Delhi District Court
Ito vs . M/S Diamond Hut India Pvt. Ltd. & Ors. on 22 April, 2019
1
IN THE COURT OF SH. PAWAN SINGH RAJAWAT :ACMM: (Spl. Acts)
CENTRAL: TIS HAZARI COURTS, DELHI
CC No.511884/16
ITO Vs. M/s Diamond Hut India Pvt. Ltd. & Ors.
JUDGMENT
(a)Year of commission of offence : Assessment year 2012-13
(b)Name of complainant : Income Tax Office through Dr. Ekta Chadha, ACIT, Central Circle-3, New Delhi.
(c)Name, parentage, residence : 1. M/s Diamond Hut India (P) of accused Ltd.
2883/17, Regent Tower, H.S. Road, Karol Bagh, New Delhi-110 005.
2. Sh. Suresh Verma C/o above and R/o. A-6, Derawal Nagar, Model Town, Delhi-110 009.
3. Sh. Ashok Verma C/o above and R/o. A-6, Derawal Nagar, Model Town, Delhi-110 009.
(d)Offence complained of/ proved : U/s 276CC r/w Sec. 278B of Income Tax Act (e)Plea of accused : Pleaded not guilty (f)Final order : Convicted (g)Date of such order : 22.04.2019 Date of Institution of complaint : 21.01.2015 Arguments heard/order reserved : 15.04.2019 Date of pronouncement of Judgment: 22.04.2019 ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 1 of 13 2
Brief statement of the reasons for the decision:-
1. The complainant Dr. Ekta Chadha, Assistant Commissioner of Income Tax, filed the present complaint against accused M/s Diamond Hut India (P) Ltd., Sh. Suresh Verma and Sh. Ashok Verma being Directors of accused no.1/company, pertaining to assessment year 2011-12 for the offence punishable u/s 276-CC r/w Section 278-
B of the Income Tax Act (hereinafter to be referred as 'Act').
2. The brief facts for filing of the present case are that accused did not file the return of income for the assessment year 2012-13 within the stipulated time despite issuance of notice dt. 26.07.2012 U/s 142(1) of the Act. Accused no. 1 has e-filed return of income for the AY 2012-13 on 27.09.2013 signed and verified accused no. 3 in the capacity of CMD, declaring income of Rs. 83,33,10,410/- vide acknowledgment no. 794000651270913. The balance sheet and profit & loss account was signed by accused no. 2&3. Accordingly, showcause notice U/s 279(1) of the Act was issued to the accused persons to which reply was duly received and thereafter, CIT issued sanction/authorization u/s 279(1) of the IT Act for filing of prosecution. It is further stated in the complaint that accused persons have willfully not filed return of income for AY 2012-13 and thus, committed an offence u/s 276-CC r/w Sec. 278-B of the Act.
3. On 21.01.15, the accused persons were summoned who appeared on 18.02.15. Copies of complaint and of documents were supplied to them.
4. In order to substantiate its allegations, complainant Dr. Ekta ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 2 of 13 3 Chadha examined herself as CW1 and Ms. Indu Bala Saini, DCIT as CW-2.
5. In her evidence CW1 reiterated the facts of the complaint and stated that despite several notices, accused failed to file return for the assessment year 2012-13 in time and proved on record the relevant documents i.e complaint as Ex. CW-1/1, sanction as Ex. CW- 1/2 and list of witnesses as Ex. CW-1/3. She further stated that notice U/s 142(1) of the IT Act dt. 26.07.2013 was issued by her predecessor calling upon to file return of income for AY 2012-13 on or before 08.08.2013. She further stated that accused e-filed the return of income for AY 2012-13 on 27.09.2013 declaring income of Rs. 83,33,10,410 and proved the return of income as Ex. CW-1/4. She further stated that an order U/s 139(9) of the I.T. Act for the AY 2012-13 Ex. CW-1/5 was passed by her predecessor. She further stated that showcause notice Ex. CW-1/6 was issued by the then CIT Ms. Meeta Nambiar to all the three accused individually to which an application for adjournment Ex. CW-1/7 was received through AR of accused. She further stated that reply Ex. CW-1/8 to the showcause notice dt. 29.08.14 was received on 03.09.2014 duly signed by accused no. 3. She further stated that CIT did not found the reply satisfactory as the reason stated in the reply was financial crises, though the return of income was filed even without payment of tax and interest on the returned income. Lastly, she deposed that by not filing the return in response to notice U/s 142(1) of I.T. Act, the accused no. 1 to 3 have committed offence punishable U/s 276CC r/w Section 278 of the I.T. Act. The witness was cross examined in post charge evidence wherein she stated that the prosecution is filed ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 3 of 13 4 as per provisions of law and the mens-rea is mandatory for invoking the provisions of law U/s 276CC. She denied the suggestion that return was filed late due to financial constraints. She further stated that she cannot say whether evasion of tax is synonymous to evasion of payment of tax or not as per law. She further stated that she does not remember whether accused failed to file the return in due date on earlier occasions also. She also does not remember whether any penalty was imposed for late filing of return. She further stated that CIT accorded the sanction after considering all the facts and circumstances including the reply to the showcause and denied the suggestion that sanction has been accorded by the CIT without considering the reply of the accused explaining the financial crises of the accused.
6. CW-2 stated that she issued notice U/s 142(1) of the I.T. Act dt.
26.07.2013 Ex. CW-2/1 calling upon accused to file return of income for AY 2012-13 on or before 08.08.2013, but no return of income was filed within the time. She further stated that she also passed order U/s 139(9) of the I.T. Act Ex. CW-2/2 for the AY 2012-13 treating the return of income filed as defective. During cross-examination in post charge evidence, she stated that if the return is filed belated, then it shall be presumed that it has been filed late as per the Income Tax Act.
7. Charge was framed for the offence U/s 276 CC r/w Section 278B of the I.T. Act against all the accused on 07.05.2016.
8. After post-charge evidence, statement of accused was recorded ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 4 of 13 5 u/s 313 Cr.P.C. In his statement accused Suresh Verma stated that the sanction is bad in law and is mechanical and has been passed without application of mind. He further stated that there is no willful default in filing of income tax return and due to huge financial crises, the income tax return could not be filed within due time. Accused Ashok Verma in his statement stated that he was not involved in day to day affairs of the company and he signed the balance sheet and profit & loss account being director of accused no.1 in compliance of Companies Act.
9. In defence, accused examined Sh. Charanjeet, Tax Assistant as DW-1, Sh. Shyama Prasad Biswas, Chief Manager, Saraswat Co- operative Bank as DW-2, Sh. Kuldeep Singh, Assistant Manager, Oriental Bank of Commerce as DW-3, Sh. Rohtas Chander, Chief Manager, Union Bank of India as DW-4, accused Suresh Sharma as DW-5 and Sh. Chandeshekhar Mishra, Asstt. Manager, Lakshmi Vilas Bank as DW-6.
10. DW-1 proved ITR of accused company for the AY 2009-10 & 2010-11 and 2008-09 as Ex. DW-1/1, DW-1/2 and DW-1/3 respectively and also proved acknowledgement for AY 2009-10 & 2010-11 as Ex. DW-1/4 and DW-1/5 respectively. This witness was not cross examined by Ld. SPP.
11. DW-2 proved bank account statement of accused no. 1/company as Ex. DW-2/A, the same was objected to by Ld. SPP regarding mode of proof as the statement was not certified under Banker's Book of Evidence Act. During cross-examination, the witness stated that he ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 5 of 13 6 was not posed in the said bank branch between AY 2011-12 & 2012-
13.
12. DW-3 proved bank account statement of accused no.1/company for the period w.e.f. 01.02.12 to 31.03.15 as Ex. DW-3/A and stated that the account was opened in their bank on 01.02.2012 as Cash Credit Account. He filed an affidavit U/s 65-B of Indian Evidence Act Ex. DW-3/B in support of Ex. DW-3/A and stated that he has no knowledge when the account of accused company was declared NPA and about the banking transaction of the accused company. During cross-examination he admitted that there were regular debit and credit entries during the period 01.02.12 and 21.02.14.
13. DW-4 proved bank account statement of accused no.1/company for the period w.e.f. 01.04.2010 to 31.12.2014 as Ex. DW-4/A and stated that as per the statement, the account becomes NPA w.e.f. 01.04.14. During cross-examination he admitted that between 01.04.2010 to 31.03.2013 there were regular debit and credit entries in the account.
14. Accused no. 2 examined himself as DW-2 in terms of Section 315 Cr.P.C. and stated that he was the director in accused no. 1 and the primary business of the company is retail/wholesale of gold and diamond jewelery. He further stated that in the year 2012 due to slowdown in th market, the business of the company suffered and the turnover dropped to 300-400 crores from Rs. 500 crores which resulted in less profit. He further stated that the company became NPA in the year 2014 due to losses occurred as a result of non ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 6 of 13 7 payment by the buyers. He further stated due to this he was under
trauma and therefore, he could not file the return in time. During cross-examination, he stated that apart from him, accused no. 3 is the another director who was looking after the sales of accused no.1. He admitted that the return of income was filed after receipt of notice U/s 142(1) of the Act and he has not filed the return of income for the relevant year on time.
15. DW-6 stated that the account no. 050163900000070 of accused no. 1 was declared NPA on 23.12.14 and proved its bank account statement from 01.04.2010 to 31.03.2015 as Ex. DW-6/1. During cross-examination he admitted that from 01.04.2010 till 03.11.2012, there was no transaction in the said bank account and till 31.03.2014 the accused was operating the bank account within the cash credit limit. He also stated that as per Ex. DW-6/1 the accused was receiving regular credit entries from various entities and also payments made showing the regular business was being carried out.
16. I have given my thoughtful consideration to the submissions advanced on behalf of parties and gone through the records/written arguments filed. I have also considered the relevant provisions of the Income Tax Act, 1961.
17. The relevant provisions under the Income Tax Act are reproduced for ready reference as under:-
276CC: Failure to furnish returns of income. - If a person willfully fails to furnish in due [the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WDE or by ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 7 of 13 8 notice given under sub-section (2) of the said section or section 115WH or] time the return of income which he is required to furnish under sub- section (1) of section 139 or by notice given under [clause (i) of sub-section (1) of section 142] or [section 148 or section 153A], he shall be punishable,-
(i)in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii)in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.
278B: Offences by companies.- (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
18. Present complaint was filed by the complainant u/s 276CC r/w Section 278B of the Act for not filing the return of income for the assessment year 2012-13 in due time despite service of notices u/s 142(1) of the Act Ex. CW-2/1 dt. 26.07.13. In view of section 139(1) of the Act, every person, if his total income during the previous year exceeds the maximum amount which is chargeable to income-tax, is bound to furnish a return of his income in the prescribed form verified in the prescribed manner before the expiry of four months from the end of the previous year or before the 30 th day of June of the assessment year which ever is later.
ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 8 of 13 9
19. Section 278E of the Income Tax also raises presumption as to culpable mental state of the accused to establish that failure was not willful. The relevant provision is reproduced as below:-
[Section 278E. Presumption as to culpable mental state. - (1) In any prosecution for any offence under this Act which requires culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation. - In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact, or belief in, or reason to believe, a fact.
(2) For the purpose of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.]
20. CW-1 and CW-2 have categorically deposed that despite service of notices 142(1) of the Act Ex. CW-2/1 dt. 26.07.13 whereby accused were called upon to file return of income for the assessment year 2012-13 on or before 08.08.2013, the return of income was filed only on 27.09.13 i.e. after a delay of more than one month from the time given in showcause notice. Non-filing of return of income in due time remained un-impeached and un-controverted in the evidence of CW1 and CW2. In the entire cross examination, it is not denied that the returns were filed late by accused persons despite service of notice U/s 142(1) of the Act for the assessment year 2012-
13. CW-1 also proved the showcause notice and sanction U/s 279(1) of the I.T. Act. CW-1 has specifically stated that at the time of passing the sanction order, the CIT has gone through the entire record including the reply of the accused. Thus, in view of the ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 9 of 13 10 provisions of Section 278 E of the Act, onus was upon the accused to prove that non compliance was neither willful nor deliberate but it was because of the circumstances beyond its control. Though defence has been taken that since the accused no. 1/company suffered losses, it was not possible for the accused to file the return of income in the due time.
21. Apart from giving suggestions that sanction was processed in a mechanical manner without following principle of natural justice or that there was no mens rea on the part of accused in non filing of return in a prescribed time, no evidence has been put forth to show the reasonable cause as mentioned in Section 278AA of the Act. The witnesses DW-1, DW-2, DW-3 and DW-4 examined on behalf of accused in defence only produced the copy of bank statements and income tax return records. The bank statement Ex. DW-2/A, DW-3/A and DW-4/A have shown regular flow of money to and from the bank accounts of accused no.1 during 01.02.12 to 21.02.14 and between 01.04.10 to 31.03.13.
22. Accused Suresh Verma while being examined as DW-5 claimed that his company became NPA in 2014 due to losses as a result of non payment by the banks and him being under trauma due to losses. However, he admitted that the return of income was not filed in time and it was filed only after receipt of notice U/s 142(1) of the Act. I have perused bank statements filed by the witnesses as well as Ex. CW-1/4 i.e. the ITR for AY 2012-13 and balance sheet and profit & loss account of the relevant period. As per profit & loss account for the year 2011-12, the accused no. 1 has earned profit ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 10 of 13 11 after provision of tax of Rs. 5,40,85,168.08 which does not show financial condition so bad that it prevented the timely filing of ITR by accused no.1. Moreso, despite receipt of notice U/s 142(1) of I.T. Act, the accused persons took more than a year to file the return. The accused have made provisions for payment of taxes in the financial returns but despite that accused chose not to file the return in time. This shows culpable state on the part of accused persons. At one point, accused have claiming losses but at the same time paying remuneration of Rs. 3,60,000/- to the Directors. In the audit report for the year ending on 23.06.12 annexed with the complaint, there is an increase in gross profit/turnover of 5.04% and hence the plea of loss by company is misplaced. The plea of accused Suresh Verma that he was under mental trauma and therefore, the return was filed late is made without any basis as no evidence showing the alleged mental trauma is brought on record. The plea of accused Suresh Verma that he was under mental trauma and therefore, the return was filed late is made without any basis as no evidence showing the alleged mental trauma is brought on record.
23. At one point the company is claiming losses but still stood as guarantors of Rs. 77 crores towards loans taken by associate concerns from banks.
24. The next argument that has been advanced is that there was no mensrea on the part of the accused in delay in filing of the income tax return, therefore, there can be no presumption under Section 278 E of the Act. However, said argument does not hold much water as the notice U/s 142(1) was issued after the last date of filing of ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 11 of 13 12 returns and it is not the case of accused that they had filed the returns in time. In the present case, the accused have deliberately and willfully not filed the returns not for a single year but also for the year 2011-12. This delay cannot be termed as a slight delay and it prima facie appears to be willful and deliberate.
25. Whether accused no. 2 and 3 are the persons responsible for managing the affairs of accused no.1 and filing of return of income on time: As per copy of ITR Ex. CW-1/4 accused no. 2 and 3 were shown as Managing Directors of accused no.1. The return of income was filed by accused Suresh Verma. The balance sheet and profit & loss account were signed by both the accused persons for the relevant year. The notice U/s 142(1) of I.T. Act was addressed to Principal Officer and the showcause notice U/s 279(1) of I.T. Act was addressed individually to accused Suresh Verma and Ashok Verma giving an opportunity to showcause as to why they should not be prosecuted. The reply to the showcause notice Ex. CW-1/6 does not deny that accused persons are responsible for willful failure on the part of accused no.1 in not furnishing return of income. However, it has only been pleaded that there was reasonable cause in delay in filing of income tax return. Hence, it has come on record that accused no. 2 & 3 are the persons responsible for affairs of accused no.1 in terms of Section 278B of the Act.
26. The accused have failed to rebut the presumption U/s 278-E of I.T. Act. On the contrary, they have admitted the delay in filing of return even after receipt of notice U/s 142(1) of I.T. Act and only took a plea that due to financial constrains, they could not file the return ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 12 of 13 13 within time.
27. Keeping in view the facts and circumstances of the case and aforesaid discussions, this court is of the considered opinion that the prosecution has been successful in proving its case against the accused beyond reasonable doubt. Thus, it is held that accused was under obligation to file the return of income for the assessment year 2012-13 within stipulated period but it failed to furnish the same within prescribed period as required u/s 139(1) of the Act and even after service of notice U/s 142(1) of the Act.
28. Accordingly, accused M/s Diamond Hut India (P) Ltd., Suresh Verma and Ashok Verma are held guilty and convicted for the offence punishable u/s 276CC r/w Sec. 278-B of the Income Tax Act.
29. Copy of the judgment be given free of cost to the convict.
PAWAN SINGH Digitally signed by PAWAN
SINGH RAJAWAT
RAJAWAT Date: 2019.04.24 14:01:44 +0530
(PAWAN SINGH RAJAWAT)
ACMM(Special Acts) CENTRAL
TIS HAZARI COURTS DELHI
Announced in open
Court on 22nd April, 2019.
ITO Vs. M/s Diamond Hut India P. ltd. CC No. 511884/2016 13 of 13