Delhi District Court
Ito vs . Action Bridge Gap Construction (P) ... on 28 October, 2021
IN THE COURT OF SH. MANU VEDWAN
ADDL. CHIEF METROPOLITAN MAGISTRATE (Spl. Acts)
CENTRAL TIS HAZARI COURTS, DELHI
CC No. 6214/2018
ITO Vs. Action Bridge Gap Construction (P) Ltd.
U/s 276B r/w Section 278B and 278E of the Income Tax Act, 1961
CNR No.DLCT020087502018
JUDGMENT
(a) Name of complainant : Income Tax office
through Sh.Avinash Kumar Verma
Income Tax Officer,
Ward 73(2), New Delhi
(b) Name, parentage & : (1)M/s Action Bridge Gap Construction
address of accused (P) Ltd.
GN12, 2nd Floor,
Shivaji Enclave,
New Delhi - 110027
(2) Sh.Tarun Aggarwal (Director)
M/s Action Bridge Gap Construction
(P) Ltd.
GN12, 2nd Floor,
Shivaji Enclave,
New Delhi - 110027
(c) Offence complained : U/s 276 B r/w Section 278B and
proved off 278E of the Income Tax Act, 1961
(d) Plea of accused : Pleaded not guilty.
(e) Final order : Acquitted
(f) Date of such order : 28.10.2021
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 1 of 24
Date of Institution : 08.03.2018
Final arguments heard : 27.10.2021
Date of Judgment : 28.10.2021
Brief facts and reason for the decision:
1. The present complaint case is filed under Section 276 B read with Section 278 B of the Income Tax Act, 1961. The complaint was filed by the Income Tax Office through Income Tax Officer, Sh. Avinash Kumar Verma. It is submitted that sanction to file the complaint was accorded under Section 279 (1) of Income Tax Act vide order dated 27.12.2017 by Ms. Meenakshi Singh, CIT (TDS01). It is stated in the complaint that complainant is a public servant and had filed the present complaint in discharge of his official duties. The Commissioner of Income Tax (Tax Deducted at Source1) has passed the sanction order under Section 279(1) of the Income Tax Act sanctioning the prosecution of the accused persons, as, it is required under Section 276B Income Tax Act, 1961 r/w Section 278B and Section 278E of the Act. It is also stated that accused no.2 was the Director/Principal Officer of the accused no.1 company during the financial year 20142015 and was looking after the day to day functioning of the accused no.1 company. It is further stated that the accused no.1 is the holder of TAN NO.DELA24368B. It is also stated that during the financial year 20142015, complainant company had made payment to various persons and had deducted (Tax Deducted at Source) amounting to Rs.1,59,72,437/.
2. It is further stated that the said amount which was deducted as Tax Deducted at Source was not got deposited in the Government Treasury, within, the stipulated time limit as required by Income Tax Act. It is further stated that the notices dated 15.11.2016 and 02.01.2017 were issued to the accused intimating ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 2 of 24 them about the default committed by them as they failed to deposit the Tax Deducted at Source to the Government Treasury within stipulated period of time. It is also stated that Income Tax Officer had also issued notice under Section 2(35) of Income Tax Act dated 02.01.2017 to the Principal Officer of the Accused no.1 Company and also to accused no.2. Accused vide its reply dated 17.04.2017 had admitted that accused no. 2 is the Director of the accused no. 1 company and he is also looking after its day to day functioning. Thereafter, accused no.2 has admitted in its reply that he is the Principal Officer of the company i.e. Accused no.1. Same fact has been notified by the complainant vide its order dated 15.05.2017 that the accused number 2 is the Principal Officer of accused number 1 Company. It is further stated that a showcause notice dated 07.12.2017 under Section 279(1) of Income Tax Act read with Section 276B issued to the company granting an opportunity to showcause why sanction be not granted for launching the prosecution under Section 276B of the Income Tax Act.
3. It is further stated that on 19.12.2017, accused no.2 had attended the proceedings before CITTax Deducted at Source and stated that due to bad financial condition he was not able to deposit the Tax Deducted at Source within stipulated time. It is also stated that accused had filed return for the relevant year and certain amount was to be refunded by the Income Tax Department and this is also the reason for not depositing the Tax Deducted at Source at the appropriate time. It is further stated that as all the contentions of the accused are false, therefore, the present case has been filed against the accused as he failed to file the Tax Deducted at Source at appropriate time. It is prayed by the complainant in his complaint to summon the accused persons and to try them for the offences punishable under Section 276 B read with Section ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 3 of 24 278 B and 278 E of Income Tax Act, 1961.
4. After, receiving of complaint, learned Predecessor Court, vide order dated 22.03.2018 took cognizance of the complaint and summoned accused persons for offences as committed as mentioned above. Thereafter, accused persons appeared before the court and thereafter, precharge evidence was lead. During the course of precharge evidence, CW1 Mr.Avinash Kumar had deposed that he had filed the present complaint against the M/s Action Bridge Gap Constructions Pvt. Ltd. and its Director Tarun Aggrawal for financial year 201415 under Section 276B r/w Section 278(B) of Companies Act. Apart, from reiterating the facts found mentioned in the complaint, CW1 has also relied upon the documents i.e. Sanction order Ex.CW1/2. Traces report of late deposit of Tax Deducted at Source Ex.CW1/3, Certificate under Section 65B of Indian Evidence Act Ex.CW1/4, computer generated showcause notice dated 15.11.2016 Ex.CW1/5 (objected to as to mode and manner of proof), computer generated showcause notice dated 02.01.2017 Ex.CW1/6.
5. CW1 has also relied upon reply dated 02.01.2017 of accused no.2 Ex.CW1/7, order under Section 2(35) against accused no.2 Ex.CW1/8, proposal dated 30.11.2017 for launching prosecution against accused Ex.CW1/9, showcause notice under Section 279(1) of Income Tax Act dated 07.12.2017 alongwith proof of booking and services Ex.CW1/10, replies to the showcause notices Ex.CW1/11. CW1 was crossexamined at length by learned Counsel for accused during the course of precharge evidence. During his cross examination, CW1 has specifically denied the suggestion put to him that plea of financial crisis was not considered by the complainant before initiating the prosecution. It is also submitted by him during that course that he was not aware that accused company had claimed refund of the taxes.
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 4 of 24
6. Thereafter, vide order dt.28.02.2019, charge under Section 276B, r/w Sec. 278B and 278E of Income Tax was directed to be framed against the accused persons. After framing of charge in postcharge evidence CW1 Mr.Avinash Kumar Verma again examined and crossexamined at length. During, the course of his further crossexamination, CW1 has admitted that the entire TDS amount had already been paid by the accused Company. At this stage of post charge evidence, complainant also got examined Ms. Nalini Verma as CW2. CW2 in her examinationinchief deposed that she had issued the notices under Section 2(35) of Income Tax Act for the financial year 20132014, 20142015 and 20152016 to the accused persons exhibited as Ex. CW1/6 (colly)(OSR). It is also submitted by her that accused has filed its reply, dated 02.04.2017, which is already Ex.CW1/7, in which it is submitted that accused no.2 is working as Principal Officer and only after considering the reply, she has passed an order Ex.CW1/8. She was also crossexamined at length by the Ld. Counsel for accused.
7. Thereafter, the complainant evidence was closed and matter was listed for recording of statement of accused.
8. On 07.03.2020, statement of accused no. 2 for himself as well as for accused no.1 company was recorded in terms of section 313 Cr.P.C. read with 281 Cr.P.C, wherein accused submitted that due to financial crises he was unable to make the payment at an appropriate time of the Tax Deducted at Source and he wants to lead evidence in his defence. Thereafter, the matter was listed for defence evidence.
9. During, the course of leading defence evidence, accused has got examined DW1 Mr. Sandeep Kumar. DW1 is the accountant in accused No.1 company and submitted a certificate certifying that whatever documents have been filed ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 5 of 24 in the court are true and correct copies. Certificate is Ex/ DW 1/A. During the course of crossexamination, DW1 has specifically denied the suggestion put to him by Ld. Special Public Prosecutor that he was deposing at the instance of accused no.2, being his employee.
10. Sh. Tarun Aggarwal has also got examined himself as DW2 and lead his evidence by way the affidavit which is Ex. DW2/A. He had relied upon the documents i.e copy of acknowledgment of change of address Mark A, ledger copies of sundry debtors Mark B (running from page no. 8 to 17), copy of agreement dated 15.04.2009 and 21.08.2009 marked as Mark C and D respectively (running from page no. 18 to 21), copy of arbitration award dated 16.10.2017 marked as Mark E (running from page no. 22 to 71), copies of financial statement as on 31.03.2014, 31.03.2015 and 31.03.2016 marked as Mark F (colly) (running from page no. 72 to 75) and copies of chart regarding deduction and deposit of TDS with interest and ITRs marked as Mark G (colly) (running from page no. 76 to 235). DW2 in his evidence has deposed that no separate proposal has been made by the complainant department for each financial year for launching prosecution against accused. It is also submitted that in the Form T wrong TAN number has been quoted which lead to the confusion in the mind of the accused. It is also submitted that prosecution has not disclosed it's witnesses in Form No.T as well. It is also deposed that again in Form T, Assessing Officer has not disclosed whether any order under Section 201 (1) and Section 201 (1A) of Income Tax Act, 1961 has been passed. Therefore, it is deposed that without assessment launching of prosecution is incongruous. It is specifically deposed that Assesse has submitted the TDS with interest much before detection by department / Revenue.
11. DW2, Tarun Aggrawal has also deposed that the complainant has not ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 6 of 24 complied with the guidelines of CBDT vide letter F.No.285/90/2013 IT(Inv.V)/12 dated 27.12.2014 in which it is specifically stated that the genuine representations of the assessee should be taken into consideration while managing the prosecution against them. It has also been deposed that the accused company vide its detailed reply dated 19.12.2017 to the showcause notice dt.07.12.2017 issued by the complainant elaborately explained the severe financial hardships of the company and requested that it may be taken into as the reasonable casue for delaying in deposition of TDS. Thereafter, DW2 has provided the details of financial hardships faced by the accused company being the Sub Sub contractor of the Public Sector Contractors which has already been discussed hereinabove. DW2 has also submitted that the TDS refund of Rs.2,12,13,940/ by the complainant for the assessment year 201415 was not deposited back into their accounts, similarly certain amount for the assessment year 20152016 and 20162017 was also not been made paid by the complainant department. DW2 was crossexamined at length. In the cross examination, he has specifically clarified to the questions asked by Ld.SPP that he has filed various documents which shows that accused company was doing the same business as that by M/s Niraj J.M.Mahtre being the joint venture.
12. I have heard the arguments on behalf of both parties and carefully perused the entire record including the detailed written submissions filed on behalf of accused as well as complainant and other documents as well.
13. Apart from making the oral arguments, complainant has also filed the written arguments. In the written arguments once again, the facts mentioned in the complainant and the facts deposed by the complainant witness as have been reiterated. Thereafter, complainant has replied defence taken by the accused in which it has been specifically stated that TDS is a Government money and ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 7 of 24 nobody can hold the money on any ground what so ever as the holder of the money is only the custodian. It is also submitted that the limited burden of proof has been placed on the complainant department in these particular cases and it has already been discharged by proving that nondeposition of TDS at an appropriate time. The complainant has also stated that as per clause (2) of Section 278(E) of the Income Tax Act, the presumption is not disproved on account of mere preponderance of probability and the factum of absence of culpable state of mind has to be proved beyond reasonable doubt. It is also submitted that the mensrea is not an essential requirement in the present case covered under Section 278(B) of Income Tax Act, though the culpable state of mind has to be proved and the reasonable doubt which the complainant has proved successfully as accused as failed to pay the TDS amount at an appropriate stage.
14. It is further submitted that with respect to the defence of the accused persons that they have faced severe hardships and unable to deposit the TDS, it has been clarified by the Complainant Department that the TDS amount deducted by accused person be must kept separately from their personal income and that amount should not be utilised by them in any condition. It is also specifically mentioned that the refund of the incometax and timely deposit of TDS are two separate issues. Moreover, the return of income is filed on PAN Card, whereas, the TDS is deducted and deposited back on TAN Card. It is thus submitted that no reasonable cause for nondeposit of TDS has been shown by the accused in present case. It is also submitted that law nowhere mandates the complainant department to issue any notice in case of default of TDS amount by asking the accused to deposit the TDS in default. It is submitted that the documents showing the financial hardships of the ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 8 of 24 complainant company has no value in the eyes of law as it has been only marked and not exhibited. It is also submitted that the CBDT circular of 2008 was superseded with the circular of 2013, wherein, issue of 12 months was modified by fixing the monetary limit for launching prosecution. It is also submitted that law nowhere mandates that the complainant department is supposed to issue any notice in case of default of TDS.
15. It is further submitted that alleged arbitration proceedings pertains to different financial years as that of years which required to be prosecuted against accused for nonfiling of TDS. It is also submitted that it is an admitted position that the accused company paid interest over the TDS default amount and the same is to be done as per Section 201(1A) only. Thus, the submissions of accused qua nonapplication of mind by prosecution be read accordingly. Complainant has also relied upon following judgments i.e. Indo Arya Central Transport Limited & Ors. v. Commissioner of Income Tax (TDS), Delhi - 1, 2018 SCC OnLine Del 7995, Crl. Revision Appeal No.351 of 1985, 352 of 1985 & 355 of 1985 Rishikesh Balkishan Das and Ors. vs. I.D.Manchanda, (2015) 5 Supreme Court Cases 139 Sasi Enterprises v. Assitant Commissioner of Income Tax, (2014) 5 Supreme Court Cases 154 Basappa vs. State of Karnataka, (2007) 11 Supreme Court Cases 297, Madhumilan Syntex Ltd. And Ors. vs. Union of India and Anr., 1979 SCC OnLine Mad 333 : (1981) 129 ITR 675 : 1979 LW (Crl.) 215 Rayala Corporation P. Ltd. And Anr. v. V.M.Muthuramalingam, Income Tax Officer, Central CircleIII, Madras, S.B.Criminal Misc. Petition Nos. 194, 268, 270, 272, 274, 276, 278 and 280 of 1990 Universal Supply Corporation and Ors. v. State of Rajasthan & Ors., Crl. Rev. Application no.62 of 1999 Income Tax Officer, Nagpur vs. Sultan Enterprises, Chandrapur and Ors. These judgments may act as precedents, but ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 9 of 24 every case has it's own peculiar facts and circumstances and therefore, all these judgments are perused keeping in light of present complaint.
16. Further, on the other hand, the detailed written submissions filed on behalf of accused has specific mention with respect to the fact, that accused has never any intention, not to deposit TDS in government treasury, and, it can be easily inferred from his conduct as he has never shied away from his duty to reply all the notices issued on behalf of complainant department including notice under Section 2(35) of Income Tax Act, 1961. It is also argued that prosecution has miserably failed to initiate the prosecution against accused in fair and reasonable manner as it does not mention the prosecution witness at serial no. 14 in Form T, which is a mandatory requirement. It is also mentioned that at serial no. 15 of FormT, Assessing Officer has not disclosed whether any order under Section 201(1) and 201(1A) of the Income Tax Act, 1961 has been passed. It is submitted that these orders are necessarily required to be made for launching prosecution.
17. It is further stated that despite the reply of the accused, the Commissioner of Income Tax has passed an unfair order u/s 279 of the Act sanctioning the filing of the criminal complaint for the offence punishable u/s 276 B read with Section 278 B of the Act. It is also pointed out by the accused persons in their written submissions that Tax Deducted at Source by the accused was deposited with interest with the Department within three months from the respective dates of the deductions. The said deposit was made in accordance with the circular / instruction issued by the Central Board of Direct Taxes (CBDT) dated 24.04.2008 in F.No. 285/90/2008IT (Inv.) / 05. It is specifically pointed out that as per Section 278 AA of the Act no person shall be punishable of any failure referred in any of the provision under this chapter which shows that ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 10 of 24 there is reasonable cause for such failure. It is also stated that the accused company has remitted the money with interest before detection of the defaulter, and much before the complainant has decided to launch prosecution. Further, it has been specifically pointed out that the prosecution is miserably failed to prove the factum of recommendation of proposal by Additional CIT, New Delhi for launching prosecution of the accused. It has been mentioned that the validity of the sanction is very important. It is also submitted that before launching any prosecution application of the mind must be made which has not been applied in the present case.
18. Thereafter, accused has discussed various provisions of Chapter XVII titled as "Collection and Recovery of Tax" and that accused has not committed breach of any of the Section and therefore not liable to be prosecuted by the complainant department. It has been specifically submitted that as discussed already in the evidence accused company was facing sever financial hardship being sub sub / sub contractor of various companies which were working for various Indian government projects. It is once again stated that accused had already filed evidence in that regard while being examined as one of the defence witnesses. It is therefore requested by the accused persons, that firstly they have deposited the tax even before detection and that late deposition was because of severe financial hardship, therefore, their case is duly covered under Section 278 AA Income Tax Act, 1961.
19. Thus, it is clear that accused has basically relied upon Section 278 AA of the Income Tax Act, and explain the admitted default committed on behalf of the accused company during the relevant financial years as it was facing severe cash crunch due to non receiving of payments from the main/parent companies by the Central/respective State Governments. It is specifically argued that ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 11 of 24 accused company in it's replies submitted to the Income Tax Department had highlighted the fact of acute financial crisis faced by them.
20. To appreciate these contentions, it will be appropriate the reproduce the provisions of Section 276 B and 278 AA of the Income Tax Act, 1961.
Section 276 B : If a person fails to pay to the credit of the Central Government within the prescribed time, as above, the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years alongwith fine.
Section 278 AA: Notwithstanding anything contained in the provisions of Section 276 A, Section 276 AB, or Section 276 B, 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.
21. A bare reading of section 278 AA of the Income Tax Act shows that no person shall be punishable for any failure refer to in Section 276 B of the Income Tax Act, if the person proves that there was reasonable cause for such failure. The concept of "reasonable cause" was well defined by Hon[ble Superior Courts in their various judgments.
Likewise, it is observed in Shaw Wallace and Company Limited v. Commissioner of Income Tax (TDS), 2003 SCC OnLine Cal 345 Hon'ble High Court of Calcutta held that:
"23. The provisions of section 278AA of the Income Tax Act, 1961, will no doubt be available to the appellant to its benefit if it is able to prove that it had sufficient and good reasons for committing the default contemplated in section 200 of the said Act."
In K.R.M.V. Ponnuswamy Nadar Sons (Firm) v. Union of India, 1989 SCC On Line Mad 394 Hon'ble High Court of Madras held that:
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 12 of 24 "7. ..........In other words, the assessee will have to show that there was a reasonable cause for such failure. Only then the question of prosecution will arise. This is undoubtedly a sufficient safeguard. Yet another safeguard, as we are able to see from section 279, which we have already extracted, is that the prosecution is to be at the instance of the Chief Commissioner or the Commissioner. Where, therefore, the highest functionary in the Incometax Department is entrusted with the power, that itself takes away the sting of arbitrariness."
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 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 1961volume VIII), the expression "reasonable"
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 13 of 24 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 IncomeTax, 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 nondeduction or nonpayment 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 accusedpersons to show that he/they had a reasonable cause for failure to deduct or to ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 14 of 24 deposit the tax. It is 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 petitionercompany 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 ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 15 of 24 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 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 ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 16 of 24 said that this is arbitrary or unreasonable? I think not.
22. From the aforesaid discussed judgments, it can be said that the case of accused may be covered u/s 278 AA of the Income Tax Act, if he is able to prove the existence of reasonable cause, at the time of default. Only upon the satisfaction that there is no reasonable cause in respect of failure to deposit the TDS amount within stipulated period, the question of prosecution will arise. There is initial onus on prosecution to establish the ingredients of offence alleged and prove absence of the reasonable cause on the part of the accused / assessee. The reasonable cause may not be sufficient and good as may be required u/s 201 or 221 of the Income Tax Act. The reasonable cause shall be fair and can be one which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence.
23. Coming back to the facts of the case, accused persons in their detailed reply dated 19.12.2017 which is Ex.CW1/11 to the showcause notice dated 07.12.2017, Ex.CW1/10 issued to them for nondepositing of TDS at an appropriate time had specified the financial crunches faced by them because of nonreceiving of payments from their parent companies. The reply has been reproduced for the ready reference.
"1. M/s Action Bridgegap 'construction Private Ltd. (Hereinafter referred to as the Company)) is in the business of Construction of Roads Projects. The Company works as a subcontractor for various clients, who are main contractors who get the contracts from Government. This sector of infrastructure has been undergoing serious financial problems, which are well known.
(2) The company had also been facing severe financial ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 17 of 24 crunch during captioned years due to the heavy recession in the market. The payments due to the Company against the works executed by its clients to the company. Therefore, the entire case flow had been disturbed which had led to delays in making payments even to suppliers and labout contractors. The financial crunch had also led to delays in deposit of TDS.
(3) The details of Sundry Debtors from whom payment
are due are as under (Ledger copies enclosed.)
S.No Party Name Amount O/s as on Amount O/s as on Amount O/s as on
31.03.2014 (in Rs.) 31.03.2015 (in 31.03.2016 (in
Rs.) Rs.)
1. Niraj Cement 10,42,11,490/- 9,87,11,490/- 9,87,11,490/-
Structures Limited
2. Dinesh Chandra 17,96,51,573/- 32,91,40,944/- 19,81,52,727/-
R.Aggrawal Infracon
Pvt. Ltd.
3. ARSS Infrastructure 5,00,00,000/- 5,00,00,000/- 5,00,00,000/-
Pvt. Ltd.
4. Bhopal Sanchi 1,76,55,201/-
Highways Pvt. Ltd.
Total 33,38,63,063 40,55,07,635/- 34,68,64,217/-
(4) As mentioned above, the amount of Rs.9,87,11,489/
was receivable from M/s Niraj Cement Structurals Limited (The Main Contractor) Niraj House, Sunder Baug, Near Deona Bus Depot. Chembur Mumbai - 400088 as on 31.03.2016 on account of some legitimate payments withheld/delayed by HSRDC, Haryana State Organization.
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 18 of 24 The main contractor has preferred arbitration and the matter is still subjudice. In addition to the above some other Sundry Debtors have not paid the long outstanding dues.
5. Further, a huge amount of working capital was stuck up with the Income Tax Department. The Income Tax refunds due to the Company as per the Income Tax returns filed by the Company have not been received from the Assessing Officer during the period 2013 to 2016 and received thereafter as per the details given as under :
Financial TDS Refund Received on Amount of TDS
Year Deducted and Date
of payment
2013-14 Rs.2,12,12,940/- 11.01.2017 Detail as per
(annexure A)
2014-15 Rs.1,19,65,573/- 09.08.2016 Detail as per
(annexure B)
2015-16 Rs.37,45,527 Rs.446209/- dt.15.02.2017 Detail as per
Rs.300637/- Dt.19.04.2017 (annexure C)
and
Rs.420000/- dt.03.06.2017
Total
6. A sum total of Rs.35,50,77,003/, Rs.41,74,71,208/,
Rs.35,06,09,744/ (Income Tax refunds alongwith
outstanding sundry debtors) for F.Y. 201314, 201415, 20152016 respectively are out of circulation from the business and the refund which the company received is on later date mentioned above. In spite of the above adverse financial situation, the Company has managed to deposit the ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 19 of 24 TDS alongwith due interest bonafidely although belated, by approaching the Private Financiers to arrange temporary funds to run the business and pay the TDS etc.
7. It has been really very difficult to run the business in such a situation where the legitimate funds of the company are stuck up with the Income Tax Department. Further, the Banks & Financial Institutions have also been supporting the Company.
8. It is evidence from the facts and figures mentioned above that the Company had a Reasonable Cause for depositing the TDS belately. Had the circulation of funds been regular, TDS would have been deposited at due dates and the Company would have saved the huge cot of interest on the same. The Act of Suo Motto deposit of TDS and interest thereon proves bonafide intention of the Company.
9. It is clear that the Company had the Reasonable Cause for delay in depositing the TDS to the credit of Central Government. Considering the facts and circumstances and the provisions of Section 278AA of Income Tax Act, 1961, it is submitted that the Company and its principal officer should not be prosecuted under the provisions of Section 278B of the Income Tax Act, 1961.
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24. After submission of this reply dated 19.12.2017 Ex. CW1/11, the sanctioning order dated 27.12.2017 Ex. CW1/2 was passed. Para 3 of the ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 20 of 24 sanctioning order also record the submissions of the accused company that it was facing the financial crisis and delay in deposit of TDS is unintentional. But, despite that the sanction to prosecute the company and its Director was granted u/s 279 (1) of the Income Tax Act and thereafter, the present prosecution was launched. CW1 Mr. Avinash Kumar Verma, Income Tax Officer in his cross examination at post charge stage admitted that the amount due towards the TDS default was paid by the assessee prior to issuance of showcause notice u/s 279 of the Income Tax Act. Neither in the sanctioning order nor in the complaint, there were avernments in respect of the reasonable cause, if any, shown by the assessee / accused company. The complainant department nowhere alleged that the assessee failed to show any reasonable cause.
25. At this juncture it will also be relevant to refer to circular dated 27.12.2014 issued by CBDT the relevant paragraphs are reproduced below: "Considering the representations and with a view to address genuine concerns of the assesses in such matters, the following clarifications visavis the guidelines dated 07.02.2013 are issued.
i) Section 278 AA of the Act provides that for the purposes of Section 276 B, no person shall be punishable for any failure referred to in the said provision if he proves that there was a reasonable cause for such failure. The fact that the deductor has remitted the money with interest before detection may be taken note of amongst other submission of the defaulter while deciding to launch prosecution .While processing the cases for prosecution u/s 276 B/ 276 BB, a fair and judicious view should be taken in view of the provisions of section 278 AA before filing of complaints".
The said guidelines were again reiterated in circular dated 18.10.2016 issued by CBDT, where, it was directed that the CIT concerned shall arrive at a judicious ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 21 of 24 decision in respect of action u/s 276 B of the Income Tax Act and mandatory processing does not mean mandatory filing of prosecution. Despite this, said factors were not considered in the sanction order by the complainant department.
26. Further, again Section 278 AA of the Income Tax Act casts the burden on the accused to prove that there exists a reasonable cause for delayed payment. In statement u/s 313 Cr.P.C, it has been specifically pointed out by the accused who is representing the company also that there was financial crisis due to non payment of money by the principal contractors and refund from income tax department. The same is also clarified by the accused in his defence evidence lead by him as DW2. DW2 Tarun Aggrawal in his defence evidence has specifically deposed that assessee i.e. accused is sub sub contractor of public sector contractors such as Niraj Cement Structurals Limited, Dinesh Chandra R. Agrawal Infracon Pvt. Ltd., ARSS Infrastructure Projects Ltd. And Bhopal Sanchi Highways Pvt. Ltd. and on the account of dues from the sundry debtors as on 31.03.2014, 31.03.2015 and 31.03.2016, accused company had suffered financial hardships. DW2 has also relied upon the ledger copies of the various payments which was due towards accused company from the parent companies. It has been specifically pointed out by the accused while, deposing before the Court that M/s Niraj Cement Structurals Limited entered into an agreement with Government of Haryana and the accused no.1 is a sub sub contractor of Niraj Cement Structurals Limited. It is deposed that the money was not paid by the M/s Niraj Cement Structurals Limited to the accused no.1 company to complete the contract in time, though, accused had to purchase the raw material and made payment to various contractors. The copy of agreement dt.15.04.2009 between the Haryana State Roads and Bridges Development Corporation Ltd. And Niraj J.M. Mhatre and the subcontract was entered into between Niraj Cement ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 22 of 24 Structurals Limited with the Accused no.1 Company and the Addendum of SubContract dt.21.08.2009 between the Niraj Cement Structurals Limited and the Accused no.1 Company was also relied upon.
27. It is also pointed out that accused company had to receive a sum of Rs.13,14,57,120/ from Neeraj Cement Structurals Ltd., being the ultimate client/debtor for the road construction work executed by the accused company for the project of Haryana State Roads & Bridges Development Corporation Ltd. But the said payment has not been released to the accused company by Neeraj Cement Structurals Ltd. It is also pointed out that main contractor has initiated an Arbitration Proceedings before the Ld.Arbitrator at Haryana and the Arbitator has passed an Award dated 16.10.2017 in favour of the main contracting Company and against the Haryana State Roads & Bridges Development Corporation Ltd. For a sum of Rs.14,79,36,410/ despite that the said amount was also not released. It is therefore point out that legally recoverable payments had not been released to the accused company which is the root cause for making the delayed payment of TDS by the accused company. It has also been pointed out that the income tax department itself has failed to refund for the financial year 201415 to the accused company on time, further in the year 201516 payment was received very late and for the year 201617, again it was received only in part. Accused no.1 & 2 deposited the TDS alongwith interest thereon, from time to time by borrowing funds from its personal resources. By going through all the facts it is clear that due to non payment of the funds by those companies there was financial hardships faced by the company.
28. It needs to be mentioned that these reasons, may be considered as reasonable cause as found stated in Section 278AA of Income Tax Act.
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 23 of 24 Therefore, keeping in view the abovementioned discussions and from the evidence on record, it is clear that the assessee / accused has been able to show reasonable and sufficient cause that there were financial exigencies beyond its control which further got aggravated due to nonrefund of the TDS amount leads to an unavoidable delay in payment of TDS. The facts shows that the aforesaid financial constraints could have prevented any other company to fulfill financial obligations in normal circumstances without negligence or inaction or for want of bonafides. Accordingly, the ingredients of Section 278 AA of the Income Tax Act stands satisfied and the accused no. 1 company M/s Action Bridge Gap Construction Ltd. as well as accused no. 2 Mr.Tarun Aggrawal are able to prove the existence of reasonable cause for nonpayment of tax within the stipulated statutory period and are acquitted for the offences punishable u/s 276 B read with Section 278 B of the Income Tax Act.
29. Compliance of Section 437A Cr.P.C. is made in the ordersheet.
Announced in open Court (MANU VEDWAN )
on 28th of October, 2021 ACMM(Special Acts) CENTRAL
TIS HAZARI COURTS DELHI
ITO Vs. Action Bridge Gap Construction Pvt. Ltd. Ct.Case No.6214/2018 24 of 24