 of 15 discussed at a later stage.
7. PW3 Sh. Sanjoy Paul deposed that he was posted as ACIT, Central Circle-1 and had jurisdiction on the present case. He further deposed that he had issued letter dated 12.06.2012 Ex. PW-1/5. The cross examination of the witness will be discussed at a later stage.
8. Sh. Ramesh Kumar, DCIT Central Circle-25 was examined as PW-4 in response to application U/s 311 Cr.P.C. He stated that during his said posting, he had jurisdiction to the present case. He further stated that the return of income for AY 2011-12 declaring total income of Rs. 34,69,77,030/- was digitally signed by accused no.2 Sanjeev Aggarwal in the capacity of Director and proved its copy of acknowledgment as Ex. PW-4/1 and copy of letter dated 23.03.2012 as Ex. PW-4/2. The cross examination of the witness will be discussed at a later stage.
9. After hearing arguments on conclusion of pre charge evidence, a charge for the offence punishable u/s 276C(2) and 277 of the Act was framed against the accused persons to which they pleaded not guilty and claimed trial. After post charge evidence was closed, matter was fixed for recording statement of accused U/s 313 Cr.P.C. which was recorded on 31.05.17.
10. Statement of accused no. 1 recorded u/s 313 Cr.P.C through its AR. In his statement AR of accused no. 1 submitted that concerned Director was responsible for day to day affairs of the company and he has no personal knowledge of the case. Accused no. 2 in his statement U/s 313 Cr.P.C. also stated that he has not ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 4 of 15 signed any document. The digital signature on Ex. PW-4/1 was put without his knowledge and authorization and has been falsely implicated in the present case.
11. Accused no. 2 testified as DW-1 in his defence. He stated that he was the salaried director in M/s Surya Vinayak Industries Ltd. which is the sister concern of the accused no.1/company and he was not the principal officer of the company. He further deposed that the ITR Ex. PW-1/4 was filed without his knowledge and authorization and same was filed by accounts manager of the company on the direction of Sh. Sanjay Jain, Chairman-cum- Managing Director of the company. He further stated that his digital signature was got affixed on the direction of Sh. Sanjay Jain. During cross examination by Ld. SPP, he denied that the documentation with respect to salary were being done in the accused company to evade the income tax. He admitted that he had not lodged any complaint to any authority with regard to misuse of his digital signatures in submitting the ITR.
12. I have given my thoughtful consideration to the submissions advanced on behalf of parties and gone through the records. Accused no. 2 has also filed written submission in terms of Section 314 Cr.P.C. I have also considered the relevant provisions of the Income Tax Act, 1961.
13. The relevant provisions of section 276C(2) are reproduced herein below: Section 276C(2). If a person willfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any provisions of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend three years ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 5 of 15 and shall, in the discretion of the court, also be liable to fine. Explanation. For the purposes of this section, a willful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person
(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry or statement in such books of account or other documents; or
(iii) willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or
(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.]
277. False statement in verification, etc. If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be rue, he shall be punishable, in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine] 278B. Offences by companies. (1) Where an offence under this Act has been committed by a company, every person who, at the time the 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 shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
278E. Presumption as to culpable mental state. (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state which respect to the act charged as an offence in that prosecution.
14. Whether accused no. 2 is the person responsible to and incharge of the conduct of the day to day business of the accused no. 1: Vicarious liability cannot be imputed merely on the ground that accused was director of the company. Law in this regard has been summarized by our own High Court in case titled as Sudeep Jain vs M/s ECE Industries Ltd in Cri. M.C. No. 1822/2013, order dated 06.05.2013. While discussing the vicarious liability of the ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 6 of 15 Director, it was observed that vicarious liability on the part of a person must be pleaded and proved and not inferred. Same view has been taken by the Hon'ble Apex court in "National Small Industries Corp. Ltd. vs. Harmeet Singh Paintal and Anr., 2010 (2) SCALE 372". Relevant para of the judgment is reproduced below:-
"24. ... if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was in- charge of the business of the company" or by stating that "he was incharge of day to day management of the company" or by stating that "he was incharge of, and was responsible to the company for the conduct of the business of the company", he can not be made vicariously liable under Section 141(1) of the Act. To put it clear that for making a person liable under Section 141(2), the mechanical repetition of the requirements under Section 141(1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under Sub-section (2) of Section 141 of the Act".
15. Thus, it is clear that for holding a director responsible for a criminal offence, it has to be established by the prosecution that he/she was the person incharge for the day to day affairs of the firm during the relevant time. It is also clear from the law laid down by the Hon'ble Supreme Court that a partner/director cannot be made ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 7 of 15 personally liable for the offences committed on behalf of the firm/company and the criminal liability can not be extended to another partner/director merely by virtue of his being Director in the firm/company unless something concrete is proved on record to show that he/she was the person incharge and responsible for the conduct of the business of the firm/company.
16. In the present case, apart from bare submission in statement U/s 313 Cr.P.C. accused no. 2 has not led any evidence to show that he was not handling day to day affairs of accused no.1. On the other hand, there are specific averments in the complaint about the liability of accused no. 2 which has not been denied by positive evidence or even by leading evidence showing preponderance of probability in favour of the accused persons.
17. PW-1 has categorically stated that accused no. 2 has digitally signed and verified the e return in question. Admittedly accused no. 1 filed its e-return through digital signature of accused no. 2. At no point accused no. 2 denied that the said digital signature does not belong by him. His only defence is that the digital signature is put on the return on the direction of CMD of accused no. 1 Sh. Sanjeev Jain and the said digital signature was under the care and custody of company secretary of accused no.1. Even accused in his defence evidence as DW-1 has also claimed that Sh. Sanjeev Verma CA was responsible for accounts of the company but no evidence whatsoever has been brought on record to prove the same.
18. During cross examination PW-1 has denied that accused no. 2 has not signed the verification part of the return of income. He ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 8 of 15 has categorically stated that accused no. 2 was the director of the company. However he has admitted that the show cause notice was not given by the name to accused no. 2. However as per Ex. PW-1/9 and PW-1/5 the showcause notice has been issued to the Principal Officer of accused no. 1 which has been duly replied and the replies are Ex. PW-1/6 and PW-1/10. The failure in identifying the signature of accused no. 2 by PW-1 is of no relevance as it is not the physical signature but the digital signatures are in question in the present case.
19. As per Ex. PW-1/6 it is claimed that accused no. 1 has already informed the department vide letter dated 09.11.11 and 03.2.12 that no tax has been paid and the tax is still payable with the reason thereof mentions that server of the department was not uploading the return of income by showing tax payable as such the other details of payment of tax were also filled up were incorrect. However in both the replies it has not been denied that the return was up loaded on the system with paid remarks but the justification given is without any basis. The return was filed on 30.09.11 but there is no explanation why it took so long to accused to inform the complainant about such alleged error in the system.
20. PW-4 has categorically stated that the return for assessment year in question was digitally signed by Sanjeev Aggarwal in the capacity of Director on 30.09.11. He proved the said copy of return as Ex. PW-4/1. During cross examination he denied that digital signatures on Ex. PW-4/1 does not belongs to Sanjeev Aggarwal and if at all same has been put by someone else without his knowledge.
ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 9 of 15
21. The plea of accused that they have informed the department about the alleged error in the system is not acceptable as the department has already initiated search on March 2011 itself and letter dated 09.11.11 appears to be cover up exercise to hide true facts from the complainant department.
22. Moreover, Information Technology Act 2010 deals with the process/procedure to be followed for affixing digital signatures. Section 2(p) defines "digital signature"means authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3. Section 2(q) defines "Digital Signature Certificate" means a digital signature certificate issued under sub section (4) of section 35.
23. Section 3 provides that authentication of electronics records shall be made by affixing digital signature by subscriber and same shall be effected by the use of asymmetric crypto system and hash function which envelop and transform the initial electronic record into another another electronics record.
24. Section 41 provides the manner in which the Digital Signature Certificate (DSC) is required to be accepted and controlled. It provides that the subscriber shall deemed to have accepted the DSC if he publishes or authorizes the publication of DSC to one or more person in a repository or otherwise demonstrate his approval of DSC. It further mentions that by accepting a DSC the subscriber certifies to all who reasonably rely on the information contained in the DSC that the subscriber holds the private key corresponding to the public key listed DSC and all representations made by the ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 10 of 15 subscriber are true and within the knowledge of the subscriber.
25. Section 42 caste duty upon the subscriber to exercise reasonable care to retain control of the private key corresponding to the public key listed in DSC and take all steps to prevent its disclosure to a person not authorise to affix the DSC. It further bounds the subscriber to involve certifying authority if the DSC has been compromised in any manner and subscriber shall be liable for all acts done with the said DSC.
26. However, the accused has admittedly not taken any of the steps to prevent alleged misuse of his DSC or even informed the certifying agency about such misuse. The plea of accused no. 2 that the DSC was in the custody of Company Secretary is also negated by his own deposition as DW-1 wherein he admitted that the Company Secretary used his DSC with his consent.
27. The plea that there were other 11 directors apart from accused no. 2 is rejected as it is the Director who was responsible for day to day affairs is liable for the default and of falsity in return. In the present case it is accused no. 2 who is digitally signed the said return. Thus in view of above discussion it is held that accused no. 2 is responsible for affairs of accused no. 1.
28. Whether there was willful attempt to evade the payment of tax on behalf of accused no.1: All the complainant witnesses categorically stated that accused persons have willfully attempted to evade tax by showing the due tax as paid which was not credited to the accounts of the complainant department.
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29. PW-1 has categorically stated that he has considered the representation of the accused which are Ex. PW-1/6 and PW-1/10 before filing the complaint. He denied the suggestion that accused Sanjeev Aggarwal was not the Principal Officer of accused no. 1 and not responsible for its day to day affairs. Even though accused has brought letter dated 09.11.11 to show their bonafide in informing the department about the system error. However accused have conveniently not disclosed before the Court about the ongoing investigation started in March 2011 itself by the Dy. Director (Inv.), Income Tax. Hence, the document Ex. PW-1/D1 which is letter dated 09.11.11 does not absolve accused from the liability.
30. PW-2 has categorically stated in the examination in chief that the system will not change the nature of tax payable to tax paid. He has also stated that if there is any amount of tax payable and has been shown as payable, the system accepts the said return. During cross examination no material supporting the case of accused put to PW-2.
31. Whether accused persons made false statement by falsely showing the tax paid in the e-return filed :PW-1 has stated that accused no. 2 has digitally signed the return on 30.9.11 showing the amount of tax as paid and also put the BSR code with date of deposit of challan and sequence number which on verification found to be false. It has not been denied by the accused person that the return was uploaded with the remarks paid, having BSR Code and date of deposit of challan and sequence number. No material showing system error has been brought by accused persons.
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32. Ex. PW-1/8 which is the clarification sought by the Director of Income Tax (Systems) wherein it is clarified that neither there is nor there was any check in e-filing software for not loading/ uploading of return without payment of assessment tax. The accused has not lead any evidence to show the alleged system error. It is proved upon the verification that there was falsity in the return of income filed by accused no. 1 through accused no. 2.
33. Whether the non compliance of section 65-B of Indian Evidence Act is fatal to the case of complainant: It is argued that since complainant has not filed certificate U/s 65-B of the Evidence Act, therefore, the copy of ITR annexed cannot be taken as proved for fastening liability on the accused persons for false statement.
34. Section 65-B of the Indian Evidence Act provides a procedure to be followed to prove relevant admissible evidence. It is intended to supplement the law on the point of declaring that any information in electronic record was to be deemed to be document and admissible in any proceeding without further proof of original. The said provision cannot be read in derogation of the exiting laws on admissibility of electronic evidence.
35. In the matter of Anwar P.V. Vs. P.L. Bashir & Ors. :
(2014 )10 SCC 473, the Apex Court observed that electronic evidence by way of primary evidence is covered by Section 62 of the Evidence Act to which procedure of Section 65-B is not admissible.
36. In the matter of Shafhi Mohammad Vs. State of ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 13 of 15 Himachal Pradesh: SLP (Crl.) No. 2302 of 2017 by order dated 30.01.2018 Hon'ble Supreme Court after discussing the existing law on admissibility of electronic evidence has held as under:-
" I. Electronic evidence is admissible per se and section 65A and 65B are classificatory and procedural in nature and cannot be read in the complete code on the subject. The satisfaction of court with regard to authenticity of the electronic record is having privacy."
It further held that "the certificate U/s 65-B(4) is to be furnished only by a person who is in position to produce such certificate being in control of said device."
37. At no point the accused no.2 have claimed that the DSC on the Ex. PW-4/1 does not belong to him. His only defence that same were put on the e-return without his knowledge. Even AR of accused no. 1 has not claimed that the e-return was not filed for accused no.1 and the only defence is that due to system error the amount of tax has been shown as paid. The procedure U/s 65-B is provided to immediate possibility of tampering of such electronic record. However, it is settled law that procedure is handmaid of justice and if there is no denial of fair play, the lapse if any, in following the procedure shall not adversely affect the case of the complainant. At no point accused persons have claimed that complainant has filed fabricated e-return with the complaint. Hence, I am satisfied that no prejudice has been caused for non filing of certificate U/s 65 B of Evidence Act in the Court.
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38. Whether the sanction was proper:- The sanction order is Ex. PW-1/2. It was argued that the sanction was given in a mechanical manner as the showcause notice was also issued by the sanctioning authority and therefore, the sanction was not independent.
39. I have perused the sanctioning order as well as the showcause notice Ex. PW-1/5 & its reply Ex. PW-1/6. A showcause notice was issued by ACIT, Central Circle-01 and the reply was signed by one of the Directors. On the other hand, the sanctioning order was passed by Commissioner, Income Tax, Central Circle-III. Hence, the submission of Ld. counsel that the showcause issuing authority and the sanctioning authority are same.
40. In view of the aforesaid discussions and evidence on record, I am satisfied that the complainant has been able to prove the case beyond reasonable doubt. Accordingly, accused no.1 M/s Allied Perfumers Pvt. Ltd. and accused no. 2 namely Sanjeev Aggarwal are held guilty for the offence punishable u/s 276-C(2)/277 r/w Sec. 278-B of Income Tax Act 1961 for the Assessment Year 2011-12.
41. Copy of the judgment be given free of cost. Miscellaneous file be prepared for the purpose of arguments on sentence.
(PAWAN SINGH RAJAWAT) ACMM(Special Acts) CENTRAL TIS HAZARI COURTS DELHI Announced in open court on 28th of April, 2018 ITO vs M/s Allied Perfumers P. Ltd. CC No. 526216/16 15 of 15