Bangalore District Court
The Income Tax Department vs M/S. Geodesic Techniques Pvt on 30 July, 2022
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 30th day of July 2022
:Present:
Sri. ANAND S. KARIYAMMANAVAR, B.A., LL.B., (Hon')
Presiding Officer, Special Court
For Economic Offences, Bengaluru.
C.C.No.169/2019
Complainant: The Income Tax Department
By the Income Tax Officer (TDS)
Ward-1(3),
Bengaluru.
(Reptd. By Sri. S.S.H., Advocate (Spl. P.P)
Vs.
Accused : 1. M/s. Geodesic Techniques Pvt., Ltd.,
Plot No.4, 4th Cross,
Peenya Industrial Estate,
1st Stage, Peenya,
Bengaluru - 560 058.
Reptd. by its Managing Director
2. Sri. Srinidhi Anantharaman,
Managing Director,
M/s. Geodesic Techniques Pvt., Ltd.,
Plot No.4, 4th Cross,
Peenya Industrial Estate,
1st Stage, Peenya,
Bengaluru - 560 058.
(Reptd. By Sri. AA., Advocate)
:JUDGMENT:
This is a complaint made by the complainant against the accused No.1 & 2 for the offence punishable under section 276B r/w. section 278B of the Income Tax Act, 1961.
2 C.C.No.169/20192. The brief facts of the case of the complainant that:
Accused No.1 is the registered company registered under Companies Act, which is engaged in the business of integrated design, engineering, supply and construction services for steel intensive construction and infrastructure sector projects. The accused No.2 is the Managing Director of accused No.1, who is responsible for day to day business of accused No.1 company. Further it is the case of the complainant that the accused No.1 company and its Principal Officer had deducted TDS during the financial year 2014-15 on various heads U/s.192B, 194A, 194C, 194H, 194I, 194J & 206C of Income Tax Act, 1961 to the extent of Rs.40,00,220/- However, the said deducted tax not remitted to the Central Government within the time as per Rule 30 of Income Tax Rules r/w section 200 of the Act. Further it is the case of the complainant that the accused No.1 & 2 being aware of all the facts defaulted in making remittance. Accordingly, the Commissioner of Income Tax (TDS), Bengaluru issued show- cause notice on 10.02.2017 about informing the offence. However, on 04.09.2017, the accused gave reply stating that due to financial hardship, they could not remitted TDS in time thereby they admitted the default of not remitting the TDS tax liability. Hence, the present complaint came to be filed.
3. Upon receiving the complaint, the sworn statement is dispensed with as the complainant is a public servant and this court took cognizance for the offence punishable U/s.276B r/w 278B of Income Tax Act, 1961. Thereafter, the 3 C.C.No.169/2019 summons was issued to the accused No.1 & 2 and they appeared and enlarged on bail. The charge was framed and read over to accused No.2 and explained to him in the language known to him. He pleaded not guilty and claimed to be tried. As such, the complainant was called upon to lead evidence.
4. In order to bring home the guilt of the accused, the complainant has examined its Mr. Shailendra Kumar Choubey, Income Tax Officer, Bengaluru as PW-1 and got marked six documents as Ex.P-1 to Ex.P-6 in its side.
5. After the completion of evidence on behalf of complainant, the incriminating evidence available against accused persons was read over as per the provisions of Section 313 of Cr.P.C. However, accused denied the same and accused No.2 has been examined as DW-1 and got documents marked Ex.D-1 to Ex.D-39 with consent.
6. Heard the arguments advanced by both the counsels for the complainant and accused. Upon hearing their arguments and on going through the materials on record, the following points arise for determination of this court:
1. Whether the complainant proves beyond all reasonable doubt that the accused No.1 being company and accused No.2 being Managing Director of accused No.1 company defaulted in remittance of TDS amount of Rs.40,00,220/- to the Central Government thereby committed offences punishable U/s.276B of Income Tax Act, 1961?4 C.C.No.169/2019
2. Whether the complainant proves beyond all reasonable doubt that the accused No.2 being Managing Director of accused No.1 company is also liable to be punished as Principal Officer U/s.278B of Income Tax Act, 1961?
3. What order?
7. My findings on the above said points are 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
8. Point No.1 & 2: As these two points are inter-connected with each other. To avoid repetition of facts, both the points are taken together for consideration.
9. The complainant in order to prove its case examined Income Tax Officer as PW-1 and got marked Ex.P-1 to Ex.P-6.
10. PW-1 in his chief-examination, deposed that accused No.1 is registered company, registered under companies act, 2013 which is engaged in the business of integrated design, engineering, supply and construction services for steel intensive construction and infrastructure sector projects etc. The accused No.2 being Managing Director is responsible for day to day business of accused No.1 company and he has been treated as Principal Officer of accused No.1 company. Accordingly, notice U/s.2(35) of Income Tax Act was sent to accused No.2. Further, he deposed that the accused No.1 has deducted TDS of Rs.40,00,220/- on various heads for the 5 C.C.No.169/2019 financial year 2014-15. However, they have not remitted the same within the stipulated period.
11. In order to substantiate the same, the complainant relied upon Ex.P-2 which is copy of notice issued U/s.2(35) of Income Tax Act and the notice dated 10.02.2017 issued to accused for non-remittance of TDS marked as Ex.P-3 and Ex.P-4. Further, the Spl. Public Prosecutor also relied upon Ex.P-5 which is reply given by accused, in which they admitted the delay in remittance of TDS. By relying on these documents, the Spl. Public Prosecutor vehemently argued that as per provisions of Section 276B and 278B and as per rule 30 of Income Tax rules and U/s.200 of Income Tax Act, the accused company has to pay the TDS within the period of one week on the last day of the month, in which the deduction is made. Further, the learned Spl. PP submitted that the reasons given by accused for the delay in remittance of TDS is not acceptable thereby sought to convict the accused for the above said offences.
12. On the contrary, the accused have taken the defence that before taking cognizance, they have remitted all the TDS and there is no willful evasion of the tax and accused have given substantial reasons for delay in remittance of TDS. In order to prove the defence, the accused No.2 is deposed as DW-1 and got marked Ex.P-1 to Ex.D-39. Further, DW-1 in his chief-examination he deposed that there was no any intention for non-remittance of TDS within time. In the year 2011-12 the accused No.1 was faced liquidity issues, due to 6 C.C.No.169/2019 certain external events which was beyond control of accused No.1. Thereby he relied upon Ex.D-1 to Ex.D-39.
13. At this stage, it is just and proper to reproduce the Section 276B of IT Act which reads as follows:
"Failure to pay the tax deducted at source' If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVIIB, 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"
14. On careful perusal of above said section, it reveals that when a person fails to pay to the credit of Central Government, any tax payable by him, in which the tax deducted at source as per Chapter XVIIB or under Section 115(O) and 194B, then he shall be punishable. The most important fact which the complainant has to prove is that the accused failed to credit the TDS amount to the Central Government. However, on careful perusal of materials available on record, the complainant in his cross-examination at para No.4, he specifically admitted that:
"It is true that before according the sanction, the accused No.1 has remitted all TDS amount with interest".
Therefore, the PW-1 himself admitted that before the Department giving sanction to prosecution, the accused has remitted the entire TDS amount with interest.
7 C.C.No.169/201915. On the contrary, the Spl. PP vehemently argued that as per rule 30 of IT Act, the accused ought to have paid the TDS within one week from the last day of the month, in which the deduction is made. Therefore, there is a delay in remittance and accused has used the said TDS amount thereby they have committed the offences punishable U/s.276B & 278B of Income Tax Act.
Thereby learned Spl. PP relied on the decision of Hon'ble Supreme Court in Madhumilan Syntex Ltd., & others V/s. Union of India and another reported in (2007) 290 ITR 199 (SC), another decision in Jagmohan Singh V/s. ITO reported in 196 ITR 473 (1992) and another decision in ITO V/s. Sreevatsa Trading Company., reported in (2002) 125 Taxman 131 (MAD). By relying on these judgments learned Spl. PP argued that when statute requires to pay the tax within a stipulated period, accordingly, the assessee has to pay the same and if no such payment is made within the said period it amounts to default.
16. However, on perusal of materials available on record the fact of non-remittance of TDS within time is not disputed by the accused. On the other hand, the complainant is also not disputing that the accused has remitted the TDS amount to the Central Government after lapse of statutory period and before sanction is accorded. Therefore, at this stage, it is just and proper to peruse Section 278AA which reads as under:
"278AA. Punishment not to be imposed In certain cases Notwithstanding anything contained in the provisions of section 276A, section 276AB [or 8 C.C.No.169/2019 section 276B,] no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure"
17. On careful perusal of above said provision of law, it clearly says that no person shall be punishable for any failure as stated in section 276A, 276AB or 276B if the accused proves that there was reasonable cause for such failure in payment. In the present case, the accused have taken the defence of loss of company during the said financial year. In order to substantiate the same, the accused No.2 who is Principal Officer of accused No.1 company deposed as DW-1 and got marked Ex.D-1 to Ex.D-39 and further deposed that accused No.1 company had involved in:
a. Geodesic Techniques P Ltd., through a joint venture was appointed as the sub-sub-contractor to design, supply, fabricate and erect the roof structure over the Terminal 2 of Mumbai International Airport Limited to be executed by experts in their respective field.
b. The job consisted of providing design and drawings, supply of steel, fabrication and erection services and allied works involving structural steel. The project was obtained against tough international competition posed by Chinese Companies. One of the Company's strategies was to source the entire steel components being fabricated in India at the new and upcoming fabrication factory at Bidar belonging to the Assessee Company.
c. Against an order of Rs.181.25 Cr., the Company's total billing was Rs.134.96 Cr., and an additional unbilled Revenue Rs.32.57 Cr., was declared as the same had not been certified. However, the actual cost and time incurred had risen due to 9 C.C.No.169/2019 circumstances beyond the control of the company, leading to the debilitating losses.
18. Further, DW-1 relied upon Ex.D-1 dated 25.01.2010 which is the sub contract agreement, the same reveals that M/s. L & T Company entered into an agreement with accused to give sub contract work, Ex.D-7 dated 27.01.2016, which is final demand letter issued to L & T Company to refund of money, Ex.D-8 dated 16.11.2009 which is letter issued by Public Works Department, Tamilnadu to fabricating, erecting and installing structural steel dome over the Tamilnadu Assembly Building, Ex.D-12 dated 06.10.2015 which is request letter to PWD to release the amount, Ex.D-17 which is Arbitration Application bearing No.150/2014 filed by accused against the L & T Company, Ex.D-18 is the Arbitration Statement of claim dated 13.12.2014 made by the accused in which accused sought for the claim of Rs.33,13,53,408/- with interest, Ex.D-19 is the award passed by Arbitrator, in which the claimant i.e., accused is entitled for Rs.7,57,93,930/- with interest @ 18% which was passed on 06.02.2016. He further relied on Ex.D-21 which is Arbitration Suit filed by L & T Ltd., against the accused to set aside the Arbitration Award passed on 06.02.2016, Ex.D-25 is the petition made by the accused before Arbitral Tribunal and Ex.D-26 is the order of Arbitration Tribunal in which the counter claim of the respondent i.e., L & T Ltd., came to be allowed.
19. On perusal of above said documents clearly reveals that during the above said financial year the accused No.1 10 C.C.No.169/2019 company was in financial crisis, therefore, the accused failed to remit the TDS. On perusal of the above said documentary evidence, clearly makes out that there was a reasonable cause for the accused for non-remittance of TDS to the Central Government.
20. On the other hand, in the present case the accused has made payment of TDS before sanction is accorded.
21. At the time of arguments, the learned counsel for accused has relied upon the decision of Hon'ble High Court of Karnataka reported in (2019)110 taxmann.com 107 (Karnataka) between Vyalikaval House Building Co-operative Society Ltd., V/s. Deputy Commissioner of Income Tax, Central Circle-1(1), Bengaluru, wherein it is held that:
"Section 276C, read with section 276CC, of the Income Tax Act, 1961 - Offence and prosecution - Wilful attempt to evade tax, etc. (Scope of) - Assessment year 2006-07 to 2011-12 - Whether positive act on part of accused is required to be established to bring home charge against accused for offence under section 276C(2) - Held, yes - Where assessee deposited/paid self-assessment tax dues belatedly after coercive steps were taken by department, there could not be an inference that there was willful attempt on part of assessee under section 276C to evade payment of tax and, therefore, prosecution under section 276C was to be quashed - Held, yes (Paras 9 and 10) (In favour of assessee)"
22. He further relied on the decision of Hon'ble High Court of Delhi reported in (1985) 21 Taxman 13 (Delhi) between 11 C.C.No.169/2019 Sequoia Construction Co., V/s. P.P. Suri, ITO India wherein it is held that:
"Section 201, read with section 276B, of the Income Tax Act, 1961 - Deduction of tax at source
- Consequences of failure to deduct - Petitioner- company failed to deposit income-tax deducted at source from interest paid to creditors, within prescribed time - Penalty levied by ITO was quashed by commissioner (appeals) in view of company's financial stringency and fact that interest payments were not in cash but merely notional by way of credit entries - Whether criminal prosecution proceedings initiated under section 276B against petitioner were still sustainable - Held, on facts, no"
23. He further relied on the decision of Hon'ble High Court of Punjab and Hariyana reported in (1995) 82 Taxman 493 (PUNJ & HAR) between Bee Gee Motors & Tractors V/s. Income Tax Officer wherein it is held that:
"Section 276B, read with section 278B, of the Income Tax Act, 1961 and CBDT's instructions dated 28-05-1980 - Offences and prosecution - Failure to deduct or pay tax - Assessment years 1982-83 and 1983-84 - Petitioner failed to deduct income tax at source but before initiation of prosecution proceedings he deducted tax and remitted same - Prosecution was launched after 8 years of default - Petitioner sought quashing of proceedings relying on instructions of CBDT dated 28-5-1980, contending that prosecution under section 276B should not normally be proposed since amount involved and/or period of default was not substantial and amount in default has also been deposited in meantime to credit of Government - Whether there is any inconsistency or contradiction in provisions of statute and CBDT's instruction dated 28-5-1980 - Held, no - Whether, in instant case, though it was discretion 12 C.C.No.169/2019 of authority concerned to apply discretion to launch or not to launch prosecution since amounts involved were very insignificant and since prosecution was launched after a number of years of default, proceedings deserved to be quashed as it would serve no useful purpose - Held, yes"
24. He further relied on the decision of Hon'ble High Court of Madras reported in (1999) 106 Taxman 318 (MAD) between Income Tax Officer V/s. Roshni Cold Storages (P.) Ltd., wherein it is held that:
"Section 276B of the Income Tax Act, 1961, read with sections 420 and 511 of the Indian Penal Code - Offences and prosecution - Wilful attempt to evade tax, etc. - Assessment years 1974-75 to 1978-79 - In view of colossal loss incurred and carried over year after year, accused-1 (A-1) company made agreement with A-7, its sister company, by which A-7 agreed to waive interest on outstanding dues from A-1 - In regular assessments A-7 paid full income tax on whole of its income including interest income earned from A-1, however A-1 erroneously deducted tax on certain amount of interest - Said tax was not remitted to credit of Central Government, on revenue's complaint ACJM framed charge against A-1 and A-7 companies along with their MDs and Directors under sections 276B and 204, read with sections 420 and 511 of IPC - However, after examining evidences and witnesses Trail Court found accused not guilty - Whether MD or Director is not 'Principal Officer' as defined in section 2(35)(b) and, therefore, where no notice was passed by ITO under clause (b) of Section 2(35) expressing his intention to teat them as Principal Officer, orders passed against them were bad in law - Held, yes - Whether paucity of funds and financial stringency were reasonable causes for delayed payment of TDS justifying acquittal of accused-1 company - Held, yes - Whether since 13 C.C.No.169/2019 not only interest had been waived by creditor but also entire tax had been paid by creditor A-7, there was no loss of exchequer in any way and, therefore, Trial Court was justified in acquitting all accused - Held, yes"
25. He further relied on the decision of Hon'ble High Court of Patna reported in (2017) 84 Taxmann.com 286 (Patna) between Sonali Autos (P.) Ltd., V/s. State of Bihar wherein it is held that:
"Section 276B, read with sections 194A, 194H, 279 and 278B, of the Income Tax Act, 1961 - Offence and prosecution - Failure to pay tax on distributed profits of domestic companies/deducted at source (Conditions precedent) - Assessment year 2009-10 - Assessee had properly deducted tax at source for relevant year but failed to deposit same with Central Government within specified time limit - Said amount as deposited along with interest subsequently when mistake was noticed by its Statutory Auditors - Prosecution proceedings was launched against assessee after three years of default - It was found that impugned tax could not be deposited within time due to oversight on part of assessee's accountant - Whether this could be presumed to be a reasonable cause for not depositing tax by assessee within time and, thus, initiation of proceedings after three years would be in contravention of CBDT instruction dated 28-5- 1980 and, therefore, deserved to be quashed - Held, yes - (Paras 23 and 31) (In favour of assessee)
26. Therefore, on perusal of above said decisions of Hon'ble High Court of Karnataka and other various Hon'ble High Courts and on perusal of materials available on record clearly reveals that there is a delay in remittance of TDS. On the other hand, before sanction to prosecution, the accused have 14 C.C.No.169/2019 remitted all the TDS with interest. The oral and documentary evidence adduced by the accused clearly makes that the accused No.1 company was in financial stringency during the said period which is a reasonable cause for failure of remittance within time. Under the said circumstances, there are no sufficient materials to show that the accused have committed the offences punishable U/s.276B r/w section 278B of Income Tax Accused. For the delay in remittance, the reasons and supporting evidence adduced by the accused is acceptable. Therefore, the complainant has failed to prove the guilt of the accused beyond all reasonable doubt. Hence, I answer Point No.1 & 2 in the Negative.
27. Point No.3: In view of my findings on Point No.1 & 2, I proceed to pass the following:
ORDER By exercising the power conferred under section 248(1) of Cr.P.C., the accused No.1 & 2 are acquitted for the offence punishable under section 276B r/w section 278B of the Income Tax Act, 1961.
The bail bond of accused No.1 & 2 shall stand cancelled.
(Dictated to the Stenographer directly on computer, typed by him, corrected by me and then pronounced in open court on this the 30th day of July 2022) (ANAND S. KARIYAMMANAVAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.15 C.C.No.169/2019
ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Shailendra Kumar Choubey List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Sanction Order
Ex.P-2 : Notice dated 11.01.2017
Ex.P-3 & 4 : C/c of Show Cause Notices
Ex.P-5 : C/c. of Reply
Ex.P-6 : C/c. of Details of Worksheet
List of witnesses examined on behalf of the Accused:
DW-1 : Srinidhi Anantharaman List of Documents examined on behalf of the Accused:
Ex.D-1 : Copy of Subcontract Agreement Ex.D-2 : Copy of Letter/mail dated 03.08.2012 Ex.D-3 : Copy of Letter/mail dated 12.09.2012 Ex.D-4 : Copy of Letter/mail dated 29.10.2012 Ex.D-5 : Copy of Letter/mail dated 08.07.2011 Ex.D-6 : Copy of Letter/mail dated 24.04.2014 Ex.D-7 : Copy of Final Demand Letter dated 27.01.2016 Ex.D-8 : Copy of Provisional Work Allotment Letter Dated 21.10.2009 Ex.D-9 : Copy of Letter/mail dated 14.12.2009 Ex.D-10 : Copy of Letter/mail dated 13.06.2013 Ex.D-11 : Copy of Letter/mail dated 12.11.2013 Ex.D-12 : Copy of Letter/mail dated 06.10.2015 Ex.D-13 : Copy of Work Order dated 29.09.2011 Ex.D-14 : Copy of Revised Work Order dated 15.10.2011 Ex.D-15 : Copy of Letter/mail dated 23.11.2012 Ex.D-16 : Copy of Letter/mail dated 23.11.2012 Ex.D-17 : Copy of Arbitration Application dated 21.03.2014 Ex.D-18 : Copy of Statement of Claim Ex.D-19 : Copy of Arbitration Award Ex.D-20 : Copy of Summons dated 23.06.2016 Ex.D-21 : Copy of Appeal Memo Ex.D-22 : Copy of Statement of Reply Ex.D-23 : Copy of Letter/mail dated 06.01.2012 Ex.D-24 : Copy of Arbitration Application Ex.D-25 : Copy of Statement of Claim 16 C.C.No.169/2019 Ex.D-26 : Copy of Arbitration Award Ex.D-27 : Copy of TDS Summary Ex.D-28 : Copy of Final Statement of Accounts Ex.D-29 : Copy of Letter/mail dated 16.01.2013 Ex.D-30 : Copy of Migration of Account Ex.D-31 : Copy of Notice issued by SBI dated 09.03.2015 Ex.D-32 : Copy of Notice issued by SBI dated 10.07.2015 Ex.D-33 : Copy of Panchanama dated 23.07.2015 Ex.D-34 : Copy of Letter dated 23.12.2015 Ex.D-36 : Copy of Original Application No.284/2016 Ex.D-37 : Copy of Legal Action Letter of Induslnd Bank Ex.D-38 : Copy of Legal Action Letter of Axis Bank Ex.D-39 : Copy of Legal Action Letter of Standard Chartered Bank Presiding Officer, Spl. Court for Economic Offences, Bengaluru.17 C.C.No.169/2019
30.07.2022 Complt.: IT Accd: AA., For Judgment 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 No.1 & 2 are acquitted for the offence punishable under section 276B r/w section 278B of the Income Tax Act, 1961.
The bail bond of accused No.1 & 2 shall stand cancelled.
PRESIDING OFFICER.