Bangalore District Court
The Income-Tax Department vs M.Rajanna on 21 October, 2015
1 CC.NO.114/2007
BEFORE THE SPECIAL COURT FOR ECONOMIC OFFENCES:
AT BANGALORE.
Dated this the 21st day of October 2015.
Present: Smt.PUSHPAVATHI V., B.A.L., LL.B.,
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC.No.114-2007.
Complainant: The Income-tax Department,
By Income Tax Officer, Ward-6(3),
Bangalore. (by Smt.B.M.Nithyokolyori).
. vs .
Accused: M.Rajanna, Proprietor,
M/s.Hitech Engg. Co.,
No.86/87, Near Railway Gate,
Kodigehalli, Bangalore.
JUDGEMENT
1. This is the complaint filed u/s.200 of Cr.P.C., by the Income Tax Department, by its Income Tax Officer, Ward-6(3), Bangalore against accused with a prayer to punish him for the offence punishable u/s.276-C(2) of Income Tax Act 1961.
2. The brief facts of the complainant's case is that the complainant/Income Tax Department is represented by the Income Tax Officer on his Official capacity as a public servant, he is authorized to file the complaint vide sanction order dated:27.11.2006.
3. That the accused No.2 is the Proprietor of M/s.Hitech Engg., Company, No.86/87, Near Railway Gate, Kodigehalli, Bangalore 1 2 CC.NO.114/2007 and responsible for the day to day conduct of the said company affairs. The Company is an income tax assessee. The accused had filed return of Income for the Assessment Year 2002-03 on 5.11.2002 declaring an income of Rs.1.56,680/- and the same was processed by the complainant u/s.143(1) of the Income Tax Act, 1961 on 30.4.2003 which resulted in raising of demand of Rs.4,570/-. Further proceedings were taken up by the Assessing Officer, by issuing notice u/s.143(2) of the Income Tax Act. On close perusal of the Return of income filed by the accused, the Assessing Officer found the Profit and Loss Account or balance sheet are not annexed to the return as required by law. On calling upon, the accused filed Profit and Loss Account, Balance sheet and computation of total income where the Assessing Officer found discrepancies. It was found the accused had claimed depreciation of Rs.37,025/- on one item against Rs.29,358/- charged to the profit and loss account submitted subsequently. The balance sheet did not contain any entry with regard to closing stock but the profit and loss account produced by the accused reflected the closing stock of Rs.2,650/-. The assessing Officer further enquired with M/s.Birla Home finance from whom the accused obtained loan by issuing notice U/s.133(6) of the I.T Act calling upon to furnish the copies of all the documents. In response, M/s.Birla Home Finance produced copies of documents. 2 3 CC.NO.114/2007 On perusal, it is found, there were discrepancies in the Profit & Loss Account and balance sheet furnished before I.T authorities and M/s.Birla Home Finance. The accused failed to substantiate the said discrepancies noted by the Department authorities. The assessment order was passed on 28.2.05 determining the total income of the accused at Rs.9,00,000/-. The tax liability is fixed at Rs.3,60,624/-, he paid tax of Rs.21,424/- towards the self assessment tax u/s.140A of the Income Tax Act and the said amount was given deductions. The accused had to pay tax of Rs.3,39,200/-. A demand notice u/s.156 of the Income Tax Act, 1961 was issued to pay the entire arrears of tax of Rs.3,39,200/-, as determined under the Assessment order.
4. In response to the said demand notice, the accused had paid Rs.1,00,000/-, towards remaining tax of Rs.2,29,000/-, the accused issued a cheque on 15.3.05 bearing No.532300 for Rs.1,39,200/-, another cheque on 30.3.2005 bearing 540972 for Rs.1,00,000/-, & another cheque dated 5.9.05 bearing No.935163 for Rs.1,00,000/-. The said cheques were returned with an endorsement dated:8.9.2005 as "funds insufficient".
5. The Assessing officer has issued a notice dated 20.9.2005 through RPAD calling upon the accused to make payment of cheque amount within 15 days from the date of service of the notice. The said notice was returned unserved with the postal 3 4 CC.NO.114/2007 shara "unclaimed hence returned'. The Assessing officer has issued another notice through a Departmental person & the same was received by the accused, the accused did not pay the amount, the Assessing Officer has issued another notice dated:7.6.2005 to the accused asking him to show cause why prosecution proceedings should not be initiated against him. The said notice was received by one Mr.Darshan on behalf of the accused, there was no response to the said notice.
6. The Commissioner of Income tax with a view to give an opportunity of hearing to the accused before launching a prosecution issued a letter dated:13.02.2006 calling upon the accused to appear before him. The accused appeared through the representative on 10.03.2006 & filed his written reply.
7. The Commissioner of Income tax after considering reply submitted by the accused passed the sanction order dated:27.11.06 u/s.279(1) of the Income tax sanctioning to prosecute the accused.
8. The accused having knowledge that there is no sufficient balance in his account and with an intention to evade payment of tax issued cheques which were dishonoured. Thus, the accused has made willful attempt to evade the payment of tax and thereby committed an offence punishable under Sec.276-C(2) of the I.T.Act, 1961 & hence this complaint.
4 5 CC.NO.114/2007
9. On this complaint, the case has been registered, cognizance taken, secured accused, he has been enlarged on bail. The copy of the complaint and other documents were furnished to him. The charge was recorded, he pleaded not guilty and claimed to be tried. Hence, the case was taken for trial. The complainants were given an opportunity to prove their case where the complainant has examined as many as 2 witnesses as P.W.1 & 2 and got marked Ex.p.1 to 19. P.w.1 has been cross-examined by the accused counsel. P.w.2 has not been cross-examined by the accused counsel. Thereafter, the complainant's have closed their evidence. Thereafter, the statement of accused u/s.313 of Cr.P.C., is recorded where accused has denied all the incriminatory evidence readover to him and submitted he has got evidence. On his submission, an opportunity was given to accused to lead his evidence where accused has given his evidence as D.W.1 & got marked Ex.D.1 to 9. He has been cross - examined by the complainant's counsel.
10. Perused the entire record, the points that arise for my consideration are :
Point No.1: Whether the complainant proves beyond all reasonable doubt that the accused has made willful attempt to evade the payment of tax 2,39,200/- and thereby committed an offence punishable under Sec.276-C(2) of the I.T. Act, 1961.?
Point No.2: What order.?5 6 CC.NO.114/2007
11. My findings on the above said points are as under:
Point No.1: In the Negative, Point No.2: As per the Final orders for the following:
REASONS
12. Point No.1: There is no dispute as to accused had filed returns for the assessment Year 2002-2003 showing the tax liability as 21,424/- on 31.3.2002 as per Ex.p.1. It is also not in dispute that the assessment order is passed u/s.143(3) of I.T Act as per Ex.p.2 on 28.2.2005, the demand notice issued on 28.2.2005 as per Ex.p.3 raising demand of Rs.3,39,200/-. The accused has also not disputed that the accused had issued two cheques for Rs.1,39,200/- dated:15.3.2005 as per Ex.p.4 & for Rs.1,00,000/- dated:30.03.2005 as per Ex.p.7. It is also not in dispute that both cheques were dishonoured as per the memorandum & endorsement issued by Canara bank & RBI which are at Ex.p.5, 6, 8, & 9 respectively. It is also not in dispute that the accused had issued another cheque for Rs.1,00,000/- dated:5.9.2005 as per Ex.p.11 and the same is dishonoured as per Ex.p.12 & 13 the endorsement of Canara Bank & RBI, that the complainant had issued notice u/s.138 of N.T Act as per Ex.p.14, the same was returned with an endorsement 'unserved' as per Ex.p.15, the opportunity letter was issued to accused as per Ex.p.16 & the accused had given reply as per Ex.p.17. The case of the 6 7 CC.NO.114/2007 complainant that the accused was due a sum of Rs.2,39,200/- is admitted. The case of the accused that subsequently the said amount is paid is also admitted by the complainant.
13. The only defence of the accused is that there was no willful default. The offence alleged in this case against the accused is under Sec.276C(2) which reads as follows:
S.276C(2): Willful attempt to evade tax etc., "(2) If a person 'willfully' attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be impossible on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to (two) years and shall in the discretion of the court, also be liable to fine."
14. According to this provision, the attempt to evade payment of tax should be willful. The reasons assigned by the accused for non- payment of tax within time is that - he had borrowed a loan of Rs.20 lakhs from Canara Bank, Race Course Road Branch to purchase machineries for his business, he had pledged his property for loan, about 25 members were working, in the recession he lost business, he paid EMI regularly, due to loss of business, he could not pay EMI & salary of workers, the bank seized their machineries as per seizure panchanama at Ex.D.1, on 4.5.1998 auction notice was issued as per Ex.D.2, he requested to hold auction through letter dated:15.5.1999 as per Ex.D.3, they held for few months, but in Jan-2003, they informed through a 7 8 CC.NO.114/2007 letter that they are offering OTS for 6 installments as per Ex.D.4, he made half payment, machineries released in his favour in the end of 2003 as per Ex.D.5. Simultaneously, there were proceedings in DRT for recovery on immovable property, the court had given decree for Rs.39,50,905/- as per Ex.D.6, they had issued auction notice as per Ex.D.7, he approached bank and negotiated, they waived entire interest, they asked him to pay only Rs.22,15,000/-. At the end of Aug-2005, he cleared entire dues, the bank filed memo as per Ex.D.8. From 1999 to August-2005, he was in financial problems, he had informed this to Income tax Department through a letter as per Ex.D.9, but they did not oblige, he did not willfully evade to pay tax, he had paid Rs.1,00,000/-, when he informed about his financial crises to the department, he had given his cheque for security, but assessing officer without informing him had presented the cheques and dishonoured, he gave the reply to Income Tax Commissioner in this aspect, he did not take any steps, they issued notice u/s.138 of N.I Act & filed this case purposefully, he has not made any willful attempt to evade tax, he has paid the entire tax to the Department.
15. In this case, admittedly, the return is filed on 31.3.2002, the assessment order was passed on 28.2.2005, demand notice is issued on 28.2.2005, three cheques were issued on 15.3.2005, 30.3.2005 & 5.9.2005. This shows the demand was in the year 8 9 CC.NO.114/2007 2005. Ex.D.1 to 8 shows the accused had raised loan of Rs.20 lakhs from Canara Bank, they had seized machineries and released in the end of 2003, there was also proceedings in DRT& the said proceedings came to be settled in the month of August- 2005. This shows there was financial crises to the accused from 1995 to 2005. Of course, the accused had issued cheques and dishonoured, but this issuance of cheques and dishonour cannot be concluded as the accused willful evasion of payment of tax. In fact, he had admittedly paid Rs.1,00,000/- to the department out of total due of Rs.3,39,200/-. For remaining balance, he had issued cheques, the issuance of cheques itself goes to show that he was not having willful intention to evade payment of tax, if at all he was having such willful intention, he would not have issued cheques. Of course, he himself in Ex.D.9 & Ex.p.17 the reply given to the Income Tax Department has said that the cheques were taken by income tax officer forcibly. But in the Chief examination, he has made it clear that he was given only for security and the income tax officer without his knowledge has presented the cheque. The P.w.1 denied that on their force the cheques are issued. Even if it is taken that the cheques are issued by force, this do not lead to conclude that the accused was having willful intention to evade tax. If he was to evade tax, he would not have issued cheques even on force. In fact, in the reply Ex.D.9 & 9 10 CC.NO.114/2007 Ex.p.17 he had requested at Para No.5(g) & 5(h) which reads as follows:
Para No.5(g): I humbly request you honour to kindly treat this as a petition for request for payment of taxes in installments and allow me to pay the tax arrears in installments of Rs.10,000/- per month. I will ensure that I will clear all my tax dues promptly and will produce the tax paid challan before your honour every month. I am short of fund and the recovery of taxes as of now will cause a lot of financial hardship. It is also pertinent to mention that I agreed for the additions made in the assessment order in order to buy peace of mind with the Department. In view of this, I have also not filed an appeal before the Commissioner of Income Tax (Appeals).
Para No.5(h): I once again request your honour to grant time for me to make the tax payments by way of installments so that it does not burden me and my business activities."
16. This shows on 10.03.2006 the accused had requested the income tax department to grant time to pay tax i.e., even before filing of this complaint. At the out set, I hold that the accused had no intention to evade tax.
17. Further, in support of his argument, the learned counsel for the accused has relied upon the Judgement reported in I.T.R., 1994 Vol.208, Page No.82 in a case between Narayan Vs. Union of India, wherein it is held as follows:
"OFFENCES AND PROSECUTIONS - WILFUL DELAY IN FILING RETURNS - BURDEN OF PROOF - BURDEN ON REVENUE TO PROVE THAT DELAY WAS WILFUL - MEANING OF "WILFUL" - DELAY IN FILING RETURNS BY ASSESSEE WHO HAD BEEN FILING RETURNS IN TIME PREVISOULY - EXPLANATION THAT ASSESSEE HAD BEEN ILL - EXPLANATION SUPPORTED BY MEDICAL CERTIFICATE - NO EVIDENCE THAT DELAY HAD BEEN WILFUL -10 11 CC.NO.114/2007
PROSECUTION NOT VALID - INCOME TAX ACT, 1961, S.276CC - CRIMINAL PROCEDUR CODE, 1973."
18. In this case, the accused was ill and had filed returns in delay, it was held that there was no willful intention considering the explanation and medical certificate. In the present case delay is in payment of tax not returns, but in both cases there are similar circumstances that there was delay in complying the provisions of IT Act. In both cases the accused has placed materials showing accused was not having willful intention. In the above referred case, such materials have been accepted. In the present case also, the documents and oral evidence placed by the accused makes it clear that there was having financial crises and had also requested the Income Tax Department to grant time to pay tax and before that he had issued cheques. This shows that he was not having any intention to evade tax willfully. The above said judgement referred by the accused is aptly applicable to the case on hand. Applying this Judgement also, I hold that the prosecution has failed to prove the allegations made against the accused beyond all reasonable doubt.
19. The learned counsel for the accused has also relied upon the another judgement reported in I.T.R., 1999 Vol.No.235, Page No.116, in case between Lal Saraf Vs. State of Bihar & another, wherein it is held as follows:-
"OFFENCES AND PROSECUTIONS - WILFUL FAILURE TO FILE RETURN BY DUE DATE - BOOKS OF 11 12 CC.NO.114/2007 ACCOUNT AND DOCUMENTS SEIZED BY REVENUE AUTHORITIES - PERMISSION TO TAKE CO-IES OF DOCUMENTS ISSUED AFTER EXPIRY OF DATE FOR FURNISHING RETURN - NO WILFUL FAILURE TO FILE RETURNS - PROSECUTION NOT VALID - INCOME TAX ACT, 1962, S.276CC."
20. In the above referred case, the accused had applied for permission to take copies of documents issued after expiry of date for furnishing return where it was held that there was no willful failure to file returns. In this case, it is not so, the facts and circumstances are different. Hence not applicable. But in this case, accused had issued cheques and had sought time in reply in Ex.D.9 & Ex.p.17. This shows there was no willful evasion to pay tax. Thus, I hold that the prosecution has completely failed to prove the allegations made against the accused beyond all reasonable doubt. Hence, I answer Point No.1 in negative.
21. Point No.2: In view of my findings on Point No.1, I proceed to pass the following order.
ORDER Acting u/s.248(1) of Cr.P.C., the accused is acquitted for the offence punishable u/s.276C(2) of Income Tax Act, 1961.
The bail bond of accused stands cancelled.
(Dictated to the Stenographer, directly on computer, typed by her corrected & then st pronounced by me, in open court on this the 21 day of October- 2015) PRESIDING OFFICER.
12 13 CC.NO.114/2007 ANNEXURE:
ON BEHALF OF THE COMPLAINANT:
WITNESSES:
P.w.1 R.S.R.L.Sundarkumar, P.w.2 Smt.B.N.Nithyakalyani.
DOCUMENTS:
Ex.p.1 Return, Ex.p.1(a) Sig. of Accused, Ex.p.2 Assessment Order, Ex.p.2(a) Sig. of P.w.1, Ex.p.3 Notice, Ex.p.3(a) Sig. of P.w.1, Ex.p.4 Cheque, Ex.p.4(a) Sig. of Accused, Ex.p.5 Memorandum of Cheque, Ex.p.6 Endorsement of RBI, Ex.p.7 Another Cheque, Ex.p.7(a) Sig. of Accused, Ex.p.8 Endorsement of Canara Bank, Ex.p.9 Endorsement of RBI, Ex.p.10 Show Cause Notice, Ex.p.11 Cheque, Ex.p.11(a) Sig. of Accused, Ex.p.12 Endorsement of Canara Bank, Ex.p.13 Endorsement of RBI, Ex.p.14 Notice, Ex.p.15 Returned Postal Cover, Ex.p.16 Copy of Letter, Ex.p.17 Reply, Ex.p.18 Sanction order, Ex.p.19 Complaint, Ex.p.19(a) & (b) Sig. of P.w.2.
ON BEHALF OF THE ACCUSED : WITNESSESS: D.w.1 Rajanna S., DOCUMENTS:
Ex.D.1 Seizure Panchanama, Ex.D.2 Action Notice, Ex.D.3 Letter dated:15.5.1999, Ex.D.4 Letter, Ex.D.5 Machinery Delivered Letter, Ex.D.6 True Copy of Decree, Ex.D.7 Auction Notice, Ex.D.8 Memo, Ex.D.9 Letter.
(PUSHPAVATHI V) PRESIDING OFFICER, SPL.COURT FOR ECONOMIC OFFENCES, BANGALORE.13