Bangalore District Court
Income Tax Deparment vs M/S Kbr Infratech Limited on 12 August, 2024
KABC090000272023
Presented on : 16-02-2023
Registered on : 16-02-2023
Decided on : 12-08-2024
Duration : 1 years, 5 months, 24 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 12th day of August 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M.,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C. No.15/2023
Complainant: The Income Tax Department,
By the Assistant Commissioner of Income Tax,
TDS Circle-2(1),
Bengaluru.
(Reptd. By Sri. CB., Advocate (Spl. P.P)
V/s.
Accused : 1. M/s. KBR Infratech Limited,
No.69, 12th Main,
CQAL Layout,
Sahakaranagara,
Bengaluru - 560 092.
Reptd. by its Managing Director
2 C.C.15/2023
2. Sri. K. Babu Raju,
Managing Director,
M/s. KBR Infratech Limited,
No.69, 12th Main,
CQAL Layout,
Sahakaranagara,
Bengaluru - 560 092.
(Reptd. By Sri. BMNP., Advocate)
:JUDGMENT:
The instant case emanates from the complaint filed by the complainant alleging that, the accused Nos.1 & 2 have committed an 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 the company registered under the Companies Act, engaged in the business of construction. 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 the accused No.1/company. The Assessing Officer of the complainant Department issued the notice U/s.2(35) of the IT Act on 23.11.2016 treating the accused No.2 as the Principal Officer of the accused No.1/company. 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, 194I and 194J of the Act and defaulted in remitting the said TDS to the Central Government account within stipulated period of time as 3 C.C.15/2023 contemplated under Rule 30 of the IT Rules for the tune of Rs.2,19,47,361/-.
3. The Commissioner of Income Tax, TDS issued show cause notice dated 30.01.2017 calling upon the accused Nos.1 & 2 as to why the prosecution should not be launched for the aforesaid default in non-remittance of the TDS, though it was deducted under various heads, thereby having committed offences punishable U/s.276B r/w 278B of the Act. In response to the said show cause notice, the accused admitted the default in remittance of TDS within stipulated period of time. The accused also replied to the show cause notice through its Authorized Power of Attorney holder during the course of sanction proceedings. 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.
4 C.C.15/2023Thereafter, 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.
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 13 documents as Ex.P-1 to Ex.P-13 and got closed its side of evidence. The statement of the accused No.2 was recorded 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 marked one document as Ex.D-1.
7. Heard the arguments canvassed by the learned Spl. PP for the complainant and learned counsel for accused persons.
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:
5 C.C.15/20231) 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 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.2,19,47,361/- 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.2,19,47,361/- 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.15/2023 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 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 for the tune of Rs.2,19,47,361/-.
12. The complainant in order to establish the guilt of the accused Nos.1 & 2 beyond all reasonable doubts, got examined herself 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 Managing Director, who was responsible for the day to day affairs of accused No.1 company. The notice U/s.2(35) of the Act being issued to accused No.2 by her predecessor, which was not replied by the accused No.2, so also, the proposal being placed before the sanctioning authority by her and having obtained sanction to prosecute the accused persons in the case on hand and thereby the accused No.2 being guilty of having committed the offences punishable U/s.276B r/w Section 7 C.C.15/2023 278B of the IT Act, for non-remittance of the TDS pertaining to the financial year 2016-17 to the tune of Rs.2,19,47,361/-.
13. In support of her oral testimony, the PW-1 has produced and got marked 13 documents as Ex.P-1 to Ex.P-13. Ex.P-1 is the complaint filed by her U/s.200 of Cr.P.C., her signatures in Ex.P-1 are collectively marked as Ex.P-1(a). Ex.P-2 is the certified true copy of system generated Notice addressed to accused No.1 company dated 09.10.2017, wherein, accused No.1 company was notified and called upon to furnish the details stated therein. Ex.P-3 is the certified true copy of show cause notice dated 20.02.2018 addressed to one Mr. R.N. Sundar issued by the Assistant Commissioner of IT U/s.2(35) r/w Section 204 & Section 276B of the IT Act with respect to financial year 2013-14 to 2016-17, wherein, the said noticee was called upon to submit his explanations as to why he should not be treated as Principal Officer of accused No.1 company. Ex.P-4 is the certified true copy of reply dated 26.03.2018. Ex.P-5 & Ex.P-6 are the certified true copies of the show cause notices dated 30.03.2018 addressed to accused No.1 company and accused No.2 by the Commissioner of Income Tax (TDS) giving opportunity as to why prosecution should not be launched U/s.276B r/w 278B of the IT Act and fixing the date of hearing on 15.05.2018. Ex.P-7 & Ex.P-8 are the certified true copies of the show cause notices dated 25.05.2018 addressed to accused No.1 company and accused No.2 by the Commissioner of Income Tax (TDS) giving opportunity as to 8 C.C.15/2023 why prosecution should not be launched U/s.276B r/w 278B of the IT Act and fixing the date of hearing on 11.07.2018. Ex.P-9 is the certified true copy of speed post acknowledgment. Ex.P-10 is the certified true copy of reply dated 16.12.2019, wherein, the accused No.2 submitted as to being Principal Officer of accused No.1 company. Ex.P-11 is the system generated TDS statement pertaining to the accused No.1 company for the year 2016-17. Ex.P-12 is the Certificate U/s.65B of the Indian Evidence Act. Ex.P-13 is the original sanction order dated 20.12.2019 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.
14. PW-1 has been subjected to cross-examination by the counsel for the accused persons, wherein the witness has categorically admitted regarding the accused No.1 company handling infrastructure projects pertaining to Government and Semi Government Agencies. It has been specifically admitted as to the arrears of TDS along with interest with respect to financial year 2016-17 was paid by accused No.2 prior to issuance of Ex.P-3 dated 20.02.2018. It is also admitted as to the accused No.1 company was due from various Government Agencies in the financial year 2016-17. The other suggestions as to the accused No.1 company was facing severe financial crisis in the financial year 2016-17 and as such there was a delay in remittance of the TDS to the 9 C.C.15/2023 complainant Department. The other suggestions as to a sum of Rs.18,42,027/- belonging to the accused No.1 company is held by complainant Department has been categorically denied by the witness.
15. CW-1 i.e., the then Asst. Commissioner of Income Tax, TDS, Circle-2(1), Bengaluru is examined as PW-2. This witness has accounted as to TRACES system of the Income Tax portal having detected the failure by accused No.1 company in remittance of deducted TDS with respect to financial year 2016-17 within stipulated period of time as per Rule 30 of the IT Rules. He has also accounted regarding having issued system generated show cause notice to accused No.1 company as per Ex.P-2 on 09.10.2017 as well as having issued show cause notice to accused No.2 U/s.2(35) of the Act as per Ex.P-3 dated 20.02.2018. The signatures of the witness on Ex.P-2 & Ex.P-3 are marked as Ex.P-2(a) and Ex.P-3(a) respectively. He has also deposed regarding having not received the response to the said Ex.P-2 and Ex.P-3.
16. PW-2 has been subject to cross-examination by the counsel for the accused, wherein, he has pleaded ignorance regarding the Ex.P-3 being issued after the accused No.1 company having remitted the arrears of TDS pertaining to financial year 2016-17 and also regarding the infrastructure industry facing financial crisis in the aforesaid financial year.
17. The accused No.2 got examined himself as DW-1 and deposed as to himself being Managing Director of 10 C.C.15/2023 accused No.1 company and arrears of TDS for the tune of Rs.2,19,47,361/- pertaining to the financial year 2016-17 being duly remitted to the complainant Department prior to issuance of show cause notice. It is also accounted regarding the delay in remittance of TDS was pursuant delayed payment being received from the Government Departments and Semi Government Agencies for which, accused No.1 company was rendering its services. The documents pertaining to long pending bills and correspondences made to the Government Departments are collectively marked as Ex.D-1. He has also deposed regarding the complainant Department withholding the sum of Rs.18,42,027/- since 2018. Hence, sought to acquit himself and accused No.1 company.
18. DW-1 has been subjected to cross-examination by the learned counsel for the complainant, wherein, he has admitted regarding the decision to remit the TDS to the Central Government belatedly was pursuant to the Board Resolution of accused No.1 company. It is also admitted as to he was very part of the Board, which passed the aforesaid resolution. It is also admitted regarding accused No.1 company had received a bills for sum of Rs.100 crores approximately in the financial year 2016-17. The other suggestions as to the purposefully the accused No.1 company defaulted in remittance of TDS within statutory period has been categorically denied by the witness.
11 C.C.15/202319. 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. The Spl. PP has vehemently argued that, the default in complying the terms of the show-cause notices as per Ex.P-3, Ex.P-5 to Ex.P-8, the same being replied by the accused No.1 company and having expressed his inability to remit the TDS on account of financial distress precludes from denying accused No.2 not being 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 No.2 has not willfully disobeyed the provisions of IT Act in remittance of TDS and as such it has been argued as to the accused Nos.1 & 2 are entitled to be acquitted of the offences punishable U/s.276B r/w Section 278B of the IT Act. The learned counsel for the accused persons has also emphasized that the accused No.1 company has remitted the arrears of TDS along with penalty and interest prior to issuance of show cause notice as per Ex.P-3. The counsel for the accused persons has also argued that, no any iota of documents have been submitted to establish the accused No.2 being responsible for the day to day conduct and business of accused No.1 company, as such, it is 12 C.C.15/2023 emphasized the accused No.2 cannot be made liable for the act of the accused No.1 company so also cannot be made liable for prosecution for having committed the offences punishable U/s.276B r/w Section 278B of the IT Act. It has been highlighted that the accused No.1 company was facing financial crisis and as such could not comply the Rule 30 of IT Rules and as such the accused No.1 company is entitled to benefit as contemplated U/s.278(AA) of the Act. Amongst these arguments, sought to acquit the accused Nos.1 & 2.
"Evaluation and Analysis of Evidence"
21. On overall examination of the complaint, evidence on record and arguments, 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 Managing Director of the said accused No.1 company. It is significant to note that, there is no any notice issued to accused No.2 U/s.2(35) of the Act, per contra, the show cause notice as per Ex.P-3 was addressed to one Mr. Raju M Sundar, who is not arrayed as accused in the case on hand.
22. An anxious examination of the complaint, the evidence on record so also the documents relied upon by the complainant, except the complaint allegations, there is no any 13 C.C.15/2023 iota of evidence or documents to establish the accused No.2 being the Principal Officer U/s.2(35) of the IT Act. 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 Managing Director being responsible for day to day affairs, the court cannot solely rely upon the show cause notice as per Ex.P-3 addressed to one Mr. Raju M Sundar, who is not a party to the case and also cannot consider the arguments of Spl. PP as to the accused No.2 having admitted himself being Principal Officer as per Ex.P-10. It is settled position of law that the issuance of notice U/s.2(35) of the Act is mandatory and unless the same is issued intimating a person to be treated as Principal Officer, the accused No.2 cannot be treated as Principal Officer.
23. The testimony of the PW-1, who is the complainant having accounted regarding her predecessor in office having issued the show notice U/s.2(35) of the Act to the accused No.2 so also, the accused No.1 company having remitted the arrears of TDS pertaining to the financial year 2016-17 prior to the issuance of show cause notice as per Ex.P-3. This testimony of PW-1 is contrary to Ex.P-3, which is addressed to one Mr. Raju M Sundar.
24. Furthermore, the testimony of PW-2 does not inspires the confidence of the court in order to gather the accused No.2 being the Principal Officer as contemplated 14 C.C.15/2023 U/s.2(35) of the IT Act. As the notice as per Ex.P-3 has been issued to one Mr. Raju M Sundar, who is not party in the case on hand.
25. That apart, the sanction as per Ex.P-10 is also silent as to contravention with respect to particular limb of Section 276B(a) of the Act and so also the show cause notices as per Ex.P-3, 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 with respect to the sanction order not being disclosing the contravention.
26. 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 arrears of TDS with interest U/s.201(1A) of the Act prior to issuance of show cause notice U/s.2(35) of the Act and also prior to lodging of the complaint 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., 15 C.C.15/2023 (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) (2019) 112 Taxman.com 220 (Kar) in the case of Dr. Viloo Patell V/s. Income Tax Department (4) Crl. M.P. No.2941/2018 in the case of M/s. Dev Multicom Pvt. Ltd. V/s. State of Jharkhand and others
27. It is also relevant to note that the accused No.1/ company has pleaded financial distress, the same is very much forthcoming in the reply as per Ex.P-4. The examination of Ex.D-1 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 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.
"Conclusion"
28. It is settled position of law that, the complainant is bound to demonstrate the guilt of the accused beyond all 16 C.C.15/2023 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 Nos.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 has also not withstood the test of cross- examination in so far as the arrears of TDS as on date of issuance of show cause notice. 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. It is needless to point out that, the complainant's case is tainted with substantial improvements, omissions and contradictions.
29. 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 Managing 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.
30. Furthermore, pursuant to accused No.1 company having made out justifiable grounds in so far as bonafide and reasonable cause with respect to financial crisis undergone by 17 C.C.15/2023 accused No.1 company in the relevant period, inclines the court to extend the benefit as contemplated U/s.278(AA) of the Act. Accordingly, in light of the reasons assigned supra, this court without any hesitation proceeds to answer Point Nos.1 & 2 in the Negative.
31. 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 canceled.
(Dictated to the Stenographer directly on computer, typed by him, corrected and then pronounced by me, in open court on this the 12th day of August 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.18 C.C.15/2023
ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Kum. Rehna
PW-2 : Sri. Nabeel Ahmad Saad
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Complaint
Ex.P-2 : Certified True copy of Notice
Ex.P-3 : Certified True copy of Show Cause Notice
Ex.P-4 : Certified True copy of Reply
Ex.P-5 to 8: Certified True copies of Show Cause Notices
Ex.P-9 : Certified True copy of Speed Post Acknowledgment
Ex.P-10 : Certified True copy of Letter by Accused No.2
Ex.P-11 : Certified True copy of TDS Statement
Ex.P-12 : Certificate U/s.65B of the Indian Evidence Act
Ex.P-13 : Certified True copy of Original Sanction Order
List of witnesses examined on behalf of the Accused:
DW-1 : K. Babu Raju List of Documents examined on behalf of the Accused:
Ex.D-1 : Details of Long Pending Bills & Correspondences Presiding Officer, Spl. Court for Economic Offences, Bengaluru.19 C.C.15/2023
12.08.2024 Complt: Sri. CB A: 1 & 2: BMNP 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.