Delhi District Court
Order On Charge/Ito vs . S.N. Bhatia & Co. Pvt. Ltd. & Ors./Case ... on 10 May, 2010
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IN THE COURT OF DIG VINAY SINGH, ADDITIONAL CHIEF METROPOLITAN
MAGISTRATE (SPL. ACTS): CENTRAL: TIS HAZARI COURTS, DELHI
In re: CC NO.22/4
ORDER ON CHARGE
10.5.2010
Present: Sh. Brijesh Garg, standing counsel for the complainant.
A1 is a company which is stated to be represented by A2 S.N.
Bhatia, who is present in person.
A2 S.N. Bhatia, A3 A.K. Bhatia and A4 S.K. Bhatia on bail with
counsel Mr. Vinod Dutta, Adv.
1.The complainant, Income Tax Officer, filed this complaint against the above named four accused. The accused no.1 namely, S.N. Bhatia & Co. Pvt. Ltd., is a company, and the accused nos.2, 3 & 4 were claimed to be its directors at the relevant time and, thus Incharge of and responsible for the business of the A1 company for the relevant period.
2. The relevant assessment year in this case is 19811982, and it is claimed that the accused no.1 company did not file its income return within the stipulated period, as provided in section 139(1) of the Income Tax Act, 1961. The concerned Assessing Officer issued a letter to the Managing Director of A1 Company asking furnishing of duplicate return along with the proof of filing of the original return. In response to the said letter, a reply was filed by the A1 Company stating that the Managing Director of the A1 Company was out of country and, vide this letter, time was sought to give Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
1 of 15 dtd.10.5.2010 /k 2 information. When no information was forthcoming, another letter was issued to the A1 Company, dated 26.9.1984, calling upon the accused company to furnish the desired information. Even this letter also did not evoke any response. Thereafter, a notice was issued, u/s.148 of the Act, on 29.11.1984, which was duly received by the A1 Company. Ultimately, the A1 Company filed its return of income on 15.7.1985, declaring its total income as Rs.41,774/, for the relevant assessment year. After probing the whole matter, the Assessing Officer assessed the income of the company to Rs.21,19,038/, as against the income claimed by the company, i.e. Rs.41,774/, in the return filed by it.
3. The present complaint is filed for the offence u/s.276CC of the Income Tax Act, 1961, for willfully failing to file the return by the company in terms of section 139(1) of the Act.
4. All the four accused were summoned on 31.3.1990 for the said offence and thereafter pre charge evidence was recorded.
5. The complainant Vijay Kumar was examined as PW1 in the pre charge evidence, who deposed that he was posted as Assistant Commissioner of Income Tax between mid 1989 to mid 1992 and during the said period, the A1 was one of his assessee and the remaining three accused were the directors and persons responsible for the business of the accused company. He proved his complaint, bearing his signatures, as Ex. PW1/1 and he also proved the authorisation in terms of section 279(1) of Income Tax Act, 1961 as Ex. PW1/2. It is deposed by the witness, that u/s.139 (1) Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
2 of 15 dtd.10.5.2010 /k 3 of the Act, the company was under obligation to file its income return for the assessment year 19811982, on or before 30.6.1981, but the return was not filed and accordingly, a notice u/s.148 of the Act dated 29.11.1984 was issued to the company which was served upon the company on 05.12.1984. The said notice is proved as Ex. PW1/4. Thereafter, on 15.7.1985, the company filed its return Ex. PW1/5, which was signed and verified by the A2. Thereafter, assessment proceedings, u/s.143 (3) of the Act, was conducted and the income of the company was assessed to Rs.21, 19, 38/, vide order dated 28.12.1987, which is proved as Ex. PW1/6. He deposed that the assessment order was passed by his predecessor Mr. M.M. Puri. He also proved the order of the Commissioner of Income Tax, (Appeal), dated 26.12.1988 as Ex. PW1/7.
6. On behalf of accused, it is argued that mere exhibiting the complaint as Ex. PW1/1 is not evidence and the concerned assessing officer, M.M. Puri, who conducted the assessment, has not been examined, the present complainant had no personal knowledge. It is argued that there is no direct or primary evidence on record and it is deliberately withheld, and as such adverse inference needs to be drawn against the complainant. It is also argued that the Commissioner of Income Tax who gave authorisation has not been examined, therefore, sanction is not proved. It is next argued that the complainant was bound to issue show cause notice to the accused before launching the prosecution, in view of CBDT guidelines, which was not done and, therefore, prosecution cannot continue. It is also argued Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
3 of 15 dtd.10.5.2010 /k 4 that besides mentioning that the accused were directors and responsible for the day to day affairs of the company, no facts or documents were proved on record to show that they were so responsible and, therefore, they cannot be held liable. It is claimed that it is only A2 who was the Managing Director, and responsible for the affairs of the company. It is also argued that the Assessing Officer did not express his intention to treat A2 as principal officer in terms of section 2(35) of the Act. It is also argued that only the photocopies of documents have been exhibited without production of original documents and those documents are not properly proved and, therefore cannot be read in evidence.
7. On the other hand, complainant argues that as per section 278B of the Income Tax Act, 1961, every person who was Incharge of and responsible to the company for the conduct of business of the company as well as the company shall be deemed to be guilty of the offence. It is claimed that no show cause notice is required to be served before launching prosecution u/s.276CC of the Act, in view of judgment of Hon'ble Supreme Court in the case of Union of India Vs. Banwari Lal Aggarwal,(1999)238 ITR 0461. In the said case, Hon'ble Supreme Court specifically mentioned that there is no warrant in interpreting subsection (2) of section 279 of the Act to mean that before any prosecution is launched, either a show cause notice should be given or an opportunity should be afforded to compound the matter. The complainant also argues that as per State of Delhi Vs. Gyan Devi & Ors. (2000)7 Supreme 201, charges need to be framed against Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
4 of 15 dtd.10.5.2010 /k 5 the accused as there are prima facie sufficient material to do so.
8. Accused relied upon the cases of General Finance Co. & Anr. Vs. Asstt. Commissioner of Income Tax, Punjab, AIR 2002 SC 1326; Rayala Corporation Pvt. Ltd. Vs. Director of Enforcement, 1969(2)SCC 412; Kolhapur Cane Sugar Works Ltd. Vs. Union of India & Ors. 2000 (2)SCC 536 & the case of Anant Rai Joshi & Co. & ors. Vs. Commissioner of Income Tax & ors. (2004)265 ITR 672 Rajasthan in support of his contention that a provision which stands omitted, under that provision no prosecution could have been launched or continued by invoking section 6 of The General Clauses Act.
There is no force in this contention since, section 276CC of Income Tax Act, 1961 was never omitted and, by the Direct Tax Laws (Amendment) Act, 1989, the provision was merely reframed. Prior to the Taxation Laws (Amendment) Act, 1989, section 276CC of the Act read as under :
"If a person willfully fails to furnish in due time the return of income which he is required to furnish under SubSection (1) of Section 139 or by notice given under Section 139(2) of Section 148".
after the amendment, it reads as under :
"If a person willfully fails to furnish in due time the return of income which he is required to furnish under SubSection (1) of Section 139 or by notice given under clause (1) of Sub section (1) of Section 142 or Section 148".
7. In the case of Prakash Nath Khanna & Anr. Vs. Commissioner of Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
5 of 15 dtd.10.5.2010 /k 6 Income Tax & Anr.(2004) Vol.266 Income Tax Reports, page 1, it was held as follows :
"One of the significant terms used in section 276CC (offence of failure to furnish return of income) of the Income Tax Act, 1961, is "in due time". The time within which the return of income is to be furnished is indicated only in subsection (1) of section 139 and not in subsection (4). Even if a return is filed under section 139(4) that would not dilute the infraction in not furnishing the return within the time as prescribed under section (1) of section 139."
"Section 276CC refers to "due time" in relation to subsection (1) and (2) of section 139 and not subsection (4). It cannot be said that the Legislature without any purpose or intent specified only sub sections(1) and (2) and the conspicuous omission of subsection (4) has no meaning or purpose behind it. Subsection (4) of section 139 cannot control the operation of subsection (1) wherein a fixed period for furnishing the return is stipulated. The mere fact that for the purposes of assessment and carry forward and set off of losses the return filed under subsection (4) is treated as one filed within sub section (1) or (2) would not amount to the return having being filed within due time".
8. Turning to the next contention of the accused that the complaint is not filed by the Assessing Officer M.M. Puri and, that he was not examined, and the contention that the Commissioner of Income Tax was not examined to prove the authorisation, let it be mentioned that the present case is not a case which is based on the deposition of some physical incident taking place, and nonexamining of the eye witness to the said incident. The complaint of this case pertains to something which is borne out of the records, i.e. non filing of return in time u/s. 139(1) of the Income Tax Act, 1961. The said complaint need not necessarily be made by the Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
6 of 15 dtd.10.5.2010 /k 7 concerned Assessing Officer, during whose tenure. It was noticed that the return was not filed. Such complaint can be filed by the department through any of its officer since the complaint would be based on documentary proof of non filing of return, as borne out of the records. Similarly, the contention that the Commissioner of Income Tax was not examined to prove his authorisation is immaterial, since PW1 specifically deposed that he identifies signatures of Commissioner on the authorisation given. PW1 has specifically deposed that he is conversant with the signatures of Mr. D.N.S. Sinha as he had seen him writing and signing during official course of duties. A document can be proved by a person who is conversant with the signatures or writing of the executor. Even otherwise, the present case is at the stage of framing of charges only and the authorisation can be duly proved during trial by the complainant by calling the concerned executor. The right of the complainant to prove this document during trial cannot be foreclosed.
9. In the case of Nanalal Shobhagmal Vs. Union of India, (1988)173 ITR 0151, it was observed that it was not necessary that complaint must be filed by the Commissioner himself and the complaint filed by the Income Tax Officer on being authorised by the Commissioner is legal. It was also held that prosecution can lead evidence at trial to prove that sanction for prosecution was valid and the concerned complainant was duly authorised.
10.The argument of the accused that the Income Tax Officer failed to issue any notice to treat the A2 as 'principal officer' in terms of section 2(35) of Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
7 of 15 dtd.10.5.2010 /k 8 Income Tax Act, 1961, is absolutely misconceived. In the case of Sushil Suri & Ors. Vs. State & Ors., 303 ITR 86, Hon'ble Delhi High Court observed that the determination of 'principal officer' is necessary only in the case of deduction of tax at source, such as in the case of salaries and interest other than interest on securities etc., and not otherwise. The present complaint is not pertaining to those categories of Income Tax Offences. The present complaint is regarding non filing of return as per section 139(1) of the Act and, therefore, no such notice, to treat A2 as 'principal officer' was required. This argument of the accused is thus absolutely misconceived.
11. In the case of V. Gopal Vs. Asstt. Commissioner of Income Tax, (1994)2007 ITR 971 (Madras), also it was observed that no notice is required to be served on the assessee before passing order of sanction u/s.279 of the Act.
12. Coming to the arguments of the accused that the accused nos.3 & 4 were not Incharge of and responsible, the accused places reliance upon the cases of Sheetal N. Shah & Ors. Vs. Income Tax Officer, 188 ITR 103 (1990) wherein it was held that the burden to prove that a partner of a firm was responsible for paying the tax deducted at source, rest with the revenue to prove that the partner was Incharge of the firm. Reliance is also placed upon the case of MCD Vs. Ram Kishan Rohtagi, AIR 1983 SC 67 wherein the proceedings against four accused was quashed, since the allegations in the complaint, stating that they were Incharge of and Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
8 of 15 dtd.10.5.2010 /k 9 responsible for the conduct of business of the company was found to be based on mere presumption and there was no evidence to show that those accused were so Incharge or responsible. Accused also places reliance upon the case of Shyam Sunder Vs. State of Haryana, AIR 1989 SC 1982 wherein it was observed as under :
"More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefits of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all the partners and ask them to prove under the proviso to subsection (1) of section 10 that the offence was committed without their knowledge. The obligation on the accused under the proviso to prove that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence, arises only when the prosecution establishes that the requisite condition mentioned in subsection (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was, during the relevant time, in charge of the business. In the absence of any such proof, no partner could be convicted. Thus, where the documents produced by the prosecution do not indicate even remotely that all the partners were doing the business of the firm and there was no other evidence on record on this aspect, it could not be said that when the offence was committed, all the partners were conducting the business of the firm".
Reliance is also placed by the accused upon the case of SMS Pharmaceuticals Vs. Neeta Bhalla & Anr. AIR 2005 SC 3512; Ramraj Singh Vs. State of M.P. & Anr. wherein it was held that it is necessary to specifically aver in a complaint u/s.141 of the N.I. Act that at the time when the offence was committed, the person accused was Incharge of, and Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no.
9 of 15 dtd.10.5.2010 /k 10 responsible for the conduct of business of the company. It was also observed that merely being a director of a company is not sufficient to make a person liable u/s.141 of the N.I. Act.
13.Ld. counsel for the complainant submits that in this case, the documents filed by the accused company with the income tax authorities, such as balance sheet as on 31.7.1980, the photocopy of which is on record, itself shows that accused nos.2,3 & 4 signed the balance sheet. It is argued that this document alone would reveal that all the three directors i.e. A2, A3 and A4 were actively discharging their duties as directors, more particularly relating to income tax provisions and, therefore, they were so incharge of and responsible for the conduct of the business of A1 company.
14.I have perused the record. There is a document on record which is a balance sheet as on 31.7.1980, it finds mention name of all the three accused i.e. A2, A3 and A4. This document is certified by the accused themselves. Subsequent page of this document would even reveal that the balance sheet was signed by all three of them and it is an attested true copy of the document of A1 company filed before the income tax authorities. Primafacie, at the stage of charge, this document shows that A2, A3 and A4 indeed incharge of and responsible for the business of the accused company.
15.It may be mentioned here that u/s.278B of the Act, it is provided that where any offence under the Income Tax Act, 1961 has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 10
of 15 dtd.10.5.2010 /k 11 any director of the company, such director shall also be deemed to be guilty of the offence. The complainant, therefore, can certainly prove this fact in the evidence and then it would be for the accused to rebut their liability. It is specifically mentioned in subsection 2 that even where the offence is committed due to neglect of that director, still that director can be held guilty. Accordingly, the judgment relied upon by the accused to claim that the A2, A3 and A4 were not incharge of and responsible, is no help to them. It may also be mentioned here that u/s.278E of the Act, it is provided that in any prosecution for any offence under the Income Tax Act, 1961, 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 the defence of the accused to prove the fact that he had no such culpable mental state. The explanation to this section further provides that culpable mental state shall include the intention, motive or knowledge of a fact.
16.The accused places reliance upon the case of The Commissioner of Income Tax Vs. Anjum M.H. Ghaswala & Ors. AIR 2001 SC 3868 wherein it is held that circulars issued by CBDT, being executive authority are binding in nature. Ld. counsel for the accused also placed reliance upon the following four cases :
1. AIR 1981 SC 1922, K.P. Varghese Vs. Income Tax Officer, Ernakulam and anr.
2. AIR 1965 SC 1375, Navneetlal C. Jhaveri Vs. Appellate Commissioner of Income Tax, Bombay.
Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 11
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3. 1972 SC 524 (AIR), Ellerman Lines Ltd. Vs. Commissioner of Income Tax, Calcutta.
4. (1992) 196 ITR 216, Commissioner of Income Tax Vs. Vasudeo V. Dempo.
17.It is claimed on behalf of the accused that the circulars issued by the CBDT are binding in nature. In the present matter, the accused placed reliance upon a circular regarding infirmity in prosecution/compounding proposals issued by the Government of India, CBDT. In para5 of the said circular, what is mentioned is that, some show cause notice was advised to be issued to the assessees, seeking their explanation before sending proposals for prosecution.
18.I have already mentioned above that Hon'ble Supreme Court in the case of Banwari Lal Aggarwal, held that no show cause notice was required to be given before any prosecution is launched. Even otherwise, the circular of CBDT relied upon by the accused is merely advisory in nature and nothing more can be read in that.
19.It is well settled law that at the stage of framing of charge, only prima facie is to be seen. Law regarding consideration at the stage of framing charges are well settled now. The court has power to sift and weigh the evidence for the limited purpose of finding out whether or not a prima facie case against accused has been made out. It is held that when the material placed before the court discloses great suspicion against the accused which has not been properly explained the court will be Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 12
of 15 dtd.10.5.2010 /k 13 justified in framing charge. The judge should not make a roving inquiry into the pros and cons of the matter and weigh the evidence is if he was conducting a trial. If on the basis of materials on record a court could come to the conclusion that commission of the offence is a provable consequence, a case of framing of charge exists. To put it differently, if the courts were to think that the accused might have committed the offence it can frame a charge , though for conviction the conclusion is required to be that the accused has committed the offence. At the stage of framing of a charge probative value of the materials on record cannot be gone into, the material brought on record by the prosecution has to be accepted as true at that stage. The truth, veracity and effect of the evidence which the prosecutor proposes to adduce are not to be meticulously judged. Nor is any weight to be attached to the probable defence of the accused. It is not obligatory for the Judge at that stage of the trial to consider in any detail and weigh in a sensitive balance whether the facts, if proved, would be incompatible with the innocence of the accused or not. The standard of test and judgment which is to be finally applied before recording a finding regarding the guilt or otherwise of the accused is not exactly to be applied at this stage of deciding the matter under S. 227 or S. 228 of the code. At that stage the Court is not to see whether there is sufficient ground for conviction of the accused or whether the trial is sure to end in his conviction. But at the initial stage if there is a strong suspicion which leads the Court to think that there is ground Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 13
of 15 dtd.10.5.2010 /k 14 for presuming that the accused has committed an offence then it is not open to the Court to say that there is no sufficient ground for proceeding against the accused. While deciding the question of framing of charge in a criminal case, the court is not to apply exactly the standard and test which it finally applies for determining the Guilt or otherwise. This being the initial stage of the trial, the court is not supposed to decide whether the materials collected by the investigating agency provides sufficient ground for conviction of the accused or whether the trial is sure to culminate in n his conviction. What is required to be seen is whether there is strong suspicion which may lead to the court to think that there is ground for presuming that the accused has committed an offence. Reliance placed on the cases of Union of India vs. Prafulla Kumar AI R 1979 Supreme Court 366 : State of Maharashtra and others vs. Som Nath Thapa and others JT 1996 (4) SC 615 State of ;
Bihar v. Ramesh Singh, AI R 1977 S C. 2018: (1 977 CRI LJ 1606) ;
Umar Abdula Sakoor Sorathia vs. Intelligence officer narcotic control bureau JT 1999 (5) SC 394 ;
Kallu Mal Gupta vs. State 2000 I AD Delhi
107.
20.Accordingly, when the accused no.1 company failed to furnish its return of income in due time, the company and A2, A3 and A4, being its directors and officers incharge and responsible for the conduct of the business of the company committed offence u/s.276CC of the Income Tax Act. Let Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 14
of 15 dtd.10.5.2010 /k 15 charges be framed. Request for discharge by the accused is accordingly dismissed. Charges framed separately, to which accused claimed trial.
21.Put up for entire PE on 12.7.2010, which shall be last and final opportunity and it is made clear that no further opportunity would be granted. Let the accused inform in writing, within ten working days from today, as to which of the witnesses examined in pre charge evidence, the accused wants to cross examine in post charge evidence in terms of section 246(4) Cr.P.C.
22.Put up on 12.7.2010 for entire PE as last opportunity.
ANNOUNCED IN OPEN COURT
ON 10.5.2010 (DIG VINAY SINGH)
ADDL. CHIEF METROPOLITAN MAGISTRATE
SPECIAL ACTS, CENTRAL,
TIS HAZARI COURTS
DELHI
Order on Charge/ITO Vs. S.N. Bhatia & Co. Pvt. Ltd. & ors./Case No. 22/4/Page no. 15
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