Bangalore District Court
It vs M/S Manyata Developers Pvt. Ltd on 17 February, 2024
KABC090002662019
Presented on : 03-08-2019
Registered on : 03-08-2019
Decided on : 17-02-2024
Duration : 4 years, 6 months, 14 days
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BENGALURU
Dated this the 17th day of February 2024
:Present:
Sri. VISHWANATH C GOWDAR., B.A.L., LL.M .,
Presiding Officer,
Special Court for Economic Offences,
Bengaluru
C.C.No.183/2019
Complainant: The Assistant Commissioner of Income Tax (TDS),
Circle-2(1)
Bengaluru.
(Reptd. By Sri. CB., Advocate (Spl. P.P)
Vs.
Accused : 1. M/s. Manyata Developers Private Limited,
No.9/1, 2nd Floor, Classic Court,
Richmond Road,
Bengaluru - 560 025.
Reptd. by its Managing Director
2. Sri. Reddy Veeranna,
Managing Director,
M/s. Manyata Developers Private Limited,
No.9/1, 2nd Floor, Classic Court,
Richmond Road,
Bengaluru - 560 025.
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3. Smt. Sangeetha Reddy,
Director,
No.9/1, 2nd Floor, Classic Court,
Richmond Road,
Bengaluru - 560 025.
(Reptd. By Sri. KRK., Advocate)
: JU DG M E NT :
The instant case emanates from the complaint filed by
the complainant alleging that, the accused Nos.1 to 3 have
committed offences punishable U/s.276B r/w Section 278B
of Income Tax Act, 1961 (hereinafter referred to as "IT Act").
2. The complainant's case in nutshell is as under:
The accused No.1 is the company registered under the
Companies Act, engaged in the business of real estate. The
accused Nos.2 & 3 are claimed to be the Managing Director
and Director of the accused No.1 company, responsible for
day to day conduct and business of accused No.1/company.
The Assessing Officer of the complainant Department issued
the notice U/s.2(35) of the IT Act treating the accused Nos.2
& 3 as the Principal Officers of the accused No.1/company for
the financial year 2016-17. It is further complainant's case
that, the accused No.1 company deducted the TDS in the
financial year 2016-17 on various heads under Sections 192,
194A, 194C, 194I and 194J of the Act and defaulted in
remitting the said TDS to the Central Government account
within stipulated period of time as contemplated under Rule
30 of the IT Rules for the tune of Rs.9,66,94,666/-. The
3 C.C.183/2019
Commissioner of Income Tax issued show cause notice dated
24.10.2018 to accused Nos.1 to 3. The accused No.1
company admitted its default in non-remittance of TDS by
virtue of reply dated 13.11.2018. The accused No.1 company
being statutorily bound to remit the amount deducted as
TDS, the accused Nos.2 & 3 being responsible for the every
act of the accused No.1 company, have contravened Section
278B and 276B of the IT Act respectively. The complainant
has further alleged that, the accused No.1 company being
represented by its Principal Officers i.e., accused Nos.2 & 3
having failed to comply with the statutory provisions as
mentioned supra without any justifiable cause have
committed the offences punishable U/s.276B r/w 278B of the
IT Act. Hence, this complaint.
3. Upon receiving the complaint, the sworn statement of
the complainant was dispensed pursuant to the complainant
being public servant as contemplated U/s.200(a) of Cr.P.C.
Thereafter, the cognizance of the offences punishable
U/s.276B r/w 278B of the IT Act has been taken and process
has been issued to the accused Nos.1 to 3.
4. The accused Nos.1 to 3 being served with the
summons, accused Nos.2 & 3 appeared through their counsel
and have been enlarged on bail, pursuant to the bail
application being made by the accused Nos.2 & 3. After
having recorded Evidence before Charge as contemplated
U/s.244 of Cr.P.C., in so far as the complainant witnesses on
having heard before the charge, the charge has been framed
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and read over and explained to the accused Nos.2 & 3, they
pleaded not guilty and claimed to be tried.
5. The complainant has examined two witnesses on its
behalf as PW's-1 & 2 and got marked in all ten documents as
Ex.P-1 to Ex.P-10 and got closed its side of evidence. The
statement of the accused Nos.2 & 3 was recored U/s.313 of
Cr.P.C., they denied the incriminating materials in the
testimonies of the complainant witnesses and got examined
their Senior Accountant of accused No.1 company as DW-1
and got marked two documents as Ex.D-1 & Ex.D-2 and got
closed their side of evidence.
6. Heard the arguments canvassed by the learned Spl.
PP for the complainant and learned counsel for accused
persons.
7. On considering the complaint, evidence on record
and arguments addressed by the either parties, the following
points would arise for the determination of this court namely:
1) Whether the complainant proves beyond all
reasonable doubts as to the accused Nos.2 & 3
being the Managing Director and Director of the
accused No.1 company, being in-charge of day
to day conduct of the accused No.1 company,
being Principal Officers U/s.2(35) of the IT Act
have contravened the provisions of IT Act and
defaulted in remittance of TDS being deducted
in the financial year 2016-17 to the tune of
Rs.9,66,94,666/- to the credit of Central
Government within stipulated period and
thereby accused Nos.2 & 3 have committed an
offences punishable U/s.276B r/w Section
278B of the IT Act, 1961?
5 C.C.183/2019
2) What order?
8. The findings of this court on the above said point is
as under:
Point No.1: In the Negative
Point No.2: As per final order
for the following:
REASONS
9. Point No.1 : It is the case of the complainant that, the
accused Nos.2 & 3 being the Managing Director and Director
of accused No.1 company are responsible for day to day
affairs and business of accused No.1 company being
statutorily bound to remit the TDS deducted under the
various heads, though deducted the TDS, failed to remit the
the same within the stipulated period of time as contemplated
under rule 30 of the IT Rules to the credit of Central
Government and thereby committed default as contemplated
U/s.201(1) and 201(1A) of the Act for the tune of
Rs.9,66,94,666/-.
10. The complainant in order to establish the guilt of
the accused Nos.1 to 3 beyond reasonable doubts, got
examined himself arrayed as CW-1 as PW-1. The said PW-1
has reiterated the complaint averments as to default by the
accused No.1 company, so also, the default by the accused
Nos.2 & 3 by virtue of being the Managing Director and
Director, who were responsible for the day to day affairs of
accused No.1 company and thereby the accused Nos.2 & 3
being guilty of having committed the offences punishable
U/s.276B r/w Section 278B of the IT Act, for non-remittance
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of the TDS pertaining to the financial year 2016-17 to the
tune of Rs.9,66,94,666/-. The said PW-1 also accounted as
to the accused Nos.2 & 3 being the Principal Officers are very
much liable to be prosecuted for the offence set out in the
complaint.
11. In support of his oral testimony, the PW-1 has
produced and got marked in all nine documents as Ex.P-1 to
Ex.P-9. Ex.P-1 is the original sanction order dated
29.03.2019 passed by the Commissioner of Income Tax, TDS,
permitting the prosecution of the accused Nos.1 to 3 for the
offences alleged in the complaint for default pertaining to the
financial year 2016-17. Ex.P-2 & Ex.P-3 are the attested
copies of show cause notices dated 20.03.2018 issued to the
accused Nos.2 & 3 U/s.2(35) r/w Section 204 & 276B of the
IT Act. Ex.P-4 to Ex.P-6 are the attested copies of the notices
dated 24.10.2018 issued to accused Nos.1 to 3 before
proceeding to pass the order of sanction to prosecute the
accused persons. Ex.P-7 to Ex.P-9 are the reply dated
13.11.2018 given by accused Nos.1 to 3 in response to
notices issued by the Commissioner of Income Tax as per
Ex.P-4 to Ex.P-6, wherein the accused Nos.1 to 3 have
expressed as to the accused No.1 company is facing financial
crisis and it is unable to liquidate its stock due to weak
market conditions.
12. PW-1 has been subjected to cross-examination by
the counsel for the accused persons, wherein the witness has
categorically deposed as to there is no separate intimation to
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accused Nos.2 & 3 as to treating them as Principal Officers
other than Ex.P-2 & Ex.P-3. The witness has also pleaded
ignorance as to who was in-charge of the finance in accused
No.1 company. PW-1 has categorically admitted as to the
accused have deposited the TDS along with interest and
penalty before the order of sanction as per Ex.P-1 being
passed by Commissioner of Income Tax.
13. CW-3 i.e., the Assistant Commissioner of Income
Tax, the then Income Tax Officer, TDS is examined as PW-2.
This witness has accounted as to having issued the notice
dated 10.10.2017 to accused No.1 company for having
defaulted in remittance of TDS within statutory period with
respect to the financial year 2016-17. It is also deposed
regarding the accused No.1 company having not responded to
the said notice and thereafter having issued show cause
notices to the accused Nos.2 & 3. The witness has identified
the notice dated 10.10.2017, the same is marked as Ex.P-10
and his signature is marked as Ex.P-10(a). The witness has
also identified his signatures in show cause notices addressed
to accused Nos.2 & 3 as per Ex.P-2 and Ex.P-3, the
signatures are marked as Ex.P-2(a) and Ex.P-3(a) respectively.
14. PW-2 has been subjected to cross-examination by
the counsel for the accused persons, wherein the suggestion
as to he had not designated any persons as Principal Officers
has been categorically denied by the witness.
15. The Senior Accountant of the accused No.1
company got examined himself as DW-1 and deposed as to
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the accused No.1 company was undergoing financial crisis in
the financial year 2016-17 and the company has paid interest
to the tune of Rs.130 crores in the said financial year and all
the efforts were made in the said financial year to save the
company from being categorized as NPA. It is also deposed as
to there was no any holding over of TDS amount, only on
account of financial difficulties faced by accused No.1
company there was a delay in remittance of TDS. He has also
accounted as to the TDS having been remitted subsequently
along with interest and penalty. The authorization letter
dated 05.06.2023 as to authorizing DW-1 to depose on behalf
of accused No.1 company is marked as Ex.D-1. Ex.D-2 is the
independent auditor's report dated 02.09.2017 pertaining to
accused No.1 company.
16. DW-1 has been subjected to cross-examination by
the Spl. PP for the complainant, wherein, it is deposed as to
the Directors of accused No.1 company will be taking
decisions with respect to payment of quarterly TDS. He has
specifically denied suggestion as to accused No.1 company
was financially well in the financial year 2016-17.
17. The learned Spl. PP relying upon the oral and
documentary evidence emphatically argued that, the delay in
remittance of TDS for the financial year 2016-17, being
subsequently remitted by accused No.1 company will not
absolve the accused Nos.2 & 3 from their responsibility by
virtue of being the Principal Officers of the accused No.1
company U/s.2(35) of the IT Act. It has been also highlighted
9 C.C.183/2019
that, the defence urged by the accused persons as to the
accused No.1 company being under financial crisis in itself
will not be the justifiable ground in order to hold the accused
Nos.1 to 3 as not guilty under the provisions of IT Act. The
Spl. PP has vehemently argued that, the default in complying
the terms of the show-cause notices and notice as per Ex.P-2,
Ex.P-3 and Ex.P-10 respectively, the same not being replied
by the accused precludes from denying themselves being not
the Principal Officers U/s.2(35) of the IT Act and amongst
these arguments, it has been sought to convict the accused
Nos.1 to 3.
18. The counsel for the accused Nos.1 to 3 profusely
argued that, the accused Nos.2 & 3 have not willfully
disobeyed the provisions of IT Act in remittance of TDS and as
such it has been argued as to the accused Nos.1 to 3 are
entitled to be acquitted of the offences punishable U/s.276B
r/w Section 278B of the IT Act. The learned counsel for the
accused persons has also emphasized that the accused No.1
company was undergoing financial crisis, the accused No.1
company was not in a position to comply the provisions of IT
Act. The counsel for the accused persons has also argued
that, no any iota of documents have been submitted to
establish the accused Nos.2 & 3 being responsible for the day
to day conduct and business of accused No.1 company, as
such, it is emphasized the accused Nos.2 & 3 cannot be made
liable for the act of the accused No.1 company so also cannot
be made liable for prosecution for having committed the
offences punishable U/s.276B r/w Section 278B of the IT Act.
10 C.C.183/2019
Amongst these arguments, sought to acquit the accused
Nos.1 to 3.
19. On over all examination of the complaint, evidence
on record and arguments, this court certainly as to consider
the involvement of accused Nos.2 & 3 in the day to day affairs
of accused No.1 company and the accused No.1 company
having defaulted in remittance of TDS amount though it was
deducted under the various heads as stated in the complaint.
Thereby accused Nos.2 & 3 being vicariously liable for the act
of the accused No.1 company on account of being the
Managing Director and Director of the said accused No.1
company.
20. An anxious examination of the complainant, the
evidence on record so also the documents relied upon by the
complainant, except the complaint allegations, there is no any
iota of evidence or documents to establish the accused Nos.2
& 3 being the Principal Officers U/s.2(35) of the IT Act.
Pursuant to the accused Nos.2 & 3 having denied their role in
the day to day affairs of the accused No.1 company, in
absence of cogent evidence to demonstrate as to accused
Nos.2 & 3 being the Managing Director and Director being
responsible for day to day affairs, the court cannot solely rely
upon Ex.P-2 & Ex.P-3 i.e., show cause notices addressed to
accused Nos.2 & 3 and also cannot consider the arguments of
Spl. PP as to the accused Nos.2 & 3 having not responded by
way of reply to the Ex.P-2 & Ex.P-3. This view of the court is
supported by the decision of Hon'ble Apex Court reported in
(2010)3 SCC 330 in National Small Industries Corporation
11 C.C.183/2019
Ltd., V/s. Harmeet Singh Paintal and others . So also, as per
the decision of the Hon'ble High Court of Madras reported in
(2018)92 Taxmann.com 308 (Madras) in Kalanithi Maran V/s.
Union of India, New Delhi .
21. The testimony of the PW-1, who is the complainant
having accounted regarding his predecessor in office having
issued the show notice U/s.2(35) of the Act to the accused
Nos.2 & 3 has not withstood the test of cross-examination.
The testimony of the PW-1 does not inspires the confidence of
the court in order to gather the accused Nos.2 & 3 being the
Principal Officers as contemplated U/s.2(35) of the IT Act.
The relevant portion of the testimony of the PW-1 is extracted
below:
"It is true that from my office, there is no any
separate intimation forwarded to accused Nos.2 &
3 intimating them as Principal Officers of accused
No.1/company"
22. It is also justifiable to consider the specific defence
of the accused as to the accused No.1 company being under
financial crisis, the same is corroborated by the testimony of
DW-1 i.e., the Senior Accountant of accused No.1 company.
The examination of Ex.D-2 very much strengthens the
contention of the accused as to accused No.1 company being
under financial loss in the relevant year i.e., during the
financial year 2016-17. Thereby, this court is inclined to hold
there was a reasonable cause to accused No.1 company as
12 C.C.183/2019
contemplated U/s.278AA of the IT Act. The said provision is
extracted below:
"278AA. Notwithstanding anything contained in
the provisions of Section 276A, Section 276AB, no
person shall be punishable for any failure referred
to in the said provision if he proves that there was
reasonable cause for such failure"
23. It is settled position of law that, the complainant is
bound to demonstrate the guilt of the accused beyond all
reasonable doubts without giving a scope or room for doubts
in so far as the complainant's case. The complainant has
very much failed to establish the crucial aspect of the accused
Nos.2 & 3 being the Principal Officers of accused No.1
company as contemplated U/s.2(35) of the IT act. The
testimony of the complainant/PW-1 has also not withstood
the test of cross-examination in so far as the accused Nos.2 &
3 being solely responsible for the day to day affairs of accused
No.1 company. That being the case, this court is justified to
hold that, the complainant has miserably failed to bring home
the guilt of the accused Nos.2 & 3 beyond all reasonable
doubts. It is needless to point out that, the complainant's
case is tainted with substantial improvements, omissions and
contradictions.
24. In light of the discussion made supra, pursuant to
the complainant having miserably failed to bring home the
guilt of the accused Nos.2 & 3, by virtue of being Managing
Director and Director of accused No.1 company, the accused
13 C.C.183/2019
No.1 company being juristic person, in absence of convincing
and positive evidence incriminating accused No.1 company
having defaulted in compliance of Rule 30 of the IT Rules by
remitting the deducted TDS amount under the various heads
within statutory period cannot be made liable to having
committed the offence U/s.278B of the IT Act. Moreover, the
accused No.1 company having demonstrated the reasonable
cause as contemplated U/s.278AA of the IT Act, by virtue of
Independent Auditor's Report as per Ex.D-2, the accused
No.1 company is very much entitled to be given benefit
U/s.278AA of the Act. This view of the court is very much
supported by the decision of Hon'ble High Court of Rajasthan
in S.G. Kale V/s. Union of India reported in (2001)118
Taxman 349 (Raj) , so also the decision of the Hon'ble High
Court of Delhi in the case of Sequoia Constructions Co. V/s.
P.P. Suri ITO (1985) 21 Taxman 13 (Delhi).
25. In light of the reasons assigned supra, this court
without any hesitation proceeds to answer Point No.1 in the
Negative .
26. Point No.2: In view of the above findings of this
court on Point No.1, this court proceeds to pass the following:
ORDER
By exercising the power conferred under section 248(1) of Cr.P.C., the accused Nos.1 to 3 are acquitted of the offences punishable under section 276B r/w Section 278B of the Income Tax Act, 1961.
14 C.C.183/2019Consequently, accused Nos.1 to 3 are set at liberty.
The corresponding bail bonds of accused Nos.2 & 3 stands cancelled.
(Dictated to the Stenographer, transcribed, corrected and then pronounced by me, in open court on this the 17 th day of February 2024) (VISHWANATH C GOWDAR) Presiding Officer, Spl. Court for Economic Offences, Bengaluru.
15 C.C.183/2019ANNEXURE:
List of the witnesses examined on behalf of the Complainant:
PW-1 : Gunnu Sudhir
PW-2 : Lokesha
List of the Documents exhibited on behalf of the Complainant:
Ex.P-1 : Original Sanction Order Ex.P-2 & 3 : Attested copies of Show Cause Notices Ex.P-4 to 6: Attested copies of Notices Ex.P-7 to 9 : Replies Ex.P-10 : Attested copy of Notice List of witnesses examined on behalf of the Accused:
DW-1 : P. Abhilash List of Documents examined on behalf of the Accused:
Ex.D-1 : Authorizing Letter Ex.D-2 : Independent Auditors Report Presiding Officer, Spl. Court for Economic Offences, Bengaluru.16 C.C.183/2019
17.02.2024 Complt: Sri. CB A: 1 to 3: KRK For Judgment Accused Nos.2 & 3 present.
Judgment pronounced in the open court (vide separate order) ORDER By exercising the power conferred under section 248(1) of Cr.P.C., the accused Nos.1 to 3 are acquitted of the offences punishable under section 276B r/w Section 278B of the Income Tax Act, 1961.
Consequently, accused Nos.1 to 3 are set at liberty.
The corresponding bail bonds of accused Nos.2 & 3 stands cancelled.
PRESIDING OFFICER.
17 C.C.183/2019