Bangalore District Court
The Income Tax Department vs Ms Avesthagen Limited on 27 May, 2024
KABC090001062016
Presented on : 05-04-2016
Registered on : 05-04-2016
Decided on : 27-05-2024
Duration : 8 years, 1 months, 22 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 27th day of May 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M.,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C. No.95/2016
Complainant: The Income Tax Department,
By the Deputy Commissioner of Income Tax,
TDS, Circle-1(1), HMT Bhavan,
Bengaluru - 560 022.
(Reptd. By Sri. CB., Advocate (Spl. P.P)
V/s.
Accused : 1. M/s. Avesthagen Limited,
Bengaluru - 560 025.
Reptd. by its Managing Director
2. Dr. Villoo Moravalla Patell,
Managing Director,
M/s. Avesthagen Limited,
No.7/6, Avestha House,
Brunton Road,
Bengaluru - 560 025.
(Reptd. By Sri. SA., Advocate)
2 C.C.95/2016
:JUDGMENT:
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 the "IT Act").
2. The complainant's case in nutshell is as under:
The accused No.1 is a private limited company, engaged in the business of R & D Work in Food, Pharma and Genetics. The accused No.2 is claimed to be the Managing 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 years 2010-11, 2011-12 & 2012-13. The accused No.2 vide her reply dated 31.07.2013 expressed her consent to treat her as Principal Officer.
3. It is further complainant's case that, the accused No.1 company deducted the TDS in the financial years 2010- 11, 2011-12 & 2012-13 on various heads under Sections 192, 194A, 194C, 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. The complainant Department conducted the survey U/s.133A of the Act in the premises of accused 3 C.C.95/2016 No.1 company on 29.07.2013. During the course of the said survey, it was noticed that accused No.1 company had failed to comply Rule 30 of the IT Rules, the said survey revealed that the default in non-remittance of TDS for the tune of Rs.1,71,06,000/- pertaining to financial year 2011-12 & 2012-13. The Assessing Officer, after the survey, issued show cause notice dated 14.08.2013 to accused Nos.1 & 2 as to why they should not be treated as assessee in default U/s.201(1) of the IT Act. The said notice was replied by accused.
4. The Assessing Officer passed the order U/s.201(1) of the IT Act on 17.07.2014 treating the accused No.1 company as an assessee in default for non-remittance of TDS for the financial year 2010-11 and U/s.201(1A) of the IT Act. Further, the said Assessing Officer proceeded to pass an order U/s.201(1) & 201(1A) of the IT Act for the financial year 2011-12 raising demand for the tune of Rs.1,57,85,655/- on 19.06.2014. The accused No.1 company till the date of filing of the complaint is claimed to have not remitted the defaulted TDS amount.
5. The Commissioner of Income Tax (CIT), TDS, Bengaluru issued show cause notice dated 12.08.2014 to the accused No.1 company calling upon the accused No.1 to show cause as to why they should not be prosecuted for the alleged offences set out in the case on hand. The accused No.2 in response to the said show cause notice, appeared through authorized representative and submitted reply dated 20.08.2014 expressing the financial difficulties in remitting 4 C.C.95/2016 the TDS. The CIT (TDS), passed an order authorizing the complainant to prosecute the accused for the offences set out in the complaint.
6. It is further submitted as to 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.
7. 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.
8. The accused Nos.1 & 2 being served with the summons, accused No.2 appeared through her 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., 5 C.C.95/2016 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, she pleaded not guilty on her behalf and on behalf of accused No.1 company also claimed to be tried.
9. The complainant has examined two witnesses on its behalf as PW's-1 & 2 and got marked in all 12 documents as Ex.P-1 to Ex.P-12 and got closed its side of evidence. The statement of the accused No.2 was recorded U/s.313 of Cr.P.C., she denied the incriminating materials in the testimonies of the complainant witnesses and got examined herself as DW-1 and got marked 14 documents as Ex.D-4 to Ex.D-17 and Ex.D-1 to Ex.D-3 got marked by way of confrontation during the course of cross-examination of the PW-2 and got closed their side of evidence.
10. Heard the arguments canvassed by the learned Spl. PP for the complainant and learned counsel for accused. The accused Nos.1 & 2 have submitted written arguments along with case law compilation.
11. 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 Managing Director of the accused No.1 company, being in-charge of day to day 6 C.C.95/2016 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 years 2010-11 to 2012-13 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 years 2010-11 to 2012-13 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?
12. 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
13. 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 7 C.C.95/2016 to the facts and circumstances are arising out of the allegations being interconnected to accused, as morefully set out in the complaint in the case on hand.
14. It is the case of the complainant that, the accused No.2 being the Managing 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.
15. The complainant in order to establish the guilt of the accused Nos.1 & 2 beyond reasonable doubts, got examined herself as PW-1. The said PW-1 has reiterated the complaint averments as to survey being conducted by her predecessor in office in the premises of accused No.1 on 26.07.2013, the said official having noticed the non- remittance of TDS with respect to certain payments contrary to provisions of the IT Act. She has further deposed regarding the order U/s.201 of the IT Act being passed, the show cause notice being issued by the CIT (TDS) to accused, so also, the notice U/s.2(35) of the IT Act being issued to accused No.2 by her predecessor. She further deposed regarding sanction being accorded by the Sanctioning Authority to prosecute the accused.
8 C.C.95/201616. In support of her oral testimony, the PW-1 has produced and got marked in all 12 documents as Ex.P-1 to Ex.P-12. Ex.P-1 is the certified true copy of sanction order dated 15.10.2015 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 years 2010-11 to 2012-13. Ex.P-2 is the certified true copy of preliminary survey report dated 29.07.2013 pertaining to accused No.1 company for financial years 2011-12 & 2012-13 submitted by PW-2. Ex.P-3 is the certified true copy of order U/s.201(1) & 201(1A) of the IT Act pertaining to financial year 2012-13, wherein, the TDS due was found to be to an extent of Rs.1,03,44,412/- and interest levied was Rs.32,09,755/- and accused No.1 was treated as assesse in default. Ex.P-4 & Ex.P-5 are the certified true copies of demand notices dated 19.06.2014 addressed to accused No.1 company for the financial years 2012-13 & 2011-12 respectively, calling upon to pay the arrears of TDS within 30 days of the service of notice. Ex.P-6 is the certified true copy of order U/s.201(1) & 201(1A) of the IT Act pertaining to financial year 2011-12, wherein, the TDS due was found to be to an extent of Rs.1,07,63,570/- and interest levied was Rs.50,22,085/- and accused No.1 was treated as assesse in default. Ex.P-7 is the certified true copy of notice dated 12.08.2014 issued by CIT (TDS), Bengaluru addressed to accused No.2, calling upon for her appearance on 26.08.2014. Ex.P-8 is the certified true copy of notice dated 26.07.2013, issued by Deputy Commissioner of Income Tax 9 C.C.95/2016 addressed to accused No.2, intimating the date of hearing scheduled on 29.07.2013. Ex.P-9 is the certified true copy of order U/s.201(1) & 201(1A) of the IT Act pertaining to financial year 2010-11, wherein, the TDS due was found to be to an extent of Rs.1,54,64,753/- and interest levied was Rs.69,96,514/- and accused No.1 was treated as assesse in default. Ex.P-10 is the certified true copy of letter dated 20.08.2014 addressed to CIT (TDS) by the accused No.2 in response to Ex.P-7. Ex.P-11 is the certified true copy of letter dated 31.07.2013 addressed to Deputy Commissioner of Income Tax by accused No.2, wherein, it was submitted as to the accused No.2 was handling strategic business functions and the financial functions were managed by CFO. Ex.P-12 is the certified true copy of letter dated 12.08.2013 addressed to Deputy Commissioner of Income Tax, TDS by the accused No.1 company, wherein, the accused No.1 company sought for accommodation to submit its reply to the show cause notice.
17. PW-1 has been subjected to cross-examination by the counsel for the accused, wherein, it has been categorically admitted as to the instant complaint being pertaining to financial years 2010-11 to 2012-13. The witness has pleaded ignorance regarding the suggestions posed by counsel for the accused as to Ex.P-9 being modified as well as the letter dated 25.07.2014 issued by office of DCIT acknowledging the payment of tax pertaining to the financial year 2010-11. It is categorically admitted as to the accused No.1 company is maintaining books of account under mercantile system of 10 C.C.95/2016 accounting. The witness has not commented on Ex.P-8 being the notice U/s.2(35) of the Act treating the accused No.2 as Principal Officer for the financial years 2005-06 to 2012-13. The witness has accounted as to having not verified the records pertaining to financial status of accused No.1 company. The other suggestions as to accused No.2 was only a scientist and she was not responsible for the day to day conduct and business of the accused No.1 has been categorically denied by the witness.
18. CW-1 i.e., the then Deputy Commissioner of Income Tax, TDS, Bengaluru is examined as PW-2. This witness has accounted as to having conducted TDS survey in the premises of accused No.1 company on 26.07.2013. It is also reiterated regarding the survey having disclosed the accused No.1 company having failed to remit the TDS to the Central Government account. He has also deposed regarding the notice being issued to the accused and having passed order U/s.201(1) & 201(1A) of the Act. The witness has identified his signatures on Ex.P-2 to Ex.P-6, the same are marked as Ex.P-2(a) to Ex.P-6(a).
19. PW-2 has been subjected to cross-examination by the counsel for the accused, wherein, it is categorically admitted as to the order as per Ex.P-9 has been modified by virtue of an order dated 12.09.2013 U/s.154 of the IT Act. The said modified order pertaining to Ex.P-9 is marked as Ex.D-1 by way of confrontation. It is also admitted as to on the basis of Ex.D-1 & Ex.P-9, the witness having passed an 11 C.C.95/2016 order dated 17.07.2014, wherein, interest amount has been enhanced. The copy of the said order, work sheet and Form No.7 i.e., demand notice are collectively marked as Ex.D-2 by way of confrontation. The witness has also identified the communication dated 25.07.2014 by addressed to Sub Registrar, Sakaleshapura, wherein, it is mentioned regarding the payment of Rs.1,00,94,925/- for the financial year 2010- 11 by the accused. The said communication is marked as Ex.D-3 by way of confrontation. It is deposed as to Ex.P-8 is the letter conveying the intention of the complainant Department to treat the accused No.2 as Principal Officer U/s.2(35) of the IT Act. The witness has further volunteered as to the accused No.2 vide letter dated 31.07.2013 as per Ex.P-11 submitted her no objection to be treated as Principal Officer. It is also admitted as to there is a reference regarding accused No.2 handling strategic scientific business functions and financial functions being managed by CFO. The witness has pleaded ignorance regarding the signatory to the TDS statements pertaining to financial years 2010-11 to 2012-13. The other suggestions as to the witness is deposing falsely before this court, has been specifically denied.
20. The accused No.2 got examined herself as DW-1 and deposed as to herself being Scientist only responsible for science and business of science. It is also deposed as to the operations pertaining to finance of accused No.1 company being handled by CFO, the other operations being managed by Executive Director, who is designated as Chief of Legal Operations. The Vice President of finance along with 12 C.C.95/2016 Managing Finance being in-charge of tax aspects and TDS aspects. It has been categorically deposed as to she is not involved in the day to day activities of accused No.1 company connected with TDS deductions and TDS remittance pertaining to accused No.1 company. The TDS returns pertaining to accused No.1 company is claimed to be submitted by managers of accused No.1 company. The accused No.2 has also deposed as to having paid arrears of TDS along with interest pertaining to financial years 2010-11 to 2012-13. The certified true copies of the challans showing remittance of total TDS amount of Rs.5,51,09,353/- is produced and same are collectively marked as Ex.D-4. It is also accounted regarding the arrears of TDS as reflected in Ex.P-3 was duly paid as per the challan at Ex.D-4 with accumulated TDS.
21. The DW-1 has also deposed regarding the accused No.1 company following mercantile system of accounting by considering only accrual basis and not on payment basis. It is also accounted regarding the TDS dues calculated based on the provisional entries were made in relation to proposed ITO, which was not metalized. Many of the creditors had agreed to wave off their dues. The submissions for this effect was addressed to CIT (TDS) on 20.08.2014. The certified true copy of the said submissions is marked as Ex.D-5. Further, the certified true copy of the letter dated 26.08.2014 addressed by the accused No.1 company to the Deputy Commissioner of Income Tax, TDS with respect to settlement proposal is marked as Ex.D-6.
13 C.C.95/201622. The DW-1 has also accounted regarding the request made by the accused No.1 company for TDS payment confirmation pertaining to financial years 2011-12 & 2012- 13, the true copy of the said letter dated 09.01.2018 along with statement is collectively marked as Ex.D-7. The confirmation of payment of TDS vide letter of ACIT, Bengaluru dated 11.01.2018 is marked as Ex.D-8. The compounding application proceedings pertaining to accused No.1 company with respect to financial years 2010-11 to 2013-14, 2015-16 to 2018-19 which indicated no demand from the accused No.1 company is marked as Ex.D-9.
23. The accused No.2/DW-1 has specifically deposed as to having not signed Form No.27A pertaining to financial years 2010-11 & 2011-12 submitted to the complainant Department. The true copies of the said forms are collectively marked as Ex.D-11. The accused No.1 company is claimed to be having nine Directors in financial years 2010-11 and 2011-12 and eight Directors in financial year 2012-13, thereby the accused No.2 has claimed as to herself not being Principal Officer U/s.2(35) of the IT Act. The true copies of Form Nos.27A pertaining to financial years 2010-11 to 2012- 13 are collectively marked as Ex.D-12 to Ex.D-14 respectively. The certified true copies of agreements entered between accused No.1 company and few of the agencies and individuals which do not bear the signature of the accused No.2 are marked as Ex.D-15 to Ex.D-17 collectively.
14 C.C.95/201624. DW-1 has been subjected to cross-examination by the Spl. PP for the complainant, wherein, it is deposed as to herself is one of the Board of Directors of the accused No.1 company. It is also deposed as to pursuant to accused No.2 being the part of the Board of Directors of accused No.1 company, she is aware of the decision of the said Board having remitted arrears of TDS along with interest to the complainant Department before issuance of show cause notice. It is also deposed as to herself and finance team of the accused No.1 company having responded to the served notices addressed by the complainant Department. The witness has admitted regarding the Ex.P-11 bearing her signature and herself being aware of the contents of the said Ex.P-11. 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.
25. The learned Spl. PP relying upon the oral and documentary evidence emphatically argued that, the delay in remittance of TDS for the financial years 2010-11 to 2012-13, being subsequently remitted by accused No.1 company will not absolve the accused No.2 from her 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 and the IPO not being materialized in itself will not be the justifiable ground in order 15 C.C.95/2016 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, the same being replied and admitted by the accused No.2 consenting to be treated as Principal Officer precludes from denying herself 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.
26. 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 prior to issuance of show cause notice in the case on hand. It is also argued as to only after the remittance of TDS, the complainant has come up with the instant case only on account of delayed remittance being noticed during the course of survey in the premises of accused No.1 company. 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 the order passed by the complainant Department U/s.201(1) & 201(1A) of the IT Act as per Ex.P-9 dated 23.04.2013 was prior to survey as per Ex.P-2 dated 26.07.2013. It is emphasized the said order as per Ex.P-9 being pertaining to 2010-11. It is also highlighted regarding the accused No.1 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 16 C.C.95/2016 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-11 by accused No.2 shall be read in entirety and it cannot be construed as consent by the accused No.2 to be treated as Principal Officer U/s.2(35) of the IT Act. It is also highlighted regarding the cross- examination of the PW-1, wherein, she has admitted the complaint in the case on hand being pertaining to financial years 2010-11 to 2012-13. It is specifically admitted by PW-2 as to accused No.1 company following mercantile accounting system. It is also argued as to Ex.P-8 is contrary to the very provisions of the IT Act, which mandates the requisites of the notice U/s.2(35) of the IT Act. It is also emphasized regarding Ex.D-11 to Ex.D-17 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 support of the aforesaid arguments, the counsel for the accused has relied upon compilation of judgments containing 50 decisions in support of arguments canvassed on behalf of accused Nos.1 & 2. Amongst these arguments, sought to acquit the accused Nos.1 & 2.
"Evaluation and Analysis of Evidence"
27. 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 17 C.C.95/2016 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 Managing Director of the said accused No.1 company.
28. An anxious examination of the complaint, the evidence on record so also the documents relied upon by the complainant, except Ex.P-11 i.e., the letter addressed by accused No.2 in response to e-mail and letter dated 26.07.2013, wherein, the accused No.2 submitted no objection to be treated as Principal Officer of accused No.1 company and having stated as to the financial functions being managed by CFO, 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 herself as DW-1 and specifically contended as to she was not responsible for day to day affairs of accused No.1 company and the said accused No.1 company having nine Directors at the relevant point of time and she was solely in-charge of strategic scientific business functions of accused No.1 company. The said DW-1/accused No.2 in support of her claim has produced and got marked Form No.27A pertaining to financial year 2010-11 to 2012-13 as Ex.D-12 to Ex.D-14, so also, the agreements entered by accused No.1 company with third parties marked as Ex.D-15 to Ex.D-17, wherein, the Managing Director of accused No.1 has not duly verified the said ITR, the same are duly signed and verified by 18 C.C.95/2016 Finance Manager of accused No.1 company. That apart, Ex.D-15 to Ex.D-17 being agreements and letter of engagement not being signed by accused No.2 on behalf of accused No.1 company. Pursuant to the accused No.2 having denied her 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 Managing Director being responsible for day to day affairs, the court cannot solely rely upon Ex.P-11 in isolation and the said document certainly needs to be read in entirety as per the settled principles of interpretation of documents. It is relevant to note that, accused No.2 has very much demonstrated her 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.
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 19 C.C.95/2016
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
29. The arguments of the Spl. PP as to accused No.2 has replied as per Ex.P-11 will not hold the water as the said reply should be read in its entirety and not in isolation. That apart, this view of the court is also justified pursuant to complainant Department having not established independently the role of the accused No.2 in the day to day affairs and conduct of the accused No.1 company by cogent documentary evidence. This view of the court is supported by Section 91 of the Indian Evidence Act . The PW-2/the then DCIT (TDS), who issued the notice as per Ex.P-8 has categorically admitted as to Ex.P-11 having averment regarding the responsibility handled by accused No.2 by holding strategic scientific business functions. 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 decisions reported in:
(1) 91 ITR 18 (SC) in the case of Pullangode Rubber Produce Company V/s. State of Kerala (2) CIT V/s. V.M.R.P. Firm reported in MUAR 56 ITR 67 (SC) (3) S.R. Koshti V/s. CIT reported in 276 ITR 165 (Guj) (4) Vinay Chandulal Satia V/s. N.O. Parekh 20 C.C.95/2016
30. The arguments of the counsel for the accused as to the notice as per Ex.P-8 is not being in consonance to Section 2(35) of the IT Act, wherein, the intention of the complainant Department treating accused No.2 as a Principal Officer is very much not forthcoming is justifiable as the same needs to be examined in the background of the very provisions of the IT Act. It is significant to note that, the notice as per Ex.P-8 being issued pertaining to financial years 2005-06 to 2012-13 commonly addressed to nine companies in so far as default pertaining to eight financial years by the complainant Department, is certainly not passing the test in so far as pre- requisites of notice U/s.2(35) of the IT Act. This view of the court is supported by following decisions viz.,:
(1) Mohd. Ayd V/s. ITO (2012) 27 Taxmann.com 114 (Allahabad) (2) Barnala Steels Industry Ltd., V/s. ACIT in ITA No.6783/Del/2013 dated 05.09.2019 (3) Shri Navin Jain V/s. DCIT (2021) 91 ITR 682 (Lucknow( Trib)
31. 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 remitted the TDS with interest U/s.201(1A) of the Act, before the passing of sanction order as per Ex.P-1 by the complainant 21 C.C.95/2016 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 interpretation of Section 276B of the Act. This view of the court is supported by the following authorities viz., (1) (2007) 162 Taxmann.337 (SC) in the case of CIT V/s. Tara Agencies (2) (2007) 2 SCC 230 in the case of Raghunath Rai Baraja and another V/s. Punjab National Bank and others (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 22 C.C.95/2016 (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
32. Further defence urged by the accused No.1 company as to the complaint is contrary to SOP, wherein, it 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 15.10.2015, the complaint has been lodged by the Deputy Commissioner of Income Tax, (TDS), Circle-1(1), Bengaluru on 31.03.2016. 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-8 is 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.
23 C.C.95/201633. 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 prior to issuance of show cause notice by the complainant Department is very much justified to claim the benefit of not having been subjected to the penalty proceedings. 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. This view of the court is supported by the decisions reported in S.G. Kale V/s. Union of India (2001) 118 Taxmann 349 (Raj), CIT V/s. Kullu Valley Transport reported in 77 ITR 518 (SC), CIT V/s. Madho Pd. Jatia reported in 105 ITR 179 (SC).
34. 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 admitted the said aspect during the course of her cross-examination.
24 C.C.95/201635. It is also relevant to note that the accused No.1/ company has pleaded financial crisis on account of IPO not being materialized, the same is very much forthcoming from the statement as per Ex.D-4 and communications as per Ex.D-5, Ex.D-6 and Ex.D-10. The examination of the said documents very much strengthens the contention of the accused as to accused No.1 company being under financial crisis in the relevant years. 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 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.
36. It is also pertinent to consider as to the Ex.P-8 and other documents relied upon by the complainant Department being produced before this court by printing the copies of the said documents from the computers of the complainant Department 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-8 and other documents sourced from the on-line data available with the complainant Department cannot be 25 C.C.95/2016 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:
37. It is settled position of law that, the complainant is bound to demonstrate the guilt of the accused beyond all reasonable doubts without giving a scope or room for doubts in so far as the complainant's case. The complainant has very much failed to establish the crucial aspect of the accused 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 No.2 has probabalized her defence discussed morefully supra. It is needless to point out that, the complainant's case is tainted with substantial improvements, omissions and contradictions.
38. In light of the discussion made supra, pursuant to the complainant having miserably failed to bring home the 26 C.C.95/2016 guilt of the accused No.2, by virtue of being Managing Director of accused No.1 company, the accused No.1 company being juristic person, in absence of convincing, cogent 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 decision of Hon'ble High Court of Rajasthan in S.G. Kale V/s. Union of India reported in (2001)118 Taxman 349 (Raj).
39. In light of the reasons assigned supra, this court without any hesitation proceeds to answer Point Nos.1 & 2 in the Negative.
40. 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, 1961.27 C.C.95/2016
Consequently, accused Nos.1 & 2 are set at liberty.
The corresponding bail bonds of accused No.2 stands canceled.
(Dictated to the Stenographer directly on computer, typed by him, corrected and then pronounced by me, in open court on this the 27th day of May 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.28 C.C.95/2016
:ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Smt. Preeth Ganapathy
PW-2 : Sri. K.R. Narayana
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Certified True copy of Sanction Order Ex.P-2 : Certified True copy of Preliminary Survey Report Ex.P-3 : Certified True copy of Order U/s.201(1) & (1A) of IT Act Ex.P-4 & 5 : Certified True copies of Demand Notices Ex.P-6 : Certified True copy of Order U/s.201(1) & (1A) of IT Act Ex.P-7 & 8 : Certified True copies of Notices Ex.P-9 : Certified True copy of Order U/s.201(1) of the IT Act Ex.P-10 : Certified True copy of Notice Ex.P-11 : Certified True copy of Letter Ex.P-12 : Certified True copy of Letter List of witnesses examined on behalf of the Accused:
DW-1 : Dr. Villoo Morawalla Patell List of Documents examined on behalf of the Accused:
Ex.D-1 : Certified True Copy of Order U/s.154 of IT Act Ex.D-2 : Certified True Copy of Order U/s.201(1A) of IT Act Ex.D-3 : Certified True Copy of Communication Ex.D-4 : Certified True copies of Challans Ex.D-5 : Certified True copy of Final Settlement of TDS Ex.D-6 : Certified True copy of Letter Ex.D-7 : Certified True copy of Letter along with Statement Ex.D-8 : Certified True copy of Confirmation of Payment of TDS Ex.D-9 : Certified True copy of Compounding Application Ex.D-10 : Certified True copy of Letter Ex.D-11 : Certified True copy of Form No.27A 29 C.C.95/2016 Ex.D-12 to 14: Certified True copies of Form No.27A Ex.D-15 TO 17: Certified True copies of Agreements Presiding Officer, Spl. Court for Economic Offences, Bengaluru.
30 C.C.95/2016
27.05.2024
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 canceled.
PRESIDING OFFICER.