Delhi District Court
Income Tax Office vs Vihan Networks Ltd on 9 January, 2025
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IN THE COURT OF MAYANK MITTAL
ADDL. CHIEF JUDICIAL MAGISTRATE (Spl. Acts)
CENTRAL, TIS HAZARI COURTS, DELHI
Income Tax Office vs. M/s Vihaan Networks Ltd.
CC No. : 2550/2021
CNR No. : DLCT02-018713-2021
Date of Institution : 20.09.2021
Name of the complainant : Income Tax Office (ITO),
its registered office Through Sh. Achal Dubey,
ACIT, Circle-78(1), New Delhi
Name of accused : 1. M/s Vihaan Networks
Limited
his parentage and address etc. A-9, Naraina Vihar,
New Delhi-110028.
2. Sh. Udit Mehrotra
(already discharged)
Director of M/s Vihaan Networks
Limited.
A-9, Naraina Vihar,
New Delhi-110028.
Offence complained of : U/s. 276B r/w section 278B and
278E of The Income Tax Act, for
the financial year 2013-2014.
Date of Judgment : 09.01.2025
Plea of accused : Not guilty
Final Judgment : Accused No.1 company acquitted.
Brief facts and reasons for decision of the case:-
1 The factual matrix of the complaint filed by Income Tax Office is
that the complainant is ACIT, Circle-78(1), New Delhi and
Incharge of TDS Assessment having jurisdiction over M/s Vihaan
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Networks Limited, under the Income Tax Laws as the said
company is registered at Delhi having TAN no.DELI05109G for
the purpose of TDS. That the present complaint U/s 276B r/w
Section 278B/278E of the Income Tax Act for the F.Y. 2013-14 is
being filed in discharge of official duties as per Sanction /
Authorization accorded u/s 279(1) of the Income Tax Act dated
28.02.2019 by Ms. Vanita Rattan Sharma, then Commissioner of
Income Tax (TDS), Delhi-2, New Delhi directing the ACIT,
Circle-78(1) New Delhi to file the present complaint. The certified
download of the allotment of TAN in favour of accused no.1
alongwith certificate U/s 65B of Indian Evidence Act is annexed
herewith. That on the basis of report generated from the ITD
System for F.Y. 2013-14 it is revealed that the accused company
has deducted tax aggregating to of Rs.3,15,05,519/- but has failed
to deposit the same for F.Y. 2013-14 within the stipulated period
i.e. on or before seven days from the end of the month in which
the deduction is made as per section 200 of I.T. Act r/w Rule 30 of
the Income Tax Rules. That accused no.2 was the person
responsible for affairs of accused no.1 company being director
during F.Y. 2013-14, the same is fortified from list of directors as
per data available on public domain. That notice (s)/ Show cause
notice(s) u/s 2(35) of I.T Act for F.Y. 2013-14 were issued to
"Principal officer" of accused no.1 company on 25.01.2017
followed by SCN(s) to various director(s) including accused no.2
on 10.01.2019. That in response to same, AR filed a letter dated
23.01.2019 wherein it was mentioned that accused no.2, is the
Principal officer and Director of accused no.1. That after perusing
records, order u/s 2(35) of the I.T. Act, dated 24.01.2019 was
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passed holding accused no.2 as Principal officer for the relevant
financial year. That the proposal was forwarded on 08.02.2019 for
launching of prosecution against accused/ assessee. That the show
cause notice(s) u/s 279(1) were issued to the accused no.1 and 2
on 12.02.2019 that why sanction for prosecution u/s 276B of the
Act be not granted for TDS default committed by accused no.1 &
2. That in response to this notice, Sh. Ravi Vashisht, AR appeared
on behalf of accused no.1 and informed that accused no.1 /
company is in huge losses and is not in a position to pay
compounding charges (vide notesheet dated 27.02.2019) which
was not found satisfactory/ tenable. That the tax deducted at
source by the accused from the deductee's account was the Govt.
money with the accused and the accused were merely the
custodian of the said money. That the tax deducted was not to be
deposited by the accused out of their own pocket and it was the
amount which was deducted from the accounts of the deductee(s).
That the accused have thus, diversified the funds for business/
personal purposes and has retained the Govt. money for period
upto 7 months and did not deposit the said amount in the govt.
account within the prescribed time willfully. That the accused(s)
have thus committed offence punishable u/s 276B r/w/s 278B &
278E of the Income Tax act.
2 Upon appearance, the accused was supplied copies. Pre-charge
evidence was recorded. Upon hearing the rival submissions and
considering the material available on record. Accused No.2 was
discharged. A charge was framed against the AR of accused No.1
on 07.05.2024 for offence punishable under Section 276B/278E of
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the Income Tax Act, 1961, to which accused pleaded not guilty
and claimed trial.
3 I have heard the rival contentions advanced by the Ld. SPP for the
complainant and also by Ld. Defence counsel. Prior to delving
into the contentions advanced on behalf of the parties, let us
briefly discuss the testimonies of witnesses examined in
complainant's evidence:-
3.1 CW Achal Dubey deposed that he was posted as ACIT
Circle 78(1), Aykar Bhawan, Laxmi Nagar, Delhi and he has
filed the complaint for offence under Section 276B/278B read
with Section 278E for FY 2013-14 against accused no.1
company and its Principal Officer, personal responsible for
affairs of accused company and the complaint is Ex.CW2/A
and bears his signature and stamp at Point A on page 4
thereof. That the list of witnesses is Ex.CW2/B and bears his
stamp and signature at Point A. That the complaint has been
filed on the basis of sanction Ex.CW2/C dated 28.02.2019
passed by then CIT TDS 2 Ms. V.R. Sharma, her signatures
are at Point A and A1 on page 10 of the complaint. He
deposed that he recognize her signatures as she was his
superior officer and he has seen her writing and signing in the
course of official duties and the sanction bears his stamp and
signature on each page at point B respectively. The certified
copy of download of TAN pertaining to accused no.1 taken
from ITBA system along with Certificate under Section
65B(4) of Indian Evidence Act is Ex.CW2/D (colly pages 11-
12) and bears his stamp and signatures at point A respectively
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on each page. That the said certificate also holds good for the
traces report and the list of Directors furnished with the
complaint and the traces report is Ex.CW2/E (running from
pages 13-70). That the company master data along with
Certificate under Section 65B(4) of the IE Act is Ex.CW2/F
(pages 71-72) and the notice as available in his then office
records pertaining to default of TDS with respect to FY 2013-
14 addressed to Principal Officer of accused no.1 bearing F
no.ITO Wards 78(3)/PROS/2016-17/881 is Ex.CW2/G and
bears his stamp and signatures at point A on each page
thereof. That the certified copies of the show cause notices
issued by one of his predecessors Sh. Tushar Srivasatava
which are already Ex.CW1/A (from pages 81-85 colly) also
bears his stamp and signatures at point B respectively on each
page and the Ex.CW1/B i.e. a reply submitted on 23.01.2019
by the said accused no.1 with the Office of ACIT 78(1) also
bears his stamp and signatures at point B respectively on each
page. That Ex.CW1/C i.e. order passed under Section 2(35)
qua accused no.2 w.r.t. accused no.1 also bears his stamp and
signatures at point B respectively on each page. He deposed
that the certified copies of orders under Section 279(2) of the
IT Act is Ex.CW2/H and bears his stamp and signatures at
point A respectively on each page. That the proposal which is
already Ex.CW1/D also bears his stamp and signatures at
point B respectively on each page. That the SCN under
Section 279(1) dated 12.02.2019 had been issued to both the
accused persons by speed post by the office of CIT TDS2,
Delhi and he identify his signatures at point A thereof on page
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102 and he recognize the same as explained above. That the
certified copy of the said notice bears his stamp and
signatures at point B respectively on each page and be
exhibited as Ex.CW2/J. That the certified copy of the
proceeding sheet for 12.02.2019 as well as 27.02.2019 relied
upon from records pertaining to office CIT TDS2 also bears
his stamp and signatures at point B respectively on each page
be Ex.CW2/K. That each and every annexure relied upon
with the complaint has been certified as its true copy under
his stamp and signatures on basis of his office records and
either having seen the original or access the same in his
official capacity. He deposed that the crux of the matter is that
the accused company committed default in deduction and
deposit of TDS consecutively for 2 years including FY 2013-
14; wherein the magnitude of default was upto
Rs.3,15,05,519/- which is reflected from the TRACES report
and principally not been disputed by the accused. That the
late payment of the said TDS with interest does not wipe out
the offence and there was no cogent or convincing reasons
coming-forth for the said consecutive defaults, hence, the
present complaint has been preferred qua the accused no.1
company who acted through accused no.2 in commission of
the alleged offences.
3.1.1 During cross examination of CW-1 stated that
TRACES is a system which records TDS
payments/challans and variation therein. That he is not
involved in the investigation of this case from the very
beginning. He denied the suggestion that TRACES data
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Ex.CW2/E is edited after downloaded from the ITBA
system. Thereafter complainant's evidence was closed on
31.05.2024. Recording of statement of accused under
Section 313 Cr.P.C. concluded on 23.07.2024.
4 Accused in his defence evidence examined Sh. Dharmender
Kumar as DW-1 as under:-
4.1 DW-1 Dharamender Kumar has stated he was employed in
accused no.1 company in the year 2014 and he is aware about
the facts of this case from the records of the company. He
stated that the date on which the TDS was payable on the
relevant date and year, the cash flow of the company that is in
the year 2013-2014 is marked as ExDW1/A(colly). He stated
that since the cash flow was defective, the TDS could not be
deposited at the time it fell due. He stated that the other
expenses of the company i.e. the rent for the relevant year i.e.
2012-2013 & 2013-2014 was also due and was paid in a
delayed manner and the documents evidencing delayed
payment of rent is marked as ExDW1/B(colly). He stated that
the salaries of the top management for the year 2013-2014
was also not paid in time and were some times short paid and
on some occasions were paid in a delayed manner. He stated
that the account statement of accused no.1 company for the
month of April 2013 evidencing the payment of salaries in
delayed manner is ExDW1/C and is a sample and the same
was for all the months in the year 2013-2014. He stated that
since the company was undergoing financial stress and could
not meet its expenses, the accused no.1 company approached
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the bank for financial assistance and the document evidencing
this fact is ExDW1/D. He further stated that finally, in the
end of the year 2013-2014, the promoters of the company
infused funds from themselves for survival of the company
and the account statement for the company for the year 2013-
2014 evidencing the infusion of funds by the promoters of the
company is marked as ExDW1/E. He further stated that the
remuneration of the higher management of the company was
not increased and remained same in the year 2013-2014 and
the balancesheet and statutory audit for the year 2014 is
marked as ExDW1/F. He stated that the company finally did
make the payments of TDS but was delayed because of the
above mentioned facts and the company could not have paid
the TDS amount on time as all the other expenses to run the
operations of the company could not have been met and the
company would have to be shut down in that event. Ld. SPP
has objected the same on the manner and mode of proof.
4.2 During his cross examination, he stated that he is AGM in
the company and he has a copy of his appointment letter
dated 05.08.2014. To a specific question, whether according
to document ExDW1/F being a photocopy of audit of accused
company for 31.03.2014, can he explain that how much the
profit was for that year, to which he replied that they had
incurred loss in this financial year. DW-1 had admitted it to
be correct that company had performed a bit better in the
financial year 2013-2014 vis a vis financial year 2012-2013.
He voluntarily stated that in the financial year 2013-2014, the
losses had reduced and the loss in FY 2012-2013 was one
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hundred forty three crores plus whereas in FY 2013-2014 it
was about hundred and four crores plus. He stated that there
was no increase in the director's salaries / remuneration from
the year 2012-2013 to 2014-2015. To a specific question,
whether does he has any bank statement of the accused
company to reflect that directors salaries during FY 2013-
2014 were paid in a deferred manner as per ExDW1/C which
is your self collated salary schedule of payment for April
2013, to which he stated that he has the bank statements but
he cannot mark the same instantly from the record produced
in the court today. He further stated that it is correct that at
least 50% of the salary to the directors had been cleared in the
first week of May 2013 itself pertaining to April 2013. He
further stated that according to self computed details of funds
received from shareholders in photocopy ExDW1/E, they had
increased the share capital in 2013-2014 and 2014-2015 by
58.82 Crores and 92.64 Crores respectively and the same was
also updated in the ROC as per annexures following part of
ExDW1/E. He stated that his role in the company is a tax
advisory and he is aware that TDS so deducted by the
company has to be deposited with the government treasury by
the 7th of each calender month. He stated that according to
his calculation from a data collated and placed on court
record today ExDW1/A, say in the month of May 2013 the
sum of Rs.41,35,000/- was due as TDS. He stated that it is
correct that the said TDS was not deposited within the due
date and that according to a summary of my bank accounts
for FY 2013-2014 in the month of April 2013 as on
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07.05.2013, the company had bank balance of
Rs.2,41,00,000/- and liabilities were Rs.7,69,00,000/- and
likewise the said sheet and bank statements depicts the
financial position of accused no.1 company for the year 2013-
2014. He stated that it is correct that as per the audited
balance sheet copy brought today, the company has claimed
depreciation and amortization expense to the tune of Rs.21.5
Crores plus and Rs.11.7 Crores plus for the FYs 2012-2013 &
2013-2014 respectively. He denied the suggestion that he is
deposing falsely at the behest and instance of accused
company. He denied the suggestion that he has manipulated
the projection of the cash flow of the company and thus the
same is a self serving document. He further denied the
suggestion that company had strong financial and
deliberately, willfully diversified the TDS so deposited for
either personal or business purposes of the directors during
the relevant FY. He denied the suggestion that profit and loss
of the company have no bearing on the statutory obligation to
deposit the TDS deducted by the company for which it was a
mere custodian. He denied the suggestion that he is not an
author of the financials of the company nor he received any
bank statement in my personal capacity.
DE stands closed vide separate statement of AR of accused
no.1 on 09.08.2024. DE stands closed vide separate statement
of AR of accused no.1 on 09.08.2024.
5 I have heard the arguments and perused the record.
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6 During final argument it is vehemently submitted by learned SPP
that the present complaint has been filed for default in payment of
TDS in time by the accused No.1 company for the financial year
2013-2014 under Section 276B read with Section 278B / 278E of
The Income Tax Act, 1961. It is submitted that during post charge
evidence complainant has examined its witness Sh. Achal Dubey
who has proved all the required documents which are Ex. CW 2/C
sanction, Ex. CW 2/D TAN of accused No.1 along with certificate
under Section 65B of The Indian Evidence Act, Ex. CW 2/E
TRACES report, Ex. CW 2/F company master data along with
certificate under Section 65B of The Indian Evidence Act, Ex. CW
2/G notice to principal officer, Ex. CW 2/H and Ex. CW 2/J copies
of show cause notices and Ex. CW 2/K certified copy of
proceeding sheets. It is submitted that complainant's witness CW-
2 was not cross examined except regarding the TRACES report
during post charge evidence. It is submitted that accused has led
defence evidence where the complaint has been challenged on the
ground that firstly the complaint and essential ingredients of
Section 276B has not been proved, secondly complaint has been
filed at a belated stage and thirdly on the ground that accused
could not deposit the TDS within time as it has a reasonable cause
for not depositing TDS within time. It is submitted that the
grounds taken by accused are without any substance. It is
submitted that objection taken to the TRACES report is without
any material and even otherwise the details of default is
mentioned and has been proved by way of different notices issued
to accused persons. Further it is submitted that ground of delay in
filing the present complaint is without any basis as the Income Tax
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Act is exempted from the purview of Limitation Act and in the
judgment of hon'ble High Court of Bombay titled Hemant Mahi
Patray Shah & Ors. vs. Sahil Arora & Ors. CW(P) 3034/22 dated
12.08.2024, the latest circular of CBDT was not taken into the
consideration which limits the issue of limitation only to the cases
where tax deducted at source is upto Rs.25 lakhs only. In the
present case as tax deducted was more than Rs.25 lakhs, the issue
of limitation is not applicable. Further it is submitted that accused
No.1 company can not be said to have any reasonable cause under
Section 278AA of The Income Tax Act as the financial crises is
being cited as reasonable cause though there was a substantial
increase in capital of the accused No.1 company in the relevant
financial year and there was Balance Sheet of the relevant year
shows heavy amount of depreciation and amortization expenses
(which are non cash expenditure). A request has been made to
convict accused No.1 and to punish accordingly.
7 Learned counsel for accused No.1 has submitted that accused
No.1 company is liable to be acquitted on the ground that
complainant has not proved the default in deposition of TDS as
per rules. It is submitted that complainant witness has deposed
that the report of TDS default has been generated by ITD system,
however, he had also admitted that same was downloaded from
TRACES / ITBA system. It is submitted that further deposition by
complainant witness that he has not verified the report of default
in TDS Ex. CW 2/E is against the case of the complainant as a
witness can not prove something in court which has not verified
himself. Secondly and more prominently it is submitted that Ex.
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CW 2/E which allegedly show the default in TDS is a manipulated
document and does not have any sanctity of being system
generated as same contained at the end of it a report regarding
compounding charges. As compounding charges can not be
calculated by either ITD system or TRACES, it shows that
document Ex. CW 2/E was manually prepared. Secondly, it is
vehemently submitted that complaint is filed far beyond 60 days
of default in deposition of TDS and same is hit by CBDT circular
dated 28.05.1980 and 24.04.2008 and same is also held to be
barred by limitation by judgment of hon'ble High Court of
Bombay in Hemant Mahi Patray Shah & Ors. vs. Sahil Arora &
Ors. CW(P) 3034/22 dated 12.08.2024. Learned counsel has also
relied on judgment of hon'ble High Court of Delhi in this regard
in case titled Clix Capital Services Private Limited vs. JCIT
(2023) 459 ITR 470 Del. Without prejudice to above said two
defences, learned counsel for accused has submitted that accused
No.1 had reasonable cause in terms of Section 278AA of The
Income Tax Act as accused No.1 company was facing financial
crunch during the relevant financial year. It is submitted that the
accused has filed the relevant documents showing that on 7th of
each month the total cash available with the accused was more
than its liabilities. Further, it is submitted that relevant documents
have also been placed on record to show that accused No.1 has not
paid its rent in time and also could not pay the complete salaries
of its staff and directors and that the loan of Rs.150 crores
sanctioned by Canara Bank to accused No.1 company could not be
disbursed in time to accused No.1 company. It is further submitted
that company had secured a contract from BSNL, however, could
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not raise its invoices in time. It is submitted that during defence
evidence defence witness has also placed on record to show that
promoters of accused No.1 company had infused funds in the
company for its proper working during the relevant financial year.
On the basis of above said submissions, a request has been made
to accused No.1 company.
8 Before proceeding ahead, it is important to refer to provisions of
law which will guide this court arriving at the correct decision:-
276B. If a person fails to pay to the credit of the Central Government,--
(a) the tax deducted at source by him as required by or under the provisions
of Chapter XVII-B; or
(b) the tax payable by him, as required by or under--
(i) sub-section (2) of section-115-O; or
(ii) the second proviso to section-194B,
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.
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:
Provided that nothing contained in this sub-section shall render any such
person liable to any punishment if he proves that the offence was committed
without his knowledge or that he had exercised all due diligence to prevent
the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence
under this Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is
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attributable to any neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of that offence and shall be liable
to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a person, being
a company, and the punishment for such offence is imprisonment and fine,
then, without prejudice to the provisions contained in sub-section (1) or
sub-section (2), such company shall be punished with fine and every person,
referred to in sub-section (1), or the director, manager, secretary or other
officer of the company referred to in sub-section (2), shall be liable to be
proceeded against and punished in accordance with the provisions of this
Act.
Explanation.--For the purposes of this section,--
(a) "company" means a body corporate, and includes--
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated
or not; and
(b) "director", in relation to--
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member
controlling the affairs thereof.
278E. Presumption as to culpable mental state.-(1) 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.
(2) For the purposes 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 establish by a preponderance of probability."]
278AA. Punishment not to be imposed in certain cases-Notwithstanding
anything contained in the provisions of Section 276A, Section 276B no
person shall be punishable for any failure referred to in the said provisions
if he proves that there was reasonable cause for such failure.
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9 From the consideration of submissions including written
submissions and from perusal of record, it can be noted that in the
case at hand it is an admitted position on behalf of both the parties
that there was delay in deposition of TDS by accused No.1
company. The court has to examine now whether complainant has
been able to prove its case which warrants the conviction of
accused and whether accused has been able to prove reasonable
cause, for being entitled to acquittal.
9.1 Delay in filing the present complaint:- The accused has
challenged the filing of complaint after almost 7 years of
default in payment of TDS by the accused No.1 company on
the basis of CBDT circular dated 28.05.1980 and 24.04.2008
and on the basis of observation of hon'ble High Court of
Bombay in Hemant Mahi Patray Shah & Ors. vs. Sahil Arora
& Ors. CW(P) 3034/22 dated 12.08.2024 and of hon'ble High
Court of Delhi in case titled Clix Capital Services Private
Limited vs. JCIT (2023) 459 ITR 470 Del.
However, court does not find any substance in this ground of
defence raised on behalf of accused No.1 as the latest circular
of CBDT No.24/19 provides for the time limit of 60 days
only for cases where default in payment of TDS is of amount
upto Rs. 25 lakhs. No such period has been prescribed in
cases where default in payment of TDS is more than Rs.25
lakhs. It appears that the said circular was not brought in the
notice of hon'ble High Court of Bombay and only previous
circulars were brought to the notice of hon'ble court. As far as
the case of Clix Capital Service Private Limited (SUPRA) is
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concerned, the same does not pertain to the complaint and the
prosecution under Section 276B of the Income tax Act and
pertains to only penalty proceedings under Section 271C of
the Income Tax Act. As complaint / prosecution under Income
Tax Act is exempted from the provisions of Limitation Act
and the circulars of CBDT controls the time limit with regard
to the cases where default is only upto Rs.25 lakhs, the court
finds no substance in the submissions of learned counsel for
accused regarding delay in filing the present complaint.
9.2 Failure of complainant to prove the charge:- The
complainant has relied upon documents Ex. CW 2/E which as
per testimony of CW-2 Mr. Achal Dubey is TRACES report
to prove that there was delay on the part of accused No.1 in
deposition of TDS within time as per rules. The same has
been challenged by accused on the ground that Ex. CW 2/E is
a manipulated document and can not be said to be a report
regarding the default in payment of TDS by accused No.1 and
generated by computer system of Income Tax Department as
the same contains at the end of report a table regarding
compounding rates and its calculation It is submitted that the
compounding rates and its calculation can not be provided by
ITD system or TRACES system used by the Income Tax
Department for calculation of default in payment of TDS.
Learned SPP has not objected to the submissions of learned
counsel for accused that the TRACES report can not state and
calculate the compounding charges, however, learned SPP has
submitted that default in payment of TDS can be inferred
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from number of notices issued by complainant to the accused
No.1.
The court is of considered opinion that document Ex. CW 2/E
is the primary document which as per practice should be a
computer generated report, trigging the default made by
accused No.1 in deposition of TDS and the days of default.
The said report is primary source of information regarding
default committed by accused No.1 company and the
subsequent notices issued to accused No.1 company derive
the information regarding the default from the computer
generated report either by ITD system or TRACES system.
The subsequent show cause notices, proposal and sanction
can not replace the TRACES report in showing and proving
the delay made by accused No.1 and amount of TDS qua
which default has been made by accused. If computer system
either ITD system or TRACES can not determine the rate of
compounding and can not calculate the compounding
charges, it clearly shows that there was human intervention in
document Ex. CW 2/E and same is not generated by
computer system automatically. In such situation, the report
Ex. CW 2/E could not be proved by CW-2 Sh. Achal Dubey
as per rules of Indian Evidence Act as he has not prepared this
report. Complainant has not examined any other witness to
testify that he has prepared this report or even to testify that
after generating this report from computer system, he had
added the calculation regarding compounding in the said
report. In the absence of proof of details of default in payment
CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.
19 of 23
of TDS, complainant has failed to prove the default made by
accused No.1 in payment of TDS.
9.3 Reasonable cause in non deposition of TDS in time:-
Learned counsel for accused has vehemently submitted that
the accused No.1 has prove financial crises by bringing on
record the relevant documents showing that on 7th of each
month the total cash available with the accused was more
than its liabilities and that accused No.1 has not paid its rent
in time and also could not pay the complete salaries of its
staff and directors and that the loan of Rs.150 crores
sanctioned by Canara Bank to accused No.1 company could
not be disbursed in time to accused No.1 company and that
company had secured a contract from BSNL, however, could
not raise its invoices in time and that promoters of accused
No.1 company had infused funds in the company for its
proper working during the relevant financial year.
10 For understanding the reasonable cause within the purview of
Section 278AA of The Income Tax Act, the court is guided by the
following judicial pronouncement:-
In Banwarilal Satyanarain v. State of Bihar, 1989 SCC OnLine
Pat 137 Hon'ble Patna High Court held that:
"33. Now it has to be seen as to what is the effect of the amendment.
Can it be said that after amendment, the question whether an accused
had any reasonable cause or not for not deducting and paying tax within
time is of academic importance and not relevant for a criminal court?
My answer is emphatically in the negative. Section 278AA is nothing
else but a proviso to section 276B of the Act, but a separate section has
been inserted in the Act, as similar provisions have been made with
respect to prosecution under sections 276A, 276AB, 276DD and 276E.
Cumulative effect of the amendment, in my view, is that in case of
prosecution under section 276B of the Act, two things have to be
CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.
20 of 23
shown; firstly, that there was failure on the part of the assessee in
deducting or paying the tax within time and, secondly, that the failure
was without any reasonable cause.
"36. In order to appreciate the import of the words "good and sufficient
reasons" within the meaning of section 201 read with section 221 of the
Act, "reasonable cause or excuse" as used in section 276B prior to 1986
amendment and "reasonable cause" as used in section 278AA, it would
be necessary to refer to the dictionary meanings of the expression
"reasonable", "good" and "sufficient". In of libel English Dictionary
(first edition published in 1933 and re-printed in 1961-volume VIII), the
expression "reasonable" has been defined to mean "fair, not absurd, not
irrational and not ridiculous". Likewise, the expression "good" has been
defined in the said Dictionary in volume IV to mean "adequate, reliable,
sound". Similarly, the expression "sufficient" has been defined under
the same very Dictionary in volume: X to mean "substantial, of a good
standard".
37. From the definitions referred to above, it would appear that
reasonable cause or excuse is that which is fair, not absurd, not
irrational and not ridiculous. A cause which is reasonable within the
meaning of sections 276B and 278AA of the Act may not be sufficient
and good reason within the meaning of sections 201 and 221 of the Act
as sufficient reason would mean a substantial reason or a reason of good
standard would mean a reason which is adequate, reliable and sound. A
cause may be reasonable but the same may not be necessarily good and
sufficient. On the other hand, if a reason is good and sufficient, the same
would necessarily be a reasonable cause. These facts show that the
obligation which an accused has to discharge in a criminal prosecution
under section 276B of the Act in showing that he had reasonable cause
for not deducting the tax or paying the same within time is much more
lighter than the obligation to be discharged by him in a penalty
proceeding under section 201 read with section 221 of the Act."
In Greatway (P) Ltd. v. Assistant Commissioner of Income-
Tax, 1991 SCC OnLine P&H 1353 Hon'ble Punjab & Haryana
High Court held that:
"11. The words "without reasonable cause or excuse" as they occur in
section 276B are significant. The act of non-deduction or non-payment
was an offence only if the act was done without any reasonable cause or
excuse. The initial onus remains on the prosecution to establish all the
ingredients of an offence and, for a charge under section 276B, this
necessary ingredient has to be alleged and proved by the respondent. In
case the prosecution is able to discharge the initial onus, then of course, the onus will shift to the accused-persons to show that he/they had a reasonable cause for failure to deduct or to deposit the tax. It is CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.
21 of 23 significant to note that section 278AA provides that the proof of reasonable cause for failure will be a complete defence for offences under section 276A. Section 278AA was inserted on September 10, 1986, that is to say, at the time amendment to section 276A was made and the words "without reasonable cause or excuse" were deleted. The section, as framed, did not absolve the prosecution of its obligation to allege and prove the absence of reasonable cause or excuse for the default in deduction of the tax and its due deposit. "
In Sonali Autos Private Limited vs State of Bihar and Others, 2017 SCC OnLine Pat 3620 the Hon'ble High Court of Patna held that:
"26. The petitioners have stated in the petition that the aforesaid tax could not be deposited within time due to oversight on the part of the Accountant, who was appointed to deal with the Accounts and Income Tax matters. This mistake was detected at the time of audit of Books of Accounts by the Statutory Auditors of the petitioner-company in August, 2010. Thereafter, the petitioner immediately deposited the amount of tax along with interest in the year 2010 itself. Section 278 AA of the Act specifically says that no person shall be punished for any failure referred to under the said provisions if the assessee proves that there was reasonable cause for such failure. Reasonable cause would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bonafides."
In Sasi Enterprise Vs. The Union of India, 2006 SCC OnLine Mad 1087 Hon'ble High Court of Madras held that:
63. Apart from these, before the introduction of Section 278E, the prosecution also had to prove that the person or the assessee committed the above default "wilfully". Now, that responsibility has been lifted from the shoulders of the prosecution and placed on the person or the assessee. It is true that the Section says that it is for the assessee to prove the absence of culpable mental state, but what exactly does this mean? It means that the assessee will have to prove the circumstances which prevented the assessee from filing the return as above in due time as per Section 139(1) or in response to the notices under Sections 142, 148 and 153A, as the case may be. Previously, it was the duty of the prosecution to prove the absence of such circumstances. Now, if there are circumstances which prevent an assessee from discharging his duty, as provided for under the Income Tax Act, it is something specially within his knowledge and he is required to prove it. The Indian Evidence Act and the law laid down by Indian Courts as well as the CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.
22 of 23 Courts elsewhere with regard to proof of facts specially within the knowledge of the accused provides that the burden must necessarily be cast on that person. At the same time, it was, of course, vehemently contended on behalf of the petitioners that in the present case the presumption amounts to proof of guilt and it was submitted, and with much force, that the impugned provision is a legislative presumption of guilt. I am afraid not. The law does not presume and the law has not presumed that the assessee is guilty. The law has only asked the Court to presume that nothing prevented the assessee from filing his return in accordance with law and in response to the notices and therefore, the failure is wilful. If there were such compelling circumstances, it is always open to the assessee to prove them in accordance with law. That does not seem to be and cannot be a difficult thing to do. In fact, obviously, the Parliament found that it was well nigh impossible for the prosecution to prove the absence of compelling circumstances which prevented the assessee from what in law the assessees were bound to, i.e., prove the negative, so in its wisdom, decided that it would be easier and more practicable, and in the context of the objects sought to be achieved, require the assessee to show those facts which would lead the Court to infer that act 'A', namely filing the return in due time was not possible. If the assessee proves it, then the prosecution will fail. Can it be said that this is arbitrary or unreasonable? I think not.
Considering the ratio of above judgment and the facts of the present case, the court is not convenienced that accused No.1 company was facing such financial losses / crises that it was impossible for accused No.1 company to deposit the TDS within time stipulated by law. Document Ex. DW 1/A, shows that liabilities of accused No.1 company were more than its cash balance, however, for number of months cash balance was sufficient to deposit the TDS as per rules. If for some months, it was not possible for accused No.1 to deposit the entire TDS amount, majority of TDS amount could have deposited as amount to be deposited as TDS was not an extra burden on the company but was such an amount which has already been deducted by the accused No.1 company from different payments made by it in previous month itself and there was no logic of non deposition of CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.
23 of 23 TDS despite having cash in hand, as accused No.1 was acting as trustee only for the TDS deducted by it. Further the record shows that there was substantial increase in the share capital of company in the relevant year i.e. Rs.58.82 crores. Further the Balance Sheet of company shows that the losses of the company was less than depreciation and amortization expenses (which is non cash expenditure) shown by the company in the relevant year.
11 On the basis of above discussion, as complainant could not prove the TRACES report Ex. CW 2/E, it could not prove the default in deposition of TDS by the accused No.1 company. Accordingly, present complaint is dismissed and accused No.1 is acquitted for offence under Section 276B read with 278B/278E of The Income Tax Act, 1961.
Announced in the open court Digitally signed by
on this 09th January 2025 MAYANK MAYANK MITTAL
MITTAL Date: 2025.01.09
18:00:04 +0530
MAYANK MITTAL
ACJM (Spl. Acts), CENTRAL
TIS HAZARI COURTS, DELHI
This judgment consists of 23 pages
and each and every page of this
judgment is signed by me.
CC No. 2550/2021 ITO v. M/s Vihaan Networks ltd.