Delhi District Court
Ito vs Ms Naftogaz India Pvt Ltd on 21 April, 2026
IN THE COURT OF RENU CHAUDHARY
ADDL. CHIEF JUDICIAL MAGISTRATE (Special Acts)
CENTRAL, TIS HAZARI COURTS, DELHI
DLCT020023572012
INCOME TAX OFFICE Vs. MS NAFTOGAZ INDIA PVT LTD
(a) CT Case No. 529496/2016
(b) Date of Institution 22.12.2012
(c) Name of Complainant & Income Tax Office
its registered office through: SH. V.N. Balasubramanyan,
ITO
(d) Accused, parentage and 1. M/s Naftogaz India (Pvt.) Ltd.
address
2. Sh. Mahdoom Bava, Managing
Director.
Both at C-125A, Sector-2, Noida (U.P)
(e) Offence complained of 276B and 279(1) r/w 278(E) of Income
Tax Act 1961.
(f) Plea of accused Pleaded not guilty
(g) Final Order Convicted
(h) Date when judgment was 24.02.2026
reserved
(i) Date of judgment 21.04.2026
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 1 / 31
JUDGMENT
1. This judgment shall dispose of the criminal complaint filed by the Income Tax Department (hereinafter referred to as 'Complainant') against M/s Naftogaz India Pvt. Ltd. (hereinafter referred to as 'Accused No. 1') and its Managing Director, Sh. Mahdoom Bava (hereinafter referred to as 'Accused No. 2'), for the alleged commission of offences under Section 276B and 279(1) read with Section 278E of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') pertaining to the Financial Year 2009-2010.
2. The gravamen of the prosecution's case is that the Accused Company, which was engaged in Engineering Procurement Construction and Commissioning (EPCC) contracts in the Oil & Gas sector, deducted Tax at Source (TDS) from various payments made to contractors, sub-contractors, and employees, but willfully failed to deposit the same into the credit of the Central Government within the prescribed statutory period.
3. During a survey operation conducted under Section 133A of the Act on January 9, 2012, at the business premises of the Accused Company, it was revealed that the company had defaulted in depositing TDS amounting to Rs. 17,68,62,767/- for the Financial Year 2009-2010. This default was explicitly admitted by Sh. Vivek Singhal, the then Assistant Manager (Finance & Accounts) of the company, in his statement CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 2 / 31 recorded on oath. Consequently, an order under Section 201(1)/201(A) of the Act was passed on March 19, 2012, quantifying the liability. Accused No. 2, Sh. Mahdoom Bava, who served as the Managing Director of Accused No. 1 at all material times, has been prosecuted in his personal capacity as the principal officer of the company, declared so by an order dated 10.10.2012 under Section 2(35) of the IT Act.
4. Despite statutory notices and an opportunity to rectify the default, the Accused persons failed to deposit the trust money belonging to the Government. A notice under Section 2(35) of the Act was served upon Accused No. 2 to treat him as the 'Principal Officer' of the company. In his reply dated July 27, 2012, Accused No. 2 admitted the delay, citing "financial crises" and "shortage of manpower," but failed to provide a reasonable cause as mandated by the law for the non-deposit of collected taxes.
I. Brief Background and Facts 1.1 Accused No. 1 was incorporated on 24.08.2005 and was
registered in Delhi under Company Identification Number (CIN) U112000L2005PTC178724 with its registered office at E-14/13, Vasant Vihar, New Delhi, and its corporate office at C-125A, Sector-2, Noida, Uttar Pradesh. The company was engaged in EPCC contracts in the upstream and midstream oil and gas sector, executing projects for clients such as Indian Oil Corporation Limited (IOCL), CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 3 / 31 Bharat Oman Refinery Limited, ONGC, and HPCL Mittal Energy Limited.
1.2 A survey operation under Section 133A of the IT Act was conducted on 09.01.2012 at the premises of Accused No. 1 at C-125A, Sector-2, Noida. During the said survey, the statement of Sh. Vivek Singhal, Assistant Manager (Finance & Accounts) of the company, was recorded on oath by Sh. Madan Lal, ITO, TDS Ward-50(2). Vivek Singhal identified himself as an employee of the company responsible for financial matters. In response to queries, Sh. Vivek Singhal categorically identified Sh. Atul Dave, Senior Manager (Finance), as the person responsible for TDS deduction, deposits, certificates, and TDS return filing and admitted that TDS certificates had not been issued within the prescribed time frame "due to the financial crunch being faced by the company". He had further admitted that all TDS returns for FY 2009-2010 and FY 2010-2011 have been filed after the prescribed statutory time limit. He admitted that TDS returns for FY 2011-12 had not even been filed since the TDS itself had not been deposited.
1.3. Pursuant to the survey, an order under Section 201(1)/201(1A) of the IT Act dated 19.03.2012 was passed by Sh. Madan Lal, ITO, Ward-50(2), determining the TDS liability of Accused No. 1 for FY 2009-10 at Rs. 17,68,62,767/-. A demand notice under Section 156 of the IT Act was simultaneously issued on 19.03.2012 for the sum of Rs. 22,63,48,563/-, including interest under Section 201(1A). The demand included TDS as computed "as per the survey report" reflected in para 10 at page 25 of order dated CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 4 / 31 19.03.2012, which was computed from the company's own audited books of accounts.
1.4. Show-cause notices dated 10.07.2012 were issued to both accused, one under Section 2(35) of the IT Act to Accused No. 2 and one under Section 276B to Accused No.1. The reply dated 27.07.2012 of Accused No. 2 was found unsatisfactory as it constituted an implicit admission of the offence. On 10.10.2012, an order under Section 2(35) was passed by ITO Sh. V.N. Balasubramanyam declaring Accused No. 2 as the Principal Officer of Accused No. 1 for FY 2009-2010 and 2010-2011.
1.5. A formal sanction under Section 279(1) of the IT Act was granted on 13.12.2012 by the Commissioner of Income Tax (TDS), Delhi, authorising the filing of a criminal complaint against Accused No. 2. The complaint was thereafter filed on 22.12.2012 before this Court. Summons were issued on 04.01.2013. Accused No. 2 appeared and was granted bail on 03.07.2013.
1.6. On 08.10.2012, the Hon'ble Delhi High Court, in Company Petition No. 128/2011 filed by M/s Royal Marine C & Others, ordered the winding-up of Accused No. 1, and the Official Liquidator attached to the High Court of Delhi was appointed as the Provisional Liquidator with directions to take charge of all assets and records of the company. The Official Liquidator sealed the corporate office at Noida and the registered office at Vasant Vihar, New Delhi.
II COGNIZANCE Cognizance was taken, and the Accused persons were
summoned. Accused No. 2 appeared and was granted bail. During the CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 5 / 31 trial, it was brought to the notice of the Court that Accused No. 1 had gone into provisional liquidation vide an order dated October 8, 2012, by the Hon'ble High Court of Delhi, therefore, the Official Liquidator (OL) was subsequently summoned to represent the company.
III CHARGES After hearing arguments on behalf of both the parties, a formal charge was framed against both accused persons under Section 276B read with Sections 279 and 278E of the Act vide order dated 11.08.2014. The accused pleaded not guilty and claimed trial. Thereafter, the matter was listed for prosecution evidence.
IV. PROSECUTION EVIDENCE The complainant examined two witnesses in support of its case i.e. PW-1 Sh. V.N. Balasubramanyam, ITO, TDS Ward-50(2) and PW-2 Sh. Madan Lal.
4.1 PW-1 examined himself on 24.01.2014 during pre-charge evidence and adopted the same deposition at post-charge stage on 19.11.2014. He exhibited the complaint (Ex. PW1/1), the sanction (Ex. PW1/2), the statement of Vivek Singhal recorded during survey (Ex. PW1/3), the show-cause notice under Section 2(35) to Accused No. 2 (Ex. PW1/4), the show-cause notice under Section 276B to Accused No. 1 (Ex. PW1/5), the reply of Accused No. 2 dated 27.07.2012 (Ex. PW1/6), and the order under Section 2(35) dated 10.10.2012 (Ex. PW1/7). During cross-examination on 15.07.2015, PW-1 denied the suggestion that the sanction was not proper. He admitted that the bifurcation of TDS deducted party-wise was not CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 6 / 31 given in the complaint but maintained that the aggregate TDS liability as per the company's own books was Rs. 17,68,62,767/-. PW-1 affirmed that Accused No. 2 was the Managing Director of the company during the relevant period.
4.2 Sh. Madan Lal, Retired ITO was examined as PW-2 on 13.05.2014 and adopted the same deposition at post charge stage on 25.04.2017. He affirmed that he conducted the survey operation on 09.01.2012 and personally recorded the statement of Sh. Vivek Singhal at the company's premises in Noida. Vivek Singhal signed each page of the statement in his presence. He confirmed the issuance of demand notice U/s 156 IT Act (Ex. PW2/A), order under Section 201(1)/201(1A) (Ex. PW2/B) and ITNS 150A i.e. Computation Form (Ex. PW2/C), and survey report (Ex. PW2/D). During cross- examination on 25.04.2017, PW-2 admitted that the appointment letter of Vivek Singhal was not obtained, but clarified that Vivek Singhal had identified himself as an employee and shown his driving licence. He further admitted that books of accounts were not seized but were test-checked on the spot. He maintained that the statement was validly recorded, and the TDS liability was derived from the company's own trial balance.
V STATEMENT UNDER SECTION 313 CR.P.C. 5.1 The statement of Sh. Jeevesh Mehta, Ld. Counsel from the
office of Official Liquidator was recorded on 31.05.2017, wherein, it was stated that the period of default is prior to the date of winding up order.
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 7 / 31 5.2 The statement of Accused No. 2, Sh. Mahdoom Bava, was recorded under Section 313 Cr.P.C. on 31.05.2017. He denied all the incriminating evidence appearing against him in the testimony of complainant's witnesses and stated that no show-cause notice had been received by him and that as per the order dated 08.10.2012 of the Hon'ble High Court of Delhi, the company had gone into provisional liquidation. Accused no. 2 further stated that he was therefore not aware of any reply dated 27.12.2012. He specifically disclaimed knowledge of the reply dated 27.07.2012 (Ex. PW1/6) and stated that no TDS was deducted as alleged by the complainant who has filed a false case.
After closing Defence Evidence, the matter was then listed for final arguments.
VI. DEFENCE EVIDENCE The accused(s) examined two witnesses in their defence i.e. DW-1 Sh. R.K. Saini, Senior Technical Assistant, Office of Registrar of Companies (ROC), DW -2 Sh. Atul Dave.
6.1 DW-1 appeared on 19.02.2018 and 05.02.2019, produced certified copies of the Certificate of Incorporation of Accused No. 1 (Ex. DW1/1), Certificate of Registration for change of state (Ex. DW1/2), Form 20B with Annual Return for FY 2009-2010 and FY 2010-2011 (Ex. DW1/3, DW1/4, DW1/5), and signatory details of Directors (Ex. DW1/6). During cross-examination by the complainant, DW-1 unequivocally confirmed that " as per record of ROC, Mr. Mahadoom Bava is a Managing Director of the company CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 8 / 31 since 24.08.2005 till date" and that Accused No. 2 had personally signed the annual return as per Ex. DW1/5. The defence witness thus, far from helping the accused, affirmatively established Accused No. 2's status as Managing Director and his personal signing of official company returns, thereby fortifying the complainant's case.
6.2 Sh. Atul Dave, Ex-Employee of Accused No. 1 was examined as DW-3 on 05.02.2019. He stated that he worked with Accused No.1 from 03.06.2009 to May 2012 as Senior Manager Finance. He deposed that Sh. Kishore Prahraj was the Chief Financial Officer and Sh. M.N. Khan was the Executive Director looking after day-to-day affairs. He stated that approximately Rs. 900 crores were outstanding from clients during his tenure and that the company faced severe financial constraints. During cross-examination, DW-3 admitted that Accused No. 2 was the Managing Director during his employment. Crucially, when confronted with page 21 of Ex. DW1/3 (company's balance sheet), he admitted that Fixed Deposits of Rs. 44,62,87,898/- were reflecting in the company's accounts during FY 2009-2010. He did not bring any record to show that salaries or staff dues were outstanding. He admitted that he could not show from the records the claimed Rs. 900 crore outstanding from clients. He further admitted that Sh. Vivek Singhal was an employee of the company working in the accounts department.
VII. ARGUMENTS OF THE COMPLAINANT The Special Public Prosecutor, Sh. Manmeet Singh Arora, has made the following submissions during arguments and in the written arguments filed on 24.02.2026.
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 9 / 31 7.1 The accused deducted TDS aggregating to Rs. 17,68,62,767/- for FY 2009-2010 and willfully failed to deposit the same within the prescribed time. The default extended beyond 12 months, rendering it a serious case within Section 276B of Income Tax Act.
7.2 The statement of Vivek Singhal (Ex. PW1/3), recorded on oath during a valid survey under Section 133A, constitutes admissible evidence of the company's TDS default. Vivek Singhal admitted that TDS was deducted but not deposited within time due to "financial crunch."
7.3 The sanction dated 13.12.2012 granted under Section 279(1) records the company's offence in detail and names Accused No. 2 as the person responsible. The charge against the company flows automatically from Section 278B, which fastens vicarious liability. The sanction need not specifically name the company in the operative paragraph as long as the offence is described in its body. Reliance is placed on Madhumilan Syntex Ltd. vs. Union of India (AIR 2007 SC 1481) and Sasi Enterprises v. ACIT (2014) 361 ITR 163 (SC).
7.4 By order under Section 2(35) dated 10.10.2012, Accused No. 2 has been declared as the Principal Officer of the company. He is the Managing Director from incorporation, signed annual returns, and owned the business activities of the company. The defence evidence itself (DW-1) confirms he was MD from 24.08.2005.
7.5 The reply dated 27.07.2012 signed by Accused No. 2 admits the delay in deposit and attributes it to financial crisis and short CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 10 / 31 staffing and this is an admission of the very act constituting the offence under Section 276B.
7.6 The company had Fixed Deposits of Rs. 44 crores during FY 2009-10, as admitted by DW-3. This categorically demolishes any claim of genuine financial inability to deposit TDS.
7.7 The accused have not placed any cogent, reliable, and legally sufficient material before the Court to rebut the statutory presumption of willfulness under Section 278E of the IT Act.
7.8 The company committed the same default in FY 2010-11 as well, reinforcing the conclusion that the non-deposit was a deliberate strategy and not a one-time lapse.
VIII. ARGUMENTS OF ACCUSED NO. 2Sh. Sanjeev Rajpal, Advocate for Accused No. 2, filed written submissions dated 16.05.2025 and advanced oral arguments raising the following legal and factual contentions.(It is noteworthy that Ld. Additional Senior Counsel for official Liquidator of Accused No.1 had adopted the written arguments filed on behalf of Accused no.2).
8.1 The sanction under Section 279(1) dated 13.12.2012 specifically names only Accused No. 2 in its operative paragraph. There is no sanction against Accused No. 1. Under Section 278B, the liability of a director is vicarious to and derivative of the company's liability; hence, without a valid prosecution of the company, the Director alone cannot be convicted. Reliance is placed on Vipul Aggarwal vs. ITO (Crl. M.C. 3894/2018, Delhi High Court).
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 11 / 31 8.2 Since no sanction was granted against Accused No. 1, any prosecution against the company is without legal authority. If the company is not validly prosecuted, Section 278B cannot operate to fix vicarious liability on the director.
8.3 The charges were framed in 2014 against Accused No. 2, both in his personal capacity and on behalf of Accused No. 1. This was done without the presence of the Official Liquidator. Since the company was already in liquidation by August 2014, all proceedings concerning the company should have been conducted only through the Official Liquidator. The charge against the company was illegally framed.
8.4 No appointment letter was produced to confirm that Vivek Singhal was actually an employee of the company. His identity was not verified. No TDS was deducted from his salary by the company. The statement was not recorded in the presence of PW-1. There is no documentary corroboration of his employment status.
8.5 Per Vivek Singhal's own statement (Q6), Sh. Atul Dave, Senior Manager (Finance), was responsible for TDS deductions, deposits, and TDS return filings, not Accused No. 2. The department failed to record the statement of Atul Dave during the survey, even though he was available and identifiable.
8.6 The company was facing acute financial distress with approximately Rs. 900 crores outstanding from clients. Most employees were not being paid salaries. This constitutes "reasonable cause" under Section 278AA of the IT Act.
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 12 / 31 8.7 The Official Liquidator sealed all records and assets of the company. Accused No. 2 was unable to access books of accounts, TDS computation details, and balance sheets to mount a proper defence. This amounts to violation of principles of natural justice.
8.8 The reply was submitted on behalf of the company. After the company went into liquidation, Accused No. 2 cannot be held responsible for acts of the company that were managed by the Official Liquidator.
8.9 DW-2 Atul Dave was the Senior Manager Finance and the person in charge of TDS matters. He is the appropriate accused, not Accused No. 2.
IX ANALYSIS AND FINDINGS In the above-mentioned background, the court shall now proceed to evaluate the evidence on record for deciding the point of contentions raised in this case.
9.1 Validity of Sanction under Section 279(1) :-
The first and most fundamental challenge raised by the defence is that the sanction under Section 279(1) is valid only against Accused No. 2 and not against Accused No. 1, rendering the prosecution of the company without legal basis.
(a). This Court has carefully perused the sanction document (Ex. PW1/2). The sanction letter, authored by Commissioner of Income Tax (TDS), Delhi on 13.12.2012, contains detailed findings spanning multiple paragraphs. It describes the CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 13 / 31 company's nature of business, identifies Accused No. 2 as Director, records the specific TDS default of Rs.
17,68,62,767/-, narrates the survey findings, calls it " a well- calculated strategy to defraud the revenue," and concludes that the company was a "habitual defaulter". The operative paragraph (para 7) states: "I...do hereby sanction the filing of a criminal complaint against Shri Mahdoom Bava...as he committed offences under section 276B read with section 279 of the Income Tax Act, 1961 for the FY2009-10."
(b). The defence argues that since the company is not specifically named in the operative paragraph, there is no sanction against it. However, this contention is untenable for the following reasons:
First, the Hon'ble Supreme Court in Madhumilan Syntex Ltd. and Ors. vs. Union of India and Ors. (2007) 290 ITR 616 (SC) held that a sanction under Section 279 is an administrative act of authorization and not a pleading before a court of law. The sanction must be read as a whole to determine the intent and scope of authorization. Isolating one paragraph while ignoring five paragraphs that clearly identify the company's offence and the role of its Director would be a perverse reading that the law does not countenance.
Second, Section 278B of the IT Act is a provision that operates by statutory operation of law. Once offence by the company is established, the vicarious liability of its CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 14 / 31 principal officer is automatically attracted. The sanction does not need to separately enumerate every person covered by Section 278B, since that provision does not require separate sanction for the individual prosecuted for vicarious liability.
Third, the Supreme Court in Sasi Enterprises v. ACIT (2014) 361 ITR 163 held unequivocally that technical objections to sanction cannot defeat prosecution where the facts of the offence are clearly recorded in the sanction document and the authority had applied its mind. The ratio of that decision squarely applies here.
Fourth, the complainant has correctly pointed out that the question of sanction for the company becomes academic when the company has been placed under liquidation and the Official Liquidator represents it. As confirmed by the letter of the Office of the Official Liquidator, High Court of Delhi dated 19.05.2017 (filed in court), Accused No. 1 is in liquidation and the OL has taken charge of all its assets and records. The OL ultimately chose not to lead any defence evidence, which is a significant circumstance.
This Court therefore holds that the sanction is valid, proper, and comprehensive. The challenge to the sanction is rejected.
9.2 Admissibility and Evidentiary Value of Vivek Singhal's Statement (Ex. PW1/3) :-
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 15 / 31
(a). The defence has mounted a spirited attack on the statement of Sh. Vivek Singhal recorded during the survey on 09.01.2012, arguing that (i) he was not proven to be an employee, (ii) his appointment letter was not produced, and
(iii) the statement was not recorded by PW-1.
(b). This Court is not persuaded. The following reasons are compelling:
(i) Vivek Singhal was present at the company's own premises during the survey under Section 133A. The survey was conducted at C-125A, Sector-2, Noida which is the admitted corporate office of Accused No. 1.
His presence there and his ability to produce the trial balance, TDS accounts, and annual accounts speaks for itself. An outsider cannot produce internal financial records.
(ii) He stated under oath that he was working with M/s Naftogaz India Private Limited as "Asst. Manager (Finance & Accounts), which was incorporated on 24.08.2005 and looking after the financial matters of the company." A sworn statement made under the solemn threat of perjury prosecution carries high evidentiary weight.
(iii) His own defence witness i.e. DW-2 Atul Dave admitted: "Sh. Vivek Singhal was an employee of the company. He was from the accounts department of the company". This admission by a defence witness is CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 16 / 31 perhaps the most decisive piece of evidence resolving any doubt about Vivek Singhal's employment status. The accused cannot argue in their submissions that Vivek Singhal was not an employee when their own witness has categorically confirmed that he was.
(iv) Survey proceedings under Section 133A are conducted by authorised income tax officers at the business premises of the assessee. The statements recorded during such proceedings have been consistently upheld as admissible evidence by courts across the country. The surveying officer is empowered to record statements on oath, examine books, and gather evidence. Ex. PW1/3 bears the signature of Vivek Singhal on each page and was recorded by PW-2, Sh. Madan Lal, ITO, in the presence of company personnel. PW-2 confirmed this in his deposition.
(v) The defence's attempt to impugn the statement by pointing out that the appointment letter was not obtained is a technical objection that has no merit in law. Section 133A of the IT Act does not prescribe that employment must be established by appointment letter before a statement can be recorded. The person identifies himself, the surveying officer is satisfied with his identity, and the statement is recorded on oath -- these conditions were all met.
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(vi). The TDS certificate (Form 16A) issued by the company, bearing the signatory's name as "Singhal", further corroborates the company's practice of having its finance personnel handle TDS matters.
This Court holds that the statement of Sh. Vivek Singhal (Ex. PW1/3) is admissible in evidence and is entitled to substantial evidentiary weight.
9.3 Proof of TDS Deduction and Non-Deposit :-
The prosecution's case rests on the established facts, derived from the company's own records, that TDS was deducted and not deposited. The following evidence establishes this conclusively:
(a). Vivek Singhal's sworn statement (Ex. PW1/3, Q10 and Q11) explicitly admits that "TDS was either not deposited or deposited late into Govt. account" and "all TDS returns have been filed after the prescribed statutory time limit." He further admitted at Q12 that as of the date of survey, the trial balance showed TDS payable as Rs. 21,21,94,878/-, which had not been deposited.
(b). Order under Section 201(1)/201(1A) (Ex.
PW2/B) was passed on 19.03.2012 after due
proceedings, determining the liability at Rs.
17,68,62,767/- for FY 2009-10. This order has not been challenged or set aside. It represents a final and binding CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 18 / 31 determination of TDS default by the competent authority.
(c). In reply by Accused No. 2 (Ex. PW1/6), the Managing Director himself admitted the delay in writing, attributing it to "financial crises faced by the Company" and "shortage of man-power." An accused's own written reply to a statutory notice, admitting delay in deposit, is the most direct form of admission under the Evidence Act.
(d). Survey Report dated 13.01.2012 (Ex. PW2/D) forwarded to the Commissioner of Income Tax (XVII) under the signatures of PW-2, records the findings of the survey, including the TDS default as established from the company's books.
(e). Demand Notice (Ex. PW2/A) for Rs.
22,63,48,563/- includes interest under Section 201(1A), was issued and served on the company on 19.03.2012.
There is no record of this demand being paid or challenged before any appellate authority.
(f). Prosecution letter from ITO Ward-76(1) dated 19.05.2017 confirming no compounding application had been filed by the accused even as late as 2017, five years after the default was discovered.
The aggregate picture from the above evidence is overwhelming, clear, and without any reasonable counter from CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 19 / 31 the accused. This Court finds that the offence of deducting TDS and not depositing the same within the prescribed time under Section 200 read with Rule 30 of the IT Act for FY 2009- 10 stands proved beyond reasonable doubt.
9.4 The Question of Willfulness: Section 278E and the Burden of Proof Section 276B Of The I T Act, 1961 Reads As Follows:
"If a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him or the tax payable by him under sub-section (1A) of Section 192, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine."
Section 278E creates a presumption: "In any prosecution for any offence under this Act which requires a 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."
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 20 / 31 The accused have sought to invoke Section 278AA of the IT Act which provides that no person shall be prosecuted under Section 276B "if he proves that there was reasonable cause for the said failure". This Court must consider whether the accused have discharged the burden of proving "reasonable cause" on a balance of probabilities. The defence has urged through DW-2 Atul Dave that the company was in severe financial distress with approximately Rs. 900 crores receivable from clients. However, this plea is demolished by the following:
(a) DW-3 himself admitted during cross-examination that the company had Fixed Deposits of Rs.
44,62,87,898/- during FY 2009-10 (as shown in Ex. DW1/3, pg. 21). The deposit of this magnitude speaks to the fact that the company had substantial financial assets at its disposal during the relevant year. The maintenance of Rs. 44 crores in fixed deposits while refusing to deposit Rs. 17.68 crores of TDS, which is the government's money held in trust, is a deliberate choice, not an act of helplessness.
(b) DW-3 could not produce any record to show outstanding salaries or dues to the staff. He admitted he did not bring any such record to court. The plea of financial crisis was therefore a bare assertion, unsupported by documentary evidence.
(c) The company was engaged in large-scale EPCC projects for public sector oil companies such as IOCL, CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 21 / 31 ONGC, and HPCL Mittal Energy Limited. These are organisations that pay their contractors on time. The claim that Rs. 900 crores were outstanding from these clients would be extraordinary and should have been supported by documentary proof which was conspicuously absent from the record.
(d) The default was not confined to one month or one quarter. It extended through the entirety of FY 2009-10 and recurred in FY 2010-11. A consistent, prolonged failure to deposit TDS over two consecutive full financial years cannot be characterised as arising from temporary financial distress. As held by the Hon'ble Supreme Court in Prakash Nath Khanna vs. CIT (2004) 266 ITR 1, the deliberate withholding of government taxes collected as a trustee constitutes wilfulness. The company was a mere custodian of the government's funds. Using the government's money for its own business requirements, even temporarily, is the very paradigm of wilfulness in TDS cases.
(e) The company issued TDS certificates (Form 16A) to deductees certifying tax deposits that apparently were not actually made on time. The issuance of a TDS certificate for a tax not deposited is itself an act of deliberate deception of both the payee and the revenue.
(f) The legal position under Section 278B is settled. Section 278B states: "Where an offence under this Act CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 22 / 31 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". This provision does not require that the Managing Director personally handle TDS matters day- to-day. The liability is fastened upon every person who is "in charge of and responsible for the conduct of business" at the time of the offence.
(g) Accused No. 2 was the Managing Director from 24.08.2005 onwards, from the date of incorporation. He is the founding Managing Director. An MD who nominates a Senior Manager for day-to-day TDS compliance does not thereby divest himself of oversight responsibility and legal accountability. The law fastens liability upon the MD precisely because he has the authority to ensure compliance and the power to cure defaults. The delegation of routine tasks is not a legal discharge of overall duty.
(h) The Hon'ble Delhi High Court in ITO vs. Anil Batra (CRL.L.P. 241 of 2012), decided on 23.09.2014 by Justice S. Muralidhar, held that Directors who signed the balance sheets of the company cannot claim they were not in charge of its affairs: "As far as the merits of CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 23 / 31 the matter are concerned, it is seen that both directors have signed the Company's balance sheets. Their defence that they were not in charge of the affairs of the company is, therefore, untenable." Accused No. 2 signed the annual return of the company as confirmed by DW-1, the ROC witness produced by the defence itself.
(i) Atul Dave resigned from the company after not receiving salary for four to five months. The inability to retain a CFO-level finance officer is itself symptomatic of corporate mismanagement at the highest level, a level that could only be attributed to the Managing Director.
(j) Sh. Kishore Prahraj, identified as CFO by DW-2, was never brought before the court by either side to explain what happened to the TDS funds. The absence of the very person said to be responsible for finance is a significant gap in the defence's case.
This Court finds that the accused have failed to discharge the burden of proving "reasonable cause" as required under Section 278AA of the IT Act. The plea of financial crisis is not made out on evidence and is contradicted by the company's own balance sheet showing Rs. 44+ crore in fixed deposits during the relevant period. The statutory presumption of willfulness under Section 278E stands unrebutted.
9.5 Liability of Accused No. 2 as Principal Officer CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 24 / 31 The order under Section 2(35) of the IT Act, passed on 10.10.2012 (Ex. PW1/7), formally declared Accused No. 2 as the Principal Officer of Accused No. 1 for FY 2009-10 and FY 2010-11. This order has not been challenged before any higher forum. It is final. Accused No. 2 has been the MD since 24.08.2005 (confirmed by DW-1). He signed annual returns (confirmed by DW-1) and he personally authored and signed the reply to the show-cause notice (Ex. PW1/6), addressing the ITO and admitting the TDS default. He held 5,655,500 equity shares in the company representing 53.90% director/relative shareholding, indicating his dominant control over the company. His name appears as Managing Director in the Annual Return and company filings with the ROC and in his reply to the Section 2(35) notice, he signed as "For Naftogaz India Private Limited, Managing Director", acknowledging his representative authority on behalf of the company.
This Court holds that Accused No. 2, Sh. Mahdoom Bava, is the Principal Officer of Accused No. 1 and is directly liable under Section 278B read with Section 276B of the IT Act.
9.6 Issue of Liquidation and Continuation of Prosecution The defence has raised an argument based on the liquidation of Accused No. 1 and submitted that the Criminal complaint against the company is not maintainable once the winding-up order was passed.
This Court takes note of the judgment of the Hon'ble Delhi High Court in Re: M/s Catmoss Retail Pvt. Ltd.
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 25 / 31 (2024:DHC:857) filed in evidence, which deals with Section 138 NI Act cases and states that proceedings cannot be continued against the corporate debtor under liquidation without leave of the company court. However, this case is not on all fours with the present case for the following reasons:
(a). Section 276B prosecutions under the IT Act stand on a different footing from NI Act cheque-bounce cases. The IT Act prosecution is initiated by a public servant in discharge of public duty to protect the revenue. The offence has been committed by the company in the first place, and Section 278B ensures the individual directors are accountable.
(b). The prosecution of the company was filed in December 2012, well after the winding-up order of October 2012. The Official Liquidator was notified of these proceedings. He appeared before this Court through counsel and ultimately chose not to lead any defence evidence -- which is a voluntary waiver by the representative of Accused No. 1.
(c). The prosecution of Accused No. 2 as an individual in his capacity as Managing Director and Principal Officer is independent of the liquidation of Accused No. 1. The law is well-settled that an individual who was responsible for the conduct of the company's business at the time of commission of the offence CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 26 / 31 remains personally liable even after the company ceases to exist or goes into liquidation.
(d). The Hon'ble Supreme Court in Aneeta Hada vs. Godfather Travels (2012) 5 SCC 661, and subsequently in P. Mohanraj vs. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258, and further interpreted in Ashok Shewakramani vs. State of Andhra Pradesh (2023) 8 SCC 473, all cited in the Catmoss judgment, make it clear that the vicarious liability under Section 278B (analogous to Section 141 NI Act) operates so long as the company itself can be prosecuted. The liquidation does not extinguish the company, it merely changes the management. The official liquidator, as representative of the company, has been party to these proceedings throughout. The requirement of arraigning the company is satisfied. The prosecution is therefore fully maintainable against Accused No. 2 as the statutory vicariously liable person.
This Court holds that the liquidation of Accused No. 1 does not extinguish or vitiate the prosecution against Accused No. 2, who has been personally declared as the Principal Officer and against whom independent sanction under Section 279(1) has been granted.
9.7 In a remarkable turn, the entire defence evidence served to corroborate the prosecution's case rather than undermine it:
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 27 / 31
(a). DW-1 (ROC official) confirmed Accused No. 2 as MD from 24.08.2005, confirmed his signatures on annual returns, and confirmed that the annual returns were filed only till 2011, indicating the company's progressive failure to comply even with basic corporate governance obligations under the Companies Act.
(b). DW-2 (Atul Dave) while attempting to show that another person (Kishore Prahraj) was in charge of finance, he contradicted himself by admitting Rs. 44 crores in FDs, admitting Accused No. 2 was MD, admitting Vivek Singhal was a company employee, and being unable to produce any record of unpaid salaries or the claimed Rs. 900 crore receivables.
9.8 Accused No.2 has raised the defence that he has no knowledge of the of the reply dated 27.07.2012 (Ex.PW1/6) is also not accepted by this court as the letter is written on the official letterhead of Naftogaz India Private Limited and signed "For Naftogaz India Private Limited, Managing Director". No competent person other than the Managing Director would respond to a show-cause notice addressed to the Managing Director under Section 2(35). Moreover, PW-2, Sh. Madan Lal, identified this letter as having been received by him during his tenure as ITO, Ward-50(2), Delhi before the prosecution letter dated 15.10.2015 was issued, and well before the winding-up proceedings reached their conclusion. Therefore, the letter is genuine, was authored by Accused No. CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 28 / 31 2, and constitutes an admission against interest within the meaning of Section 21 of the Indian Evidence Act, 1872.
9.9 Section 276B itself and the order under Section 2(35) record that the default was committed in both FY 2009-2010 and FY 2010-2011. During the survey on 09.01.2012, Vivek Singhal admitted that TDS payable as on that date stood at Rs. 21,21,94,878/-, reflecting an ongoing, accumulating default. He admitted all TDS returns for FY 2009-10 and FY 2010-11 were filed late, and FY 2011-12 returns had not been filed at all. This pattern of consistent, multi-year non-compliance is the hallmark of deliberate tax avoidance rather than inadvertent omission. As the sanction order correctly notes, the accused "was the custodian of the Govt. Fund" and used money belonging to the government for its own business needs over consecutive financial years. This constitutes a well-calculated strategy to defraud the Revenue -- the very language endorsed by the sanctioning authority.
X CONCLUSION Upon a thorough and holistic appreciation of the totality of evidence, oral and documentary, adduced before this Court by both sides, this Court arrives at the following irresistible conclusions:
10.1 Accused No. 1, M/s Naftogaz India Private Limited, deducted TDS under various provisions of the IT Act for the Financial Year 2009-10 amounting to Rs. 17,68,62,767/- but willfully failed to deposit the same to the credit of the Central CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 29 / 31 Government within the prescribed time as mandated by Section 200 read with Rule 30 of the Income Tax Act. The company had sufficient financial resources, including Fixed Deposits of Rs. 44 crores during FY 2009-10, to comply with its statutory obligation. The plea of financial distress is not substantiated by evidence and is contradicted by the company's own balance sheet.
10.2 The offence has been proved by (a) the sworn statement of Vivek Singhal, an employee of the company, (b) the order under Section 201(1)/201(1A), (c) the written admission by Accused No. 2 in Ex. PW1/6, (d) the survey report, and (e) corroborating evidence by both prosecution and defence witnesses. Accused No. 2, Sh. Mahdoom Bava, as Managing Director and declared Principal Officer under Section 2(35) of the IT Act, was in charge of and responsible for the conduct of business of Accused No. 1 at all times during FY 2009-10. He is vicariously liable for the offence committed by the company under Section 278B.
10.3 The statutory presumption of willfulness under Section 278E stands unrebutted. The accused have failed to establish "reasonable cause" within the meaning of Section 278AA. Hence, all preliminary objections raised by the defence regarding validity of sanction, admissibility of Vivek Singhal's statement, and the effect of liquidation are rejected for the detailed reasons set out above.
CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 30 / 31 Accordingly, this Court finds both accused persons i.e. Accused No. 1 M/s Naftogaz India Private Limited (through the Official Liquidator) and Accused No. 2 Sh. Mahdoom Bava, Managing Director GUILTY of the offence punishable under Section 276B read with Sections 278B and 278E of the Income Tax Act, 1961 for the Financial Year 2009-2010. Hence, both the accused(s) are hereby convicted of the alleged offence.
Let the accused(s) be heard on the point of sentence. Ordered accordingly.
Announced in open court Digitally signed
by RENU
RENU
on 21nd April 2026 CHAUDHARY
CHAUDHARY
Date: 2026.04.21
16:20:12 +0530
RENU CHAUDHARY
ACJM (Special Acts), CENTRAL
TIS HAZARI COURTS, DELHI
This judgment consists of 31 pages and each and every page of this judgment is signed by me. RENU Digitally signed by RENU CHAUDHARY CHAUDHARY Date: 2026.04.21 16:20:16 +0530 RENU CHAUDHARY ACJM (Special Acts), CENTRAL TIS HAZARI COURTS, DELHI 21.04.2026 CT. CASES 529496/2016 ITO VS. MS NAFTOGAZ INDIA PVT LTD 31 / 31