Bangalore District Court
It vs M/S Sowparnika Projects And ... on 6 March, 2024
KABC090000022020
Presented on : 04-01-2020
Registered on : 04-01-2020
Decided on : 06-03-2024
Duration : 4 years, 2 months, 2 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 6th day of March 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M .,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C.No.01/2020
Complainant: The Income Tax Department,
By the Assistant Commissioner of Income Tax,
TDS, Circle-3(1)
Bengaluru.
(Reptd. By Sri. CB., Advocate (Spl. P.P)
V/s.
Accused : 1. M/s. Sowparnika Projects and Infrastructure
Private Limited,
No.750, C Block,
ACES Layout,
Marathahalli,
Bengaluru - 560 037.
Reptd. by its Director
2 C.C.01/2020
2. Sri. Subramaniam Sreenivasan,
Director,
M/s. Sowparnika Projects and Infrastructure
Private Limited,
No.750, C Block,
ACES Layout,
Marathahalli,
Bengaluru - 560 037.
(Reptd. By Sri. SA., Advocate)
: JU DG M E NT :
The instant case emanates from the complaint filed by
the complainant alleging that, the accused Nos.1 & 2 have
committed offences punishable U/s.276B r/w Section 278B
of Income Tax Act, 1961 (hereinafter referred to as "IT Act").
2. The complainant's case in nutshell is as under:
The accused No.1 is a private limited company, engaged
engaged in the business of construction of residential
complex. 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 accused No.1/company. The
Assessing Officer of the complainant Department issued the
notice U/s.2(35) of the IT Act treating the accused No.2 as the
Principal Officer of the accused No.1/company for the
financial year 2016-17. The accused No.2 vide his letters
dated 04.01.2017 & 22.05.2019 admitted himself being in-
charge of accounts and finance so also accepted the
responsibilities of the Principal Officer.
3 C.C.01/2020
3. It is further complainant's case that, the accused
No.1 company deducted the TDS in the financial year 2016-
17 on various heads under Sections 192, 194A, 194C, 194H,
194I and 194J of the Act and defaulted in remitting 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.1,67,64,171/-. The Commissioner of
Income Tax issued show cause notice dated 27.03.2018 to
accused Nos.1 & 2. The accused No.1 company admitted its
default in non-remittance of TDS by virtue of reply dated
25.02.2019. 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.
4. 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.
4 C.C.01/2020
5. 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.
6. The complainant has examined two witnesses on its
behalf as PW's-1 & 2 and got marked in all 11 documents as
Ex.P-1 to Ex.P-11 and got closed its side of evidence. The
statement of the accused No.2 was recored U/s.313 of
Cr.P.C., he denied the incriminating materials in the
testimonies of the complainant witnesses and got examined
himself as DW-1 and got marked 13 documents as Ex.D-1 to
Ex.D-13 and got closed their side of evidence.
7. Heard the arguments canvassed by the learned Spl.
PP for the complainant and learned counsel for accused. The
accused Nos.1 & 2 have submitted separate written
arguments along with case law compilation.
8. 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
5 C.C.01/2020
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 2016-17 to the
tune of Rs.1,67,64,171/- 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 2016-17 to the tune of
Rs.1,67,64,171/- to the credit of Central
Government within stipulated period and
thereby accused No.1/company has committed
an offence punishable U/s.278B of the IT Act,
1961?
3) What order?
9. 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
10. 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
6 C.C.01/2020
allegations being interconnected to accused, as morefully set
out in the complaint in the case on hand.
11. 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.1,67,64,171/-.
12. The complainant in order to establish the guilt of
the accused Nos.1 & 2 beyond reasonable doubts, got
examined himself arrayed as CW-2 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 is responsible for the
day to day affairs of accused No.1 company 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 2016-
17 to the tune of Rs.1,67,64,171/-. The said PW-1 also
accounted as to the accused No.2 being the Principal Officer
is very much liable to be prosecuted for the offence set out in
the complaint. He has further deposed regarding sanction
7 C.C.01/2020
being accorded by the Sanctioning Authority to prosecute the
accused.
13. In support of his oral testimony, the PW-1 has
produced and got marked in all 11 documents as Ex.P-1 to
Ex.P-11. Ex.P-1 is the original sanction order dated
29.08.2019 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 2016-17. Ex.P-2 is the attested copy of show
cause notice dated 08.11.2017 issued to the accused No.2
U/s.2(35) r/w Section 204 & 276B of the IT Act. Ex.P-3 is the
attested copy of speed post acknowledgement pertaining to
Ex.P-2. Ex.P-4 is the response dated 04.01.2017 made by
accused No.2 in reply to the communication of the
complainant Department dated 01.12.2016. Ex.P-5 & Ex.P-6
are the attested copies of show cause notices dated
27.03.2018 issued by CIT (TDS), Bengaluru addressed to
accused Nos.1 & 2. Ex.P-7 & Ex.P-8 are the attested copies
of speed post acknowledgements pertaining to Ex.P-5 & Ex.P-
6. Ex.P-9 is the preliminary reply of accused No.1 company
dated 25.02.2019 to Ex.P-7. Ex.P-10 is the response dated
22.05.2019 pertaining to accused No.1 company addressed to
CIT, TDS, Bengaluru along with details of the Directors and
their respective roles. The TDS default list comprising 81
sheets collectively marked as Ex.P-11.
14. PW-1 has been subjected to cross-examination by
the counsel for the accused, wherein the witness has
8 C.C.01/2020
categorically deposed as to himself not being aware of
accused No.1 company following mercantile account system
and cash system. He has also accounted as to he has not
examined the financial difficulties of the accused No.1
company. It is also admitted as to there is no any order
passed under Section 201 & 201(1A) of the IT Act in the case
on hand pertaining to financial year 2016-17. It is
specifically admitted as to Ex.P-4 is not the reply of accused
No.2 with respect to financial year 2016-17. It is admitted as
to accused No.2 in his reply dated 25.02.2019 submitted as
to he is not responsible for the day to day conduct of business
of accused No.1 company. The witness has pleaded
ignorance as to the separate Accounts Department of accused
No.1 being vested with responsibility to look after the account
transactions of accused No.1 company.
15. CW-1 i.e., the then Assistant Commissioner of
Income Tax, TDS, Bengaluru is examined as PW-2. This
witness has accounted as to having issued the notice as per
Ex.P-2 to the accused No.2 for having defaulted in remittance
of TDS within statutory period with respect to the financial
year 2016-17. Further regarding the Ex.P-2 being duly served
on accused No.2. The witness has identified her signature on
Ex.P-2, the same is marked as Ex.P-2(a).
16. PW-2 has been subjected to cross-examination by
the counsel for the accused, wherein she has pleaded
ignorance regarding the official who said proposal to launch
prosecution against the accused. The witness has specifically
9 C.C.01/2020
admitted as to Ex.P-3 does not bears the signature of accused
No.2. The other suggestions as to Ex.P-4 does not pertains to
financial year 2016-17 has been denied by the witness. The
other suggestions as to the witness is deposing falsely before
this court, has been specifically denied.
17. The accused No.2 got examined himself as DW-1
and deposed as to he is one amongst the three Directors of
the accused No.1 company. He has also accounted as to one
Ramji Subramanian being the Managing Director of accused
No.1 company. He has specifically deposed that he was not
responsible and in-charge of day to day affairs of accused
No.1 company, as such claimed he is not Principal Officer. It
is also deposed as to accused No.1 company was following
mercantile system of accounting and the entries were made
on the accrual basis and not on actual payment basis. It is
also deposed as to there is no actual payments and
deductions as reflected in the accounts. It is also deposed as
to there are qualified persons appointed in the accused No.1
company to take care of statutory compliance including TDS
deductions and payments. He has specifically deposed as to
he has not admitted the contents of Ex.P-2 holding/treating
him as a Principal Officer as per Ex.P-4. The said Ex.P-4 was
issued in response to the notice dated 01.12.2016. The said
notice being marked as Ex.D-1 by way of confrontation
through PW-1. It is also claimed that Ex.P-4 does not
pertains to financial year 2016-17. The witness has
accounted regarding the communications from the bankers of
accused No.1 disclosing as to who is the authorized person to
10 C.C.01/2020
operate the accounts. The letters of the bankers four in
numbers have marked as Ex.D-2 to Ex.D-5 respectively. The
bank payment vouchers and cash vouchers of accused No.1
company are collectively marked as Ex.D-6. The photo copies
of three attested agreement of sales pertaining to accused
No.1 company are collectively marked as Ex.D-7. Ex.D-8 is
the attested copy of acknowledgement pertaining to ITR for
financial year 2016-17 pertaining to accused No.1 company,
wherein the accused No.2 has not verified the said ITR.
Ex.D-9 is the purchase orders pertaining to accused No.1
company. Ex.D-10 is the PV Tally voucher and original
invoice and goods receipts pertaining to accused No.1
company. Ex.D-11 is the journal vouchers along with
invoices. Ex.D-12 and Ex.D-13 are the original show cause
notices issued by PW-2 addressed to other two Directors of
accused No.1 company.
18. DW-1 has been subjected to cross-examination by
the Spl. PP for the complainant, wherein, it is deposed as to
himself is one of the Director as well as Member of Board of
Director of accused No.1 company. The other suggestions as
to Ex.P-4 is in reply to Ex.P-2 addressed to accused No.2 has
been specifically denied by the witness. The witness has
specifically deposed as to he has not verified the ITR for the
financial year 2016-17 pertaining to accused No.1 company.
The other suggestions as to the accused No.2 is the person
responsible/in-charge of the day to day affairs of the accused
No.1 company has been specifically denied by the witness.
11 C.C.01/2020
19. The learned Spl. PP relying upon the oral and
documentary evidence emphatically argued that, the delay in
remittance of TDS for the financial year 2016-17, 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. It has been also highlighted that, the
defence urged by the accused as to the accused No.1
company following mercantile system of accounting, the said
company being under financial crisis in itself will not be the
justifiable ground in order to hold the accused Nos.1 & 2 as
not guilty under the provisions of IT Act. The Spl. PP has
vehemently argued that, the default in complying the terms of
the show-cause notices as per Ex.P-2, Ex.P-5 and Ex.P-6
respectively, the same being replied evasively by the accused
precludes from denying themselves being not 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.
20. The counsel for the accused Nos.1 & 2 profusely
argued that, the accused Nos.1 & 2 voluntarily remitted the
TDS to the account of Central Government account belatedly
and only after the remittance of TDS, the complainant has
come up with the instant case only on account of delayed
remittance being reflected in TRACES portal. It is also
emphasized as to as per the definition of Section 276B of the
IT Act, there is only an act of failure to pay is covered and
payment made belatedly or voluntarily by the assessee is not
covered. It is also argued as to there is no any order passed
12 C.C.01/2020
by the complainant Department U/s.201(1) of the IT Act and
Section 201(1A) of the IT Act cannot be invoked in the case on
hand. It is also highlighted there is no any penalty
proceedings being initiated against the accused U/s.201 r/w
Section 221 of the IT Act, as such, the accused No.1 having
established following Mercantile System of accounting is very
much entitled to benefit U/s.278AA of the IT Act as the
accused No.1 has substantiated reasonable cause in non-
remittance of TDS. It is also vehemently argued that the
complaint being lodged after the lapse of 30 days of order of
sanction being passed is contrary to SOP of the complainant
Department, as such, the complaint is not maintainable
against the accused. It is emphatically argued that the reply
as per Ex.P-4 by accused No.2 pursuant to being dated
04.01.2017 cannot be treated as response to show cause
notice as per Ex.P-2 U/s.2(35) of the IT Act as the said show
cause notice was very much pertaining to financial year 2016-
17, the financial year was supposed to be concluded on
30.03.2017, whereas, Ex.P-4 is dated 04.01.2017. It is also
highlighted regarding the cross-examination of the PW-1,
wherein, he has admitted Ex.P-4 is not in response to Ex.P-2.
It is also elicited as to Ex.P-4 being response to the notice as
per Ex.D-1. It is also argued as to Ex.P-6 is silent as to how
the accused No.2 is responsible for the day to day conduct of
the accused No.1 company. It is also emphasized regarding
Ex.D-2 to Ex.D-11 not being signed by accused No.2, very
much substantiates the contention of the accused No.2 as to
not being Principal Officer of accused No.1 company. In
13 C.C.01/2020
support of the aforesaid arguments, the counsel for the
accused has relied upon compilation of judgments containing
53 decisions. Amongst these arguments, sought to acquit the
accused Nos.1 & 2.
"Evaluation and Analysis of Evidence"
21. On over all examination of the complaint, evidence
on record and arguments as well as written arguments
submitted by accused Nos.1 & 2, 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.
22. An anxious examination of the complaint, the
evidence on record so also the documents relied upon by the
complainant, except Ex.P-10 i.e., the letter addressed by
accused No.1 company along with the details of the role
played by Directors of accused No.1 company, 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. Per contra,
the accused No.2 has got examined himself as DW-1 and
specifically contended as to he was not responsible for day to
day affairs of accused No.1 company and the said accused
No.1 company having three Directors and he was solely in-
charge of constructions of accused No.1 company and labour
14 C.C.01/2020
management. The said DW-1/accused No.2 in support of his
claim has produced and got marked ITR pertaining to 2016-
17 wherein, the Managing Director of accused No.1 has duly
verified the said ITR. That apart, Ex.D-2 to Ex.D-7 being
communications, vouchers and agreements respectively not
being signed by accused No.2. So also, Ex.D-9 to Ex.D-11
i.e., purchase orders, PV tally vouchers along with invoices
and goods receipts and journal vouchers respectively not
bearing his signatures. Pursuant 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 Ex.P-2, Ex.P-5
& Ex.P-6 i.e., show cause notices addressed to accused Nos.1
& 2 so also the aforesaid Ex.P-10. It is relevant to note that,
accused No.2 has very much demonstrated his contention to
the satisfaction of this court by adducing oral and
documentary evidence. This view of the court is very much
supported by the decision of Hon'ble Apex Court in the case
of National Small Industries Corporation Limited V/s.
Harmeet Singh Paintal and another reported in (2010) 3 SCC
330 . So also, in the decisions reported in:
1. (1996) 218 ITR 606 (Ker) in case of M.A.
Unneerikutty V/s. Deputy. CIT
2. (1991) 188 ITR 376 (Mad) in the case of
Sheetal N Shah V/s. ITO
3. (2003) 131 Taxmann.100 in case of Homi
Phiroze Ranina V/s. State of Maharastra.
15 C.C.01/2020
4. (2018) 92 Taxmann.com 308 in case of
Kalanithi Maran V/s. Union of India
5. (2019) 111 Taxmann.com 210 in the case of
A. Harish Bhat V/s. ACIT
6. (2007) 4 SCC 70 in the case of SMS
Pharmaceuticals Ltd., V/s. Neela Bhalla and
another
7. (2007) 9 SCC 481 in the case of N.K. Vashi
V/s. Shekar Singh and others
23. The arguments of the Spl. PP as to accused No.2
has replied to Ex.P-2 as per Ex.P-4 will not hold the water as
the complainant/PW-1 has categorically admitted as to
Ex.P-4 not being in response to Ex.P-2, the said Ex.P-4 being
in response to Ex.D-1. The testimony of PW-2 as to Ex.P-4 is
response to Ex.P-2 cannot be accepted as the Ex.P-4 being
prior to completion of financial year 2016-17. The claim of
the PW-2 is very much contrary to Section 114 of the
Indian Evidence Act. This view of the court supported by
decision reported in 91 ITR 18 (SC) in the case of Pullangode
Rubber Produce Company V/s. State of Kerala .
24. The testimony of the PW-2, who categorically admits
in acknowledgement as per Ex.P-3 pertaining to notice
U/s.2(35) of the IT Act bearing the name of the noticee as
Ramji Subramanaian and Subramanya Sreenivasan creates a
cloud of suspicion as to the very service of Ex.P-2 on accused
No.2. In view of the specific contention of accused No.2 as to
Ex.P-4 being in response to Ex.D-1, the complainant is bound
to establish due service of Ex.P-2 on accused No.2. The PW-2
16 C.C.01/2020
has admitted as to Ex.P-3 does not bears the signature of
accused No.2. That being the case, the very service of notice
U/s.2(35) of the IT Act cannot be held to be complied by the
complainant. This view of the court is supported by the
following decisions:
(1) Anish Modi V/s. Union of India in Crl. Writ
Petition No.3962/2022 dated 20.12.2023
(2) (1984) 16 Taxmann 286 (Mad) in the case of
M.R. Pratap V/s. V.M. Muthuramalingam
(3) (1992) 64 Taxmann 421 (P & H) in the case of
Greatway Pvt. Ltd., V/s. ACIT
(4) (1999) 106 Taxmann 318 (Mad) in the case of
ITO V/s. Roshni Cold Storage Pvt. Ltd.,
25. 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 TDS with interest U/s.201(1A) of the
Act prior to issuance of notice or summons 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
17 C.C.01/2020
(2) (2007) 2 SCC 230 in the case of Raghunath Rai
Baraja and another V/s. Punjab National Bank
and others
(3) (1996) 1 SCC 108 in the case of State Level
Committee and another V/s. Morgardshammar
India Ltd.,
(4) (2000) 7 SCC 463 in the case of State of
Maharashtra and another V/s. Santhosh
Shankar Acharya
(5) (2001) 247 ITR 36 (SC) in the case of Federation
of Andhra Pradesh Chambers of Commerce and
Industry V/s. State of Andhra Pradesh
(6) (2002) 7 SCC 273 in the case of Union of India
V/s. Hansoli Devi
(7) (2003) 2 SCC 577 in the case of Narisuddin V/s.
Sita Ram Agarwal
(8) ILR 2003 KAR 3834 in the case of C. Raghuram
Reddy V/s. The Commissioner of Commercial
Taxes in Karnataka
(9) (1972) 2 Taxman 541 (SC) in the case of CIT
V/s. A.N. Aravinda Reddy
(10) (2019) 112 Taxman.com 220 (Kar) in the case
of Dr. Viloo Patell V/s. Income Tax Department
(11) Crl. M.P. No.2941/2018 in the case of M/s.
Dev Multicom Pvt. Ltd. V/s. State of Jharkhand
and others
(12) 154 ITR 172 in the case of Asst. Collector of
Central Excise V/s. Dunlop India Ltd., and
others
(13) (2011) 271 ELT 492 (SC) in the case of
Shankar Raju V/s. Union of India
26. Further defence urged by the accused No.1
company as to the complaint is contrary to SOP, wherein, it
18 C.C.01/2020
stipulates 30 days to lodge the complaint from the date of
sanction and sanction order suffers from discrepancy in so
far as which limb of Section 276B(a) of the IT Act has been
contravened, certainly on an anxious examination of the SOP
as extracted in written arguments very much contemplates
within 30 days of receiving the approval U/s.279(1) of the IT
Act, the complaint should be lodged. In the case on hand, the
order of sanction as per Ex.P-1 was passed on 29.08.2019,
the complaint has been lodged by the Asst. Commissioner of
Income Tax, (TDS), Circle-3(1), Bengaluru on 31.12.2019.
This very much transpires that, the complaint in the case on
hand has been lodged very much after lapse of 30 days as
contemplated under SOP. 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 notice as per Ex.P-5 & Ex.P-6 are very much
silent in these aspects. That being the case, the accused is
very much entitled to benefit in so far as the violation of SOP
by the complainant and also with respect to the sanction
order not being disclosing the contravention.
27. The accused No.1 company also cannot be
prosecuted pursuant to non-initiation of penalty proceedings,
as contended by the accused No.1 company also holds the
field. In the case on hand, the accused No.1 company having
remitted arrears of TDS along with interest U/s.201(1A) of the
IT Act is very much justified to claim the accused No.1 not
being treated by the complainant Department as the assessee
in default and not having initiated the penalty proceedings.
19 C.C.01/2020
Though, it is not mandated under the Act, with respect to the
penalty proceedings being pre-requisite to initiate
prosecution, the very approach of the complainant
Department in not having initiated penalty proceedings
inclines the court to hold that accused No.1 company cannot
be made liable U/s.276B of the IT Act.
28. The other significant defence set out by the accused
No.1 company as to accused No.1 company following
Mercantile System of Accounting, wherein, the entries are
made on accrual basis and not on the actual payment basis.
As such, TDS returns were prepared on accrual basis, though
there were no actual payments and deductions as shown in
the books of accounts. This aspect is very much forthcoming
from the testimony of DW-1 and also pursuant to
PW-1/complainant having pleaded ignorance regarding the
said aspect.
29. It is also relevant to note that the accused No.1/
company has pleaded financial distress, the same is very
much forthcoming in the ITR pertaining to financial year
2016-17 at Ex.D-8. The examination of Ex.D-8 very much
strengthens the contention of the accused as to accused No.1
company being under financial loss in the relevant year i.e.,
during the financial year 2016-17. Thereby, this court is
inclined to hold there was a reasonable cause to accused No.1
company as contemplated U/s.278AA of the IT Act. This view
of the court is supported by decision of the Hon'ble High
Court of Delhi reported in (1986) 158 ITR 496 (Del) in the
20 C.C.01/2020
case of Sequoia Constructions Company V/s. P.P. Suri, ITO .
So also, in the following authorities viz.,
(1) 118 Taxman.433 Delhi in the case of Woodward
Governors India Pvt. Ltd., V/s. CIT.
(2) (2002) 257 ITR 677 (MP) in the case of ITO
V/s. Nanak Singh.
30. It is also pertinent to consider as to the Ex.P-11 and
other documents relied upon by the complainant Department
being produced before this court by printing the copies of the
said documents are not accompanied by the Certificate
mandated U/s.65B of the Indian Evidence Act. The Hon'ble
Apex Court has very much laid down the principles while
considering the evidence forthcoming from electronic source.
That being the case, Ex.P-11 and other documents sourced
from the on-line data available with the complainant
Department cannot be looked into by this court. This view of
the court is supported by the following authorities viz.,
(1) (2014) 10 SCC 473 in the case of Anwar P.V.
V/s. P.K. Basheer
(2) (2020) 7 SCC 1 (SC) in the case of Arjun Pandit
Rao Khotkar V/s. Kailash Kushanrao Gorantyal
and others.
:CONCLUSION:
31. 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
21 C.C.01/2020
very much failed to establish the crucial aspect of the accused
No.2 being the Principal Officer of accused No.1 company as
contemplated U/s.2(35) of the IT act. The testimony of the
complainant/PW-1 as well as 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 that, the complainant has miserably failed to bring home
the guilt of the accused No.2 beyond all reasonable doubts.
Per contra, the accused have probabalized their defence
discussed morefully supra. It is needless to point out that,
the complainant's case is tainted with substantial
improvements, omissions and contradictions.
32. 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. Moreover, the accused
No.1 company having demonstrated the reasonable cause as
contemplated U/s.278AA of the IT Act, the accused No.1
company is very much entitled to the benefit U/s.278AA of
the Act. This view of the court is very much supported by the
22 C.C.01/2020
decision of Hon'ble High Court of Rajasthan in S.G. Kale V/s.
Union of India reported in (2001)118 Taxman 349 (Raj).
33. In light of the reasons assigned supra, this court
without any hesitation proceeds to answer Point Nos.1 & 2 in
the Negative .
34. 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.
Consequently, accused Nos.1 & 2 are set at liberty.
The corresponding bail bonds of accused No.2 stands cancelled.
(Dictated to the Stenographer directly on computer, typed by him, corrected and then pronounced by me, in open court on this the 6 th day of March 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.
23 C.C.01/2020: ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Shashidhar Shet
PW-2 : Smt. Rachel Kurian Modayil
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Original Sanction Order Ex.P-2 : Attested copy of Show Cause Notice Ex.P-3 : Attested copy of Speed Post Acknowledgement Ex.P-4 : Response Ex.P-5 & 6: Attested copies of Show Cause Notices Ex.P-7 & 8 : Attested copies of Speed Post Acknowledgements Ex.P-9 : Preliminary Reply Ex.P-10 : Response Ex.P-11 : TDS Default List (81 Sheets) List of witnesses examined on behalf of the Accused:
DW-1 : Subramanian Sreenivasan List of Documents examined on behalf of the Accused:
Ex.D-1 : Notice
Ex.D-2 to 5: Letters of Bankers
Ex.D-6 : Bank Payment Voucher & Cash Voucher
Ex.D-7 : Photo copies of Agreement of Sales
Ex.D-8 : Attested coy of Acknowledgement
Ex.D-9 : Purchase Order
Ex.D-10 : PV Tally Voucher
Ex.D-11 : Journal Voucher along with Invoices
Ex.D-12& 13: Original Show Cause Notices
Presiding Officer,
Spl. Court for Economic Offences, Bengaluru.24 C.C.01/2020
06.03.2024 Complt: Sri. CB A: 1 & 2: SA For Judgment 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 cancelled.
PRESIDING OFFICER.