Delhi District Court
Ito vs M/S. Great India Notanki on 10 December, 2018
IN THE COURT OF SH. PAWAN SINGH RAJAWAT
ADDL CHIEF METROPOLITAN MAGISTRATE (Spl. Acts):CENTRAL
TIS HAZARI COURTS, DELHI
CC No.538258/2016
ITO vs M/s. Great India Notanki
JUDGMENT
(a) Name of complainant : Income Tax Office through Ms. Pushpa Rawat, ITO, Ward-74 (3), ITO, Laxmi Nagar, District Centre, Delhi-110092.
(b) Name, parentage, residence : 1) M/s Great India Notanki Co.
Pvt. Ltd., Auditorium Complex, Sector-29, Gurgaon-122001 (Haryana).
2) Sh. Sumit Arora, Director, (Already stood discharged vide order dated 02.06.2018 of Ld. Sessions Court).
(c) Offence complained of/ proved : U/s 276B r/w Sec. 278-B of Income Tax Act,1961.
(d) Plea of accused : Pleaded not guilty (e) Final order : Convicted. (f) Date of such order : 10.12.2018 Date of Institution of complaint : 27.07.2016 Arguments heard/order reserved : 10.12.2018 Date of Judgment : 10.12.2018 ITO vs M/s Great India Notanki CC No. 538258/16 1 of 13
Brief statement of the reasons for the decision:-
1. The complainant through Ms. Pushpa Rawat, Income Tax Officer, filed the present complaint in discharge of official duties against accused no. 1 company and accused No. 2 being its Director for the offence punishable u/s 276-B r/w 278B of the Income Tax Act (for short the 'Act'), 1961 pertaining to Financial Year (for short FY) 2012-13.
2. Succinctly, the facts of the case are that accused no.1, a private limited company, had deducted certain TDS amounts for the relevant Assessment Year in accordance with the provisions of the Act but not deposited the same with the Government account within prescribed time. Hence, present complaint.
3. The pre summoning evidence was dispensed with as complainant was a government servant and filed complaint in discharge of official duties in terms of section 200 Cr.P.C.
4. The accused were summoned, Ld. Counsel for both accused appeared before the Court and thereafter copy of complaint and of documents were supplied to the accused and the matter was fixed for pre-charge evidence.
5. Ms. Pushpa Rawat, ITO examined as CW1 in pre-charge evidence and deposed on the lines of facts as alleged in the complaint. She has proved her complaint as Ex.CW1/1, sanction order as Ex.CW1/2, List of witnesses as Ex.CW 1/3, details of the tax deducted during the FY is Ex.CW 1/4, show cause notices with proof of services Ex CW 1/5, colly. Reply to show cause notices Ex CW 1/6 ITO vs M/s Great India Notanki CC No. 538258/16 2 of 13 & 1/7. Copy of order dt. 19.05.2016 with proof of service is Ex CW 1/8, colly. Copy of proposal Ex CW 1/9, colly. Copy of show cause notices dt. 17.06.2016 is Ex CW 1/10, colly. Reply dated 23.06.2016 and 29.06.2016 respectively, Ex CW 1/11 and Ex CW 1/12, collectively. During cross examination in pre-charge evidence, she has stated it to be correct that accused No. 2 never represented/ admitted himself as Principal Officer/ Director of accused and stated that she is not aware whether department has ever tried to ascertain as to who is Director or Principal Officer of accused No. 1 during FY 2012-13 form the Ministry of Corporate Affairs or MCA portal and volunteered that a per record, the name of accused No. 2 was shown as responsible person for accused No. 1 on the website of Income Tax Department known as 'TRACES'. CW-1 further stated it to be correct that Mr. Kanuj Sehra accused No. 2 as Principal Officer of accused No. 1 and he forwarded the proposal for sanction to CIT.
CW-1 further stated it correct that Ex CW 1/2 Sh. Sumit Arora has been referred as Director of accused No. 1 company. CW-1 further cannot comment upon the contents of Ex CW 1/D2-D4 as she has no concern with this.
6. During cross-examination in post charge evidence, CW-1 stated it to be correct that vide press release dt. 06.08.2013 CBDT, Ex CW 1/D2, has clarified that as per the revised guidelines Ex CW 1/D1, the criterion of minimum retention period of 12 months has been dispensed with. CW-1 further stated that the default amount is arrived as per Ex CW 1/4. CW-1 admitted it correct that the delay in ranging from four months till 14 months. CW-1 further admitted it correct that the plea of accused No. 1 regarding jurisdiction of the CIT due to shifting of the registered office of company at the time of passing of sanction is not mentioned in the sanction order Ex CW ITO vs M/s Great India Notanki CC No. 538258/16 3 of 13 1/2. CW-1 further admitted that annexure B is not a proposal for launch of prosecution against accused No. 1.
7. Another witness namely Sh. Harish Chander, appeared as CW-2. In his pre-charge evidence done on 01.02.2018, he deposed that he was posted as ITO from 25.07.2015 to 06.05.2016 and during his said posting, he had seen the file of accused for non- deposit of TDS for FY 2012-13 and TRACES module of IT department, as per which, the accused No. 2 was the person responsible for filing of TDS return for FY 2012-13. CW-2 further admitted issuance of the notices and their respective replies. In his cross-examination, CW-2 admitted that designation of Director is not mentioned in the TRACES Module against the name o Sh. Sumit Arora, however, volunteered that name of the person responsible is mentioned as Sumit Arora. CW-2 further stated that IT Department issues notice u/s 2(35) based on the information available on the TRACES Module and TRACES Module secure login is given to the company and the details on the TRACES Module are filled up by the company only. CW- 2 admitted that accused No. 2 never sent replies on behalf of accused No. 1 as its AR to the IT Department. CW-2 further denied that no information was available with the IT Department that accused No. 2 was not the Director of accused No. 1 in the relevant FY and volunteered that he was held to be Principal Officer of the company on the basis of TRACES Module. In his re-examination by Ld. SPP, CW-2 admitted that he issued summon u/s 131 of IT Act to the accused and has brought the original office copy of the same, exhibited as Ex CW 2/4.
8. In the post charge cross-examination of CW-2 done on 10.09.2018, CW-2 stated that notices u/s 2 (35) of IT Act were issued ITO vs M/s Great India Notanki CC No. 538258/16 4 of 13 based on the information available on the TRACES login Module and he did not send the proposal for grant of sanction for launching the prosecution against the accused. CW-2 further stated that prosecution proposal is sent as per the guidelines of CBDT.
9. Another witness namely, Sh. Kanuj Sehra, appeared as CW-
3. In his pre-charge evidence done on 01.02.2018, he deposed that he was posted as ITO, Ward 74 (3) New Delhi from 06.05.2016 to 22.05.2017 and his predecessor Sh. Harish Chander had handed over the charge of the same which included the file of accused. CW- 3 further stated that he had passed the order u/s 2 (35) of IT Act, Ex CW 1/8, holding that Sumit Arora as Principal Officer of the company for the FY 2012-13. CW-3 further stated that he had sent the proposal Ex CW 1/9 for launching the prosecution u/s 276 B of IT Act to the CIT (TDS-I). In his cross-examination, CW-3 admitted that the order u/s 2 (35) of IT Act was passed by him does not bear any reference of TRACES Module and volunteered that first show cause notice was a system generated notice, same is Ex CW 3/DA. CW-3 further denied that the said order has not been sent to the accused and stated that on the basis of official record and TRACES Module, accused Sumit Arora was mentioned as Director. CW-3 further admitted that in the TRACES Module, accused No. 2 is not shown as Director or proposal Ex CW 1/9, accused No. 2 is held to be main accused in his capacity as Director. CW-3 further denied that accused No. 2 is not the Director of the company, the order u/s 2 (35) of IT Act is invalid.
10. In his post charge cross-examination done on 10.09.2018, CW-3 stated that order u/s 2 (35) of IT Act was passed by him and the amount mentioned therein has been determined by him on the ITO vs M/s Great India Notanki CC No. 538258/16 5 of 13 basis of information available in TRACES report and he sent proposal against the company and its Director. CW-3 denied that sanction order has to be only passed to the accused name in the proposal and volunteered that it is not under his jurisdiction as the sanction order is passed by the concerned CIT.
11. CW-2 had never denied that Sumit Arora was not the Principal Officer of the company Ex CW 1/5 stated that he had issued notice u/s 2 (35) to the Principal Officer on 09.09.2015, Ex CW 1/5
12. After hearing arguments, charge for offence 276-B r/w 278- B of the I.T. Act was framed against accused no. 1/company as well accused no.2 on 27.04.2018 in terms of order dt. 26.02.2018. The said order on charge was challenged before Ld. Sessions Court which by its order dt. 02.06.2018 has discharged the accused no. 2 on the ground that no material was annexed with the complaint to indicate that accused no. 2 was concerned with management or administration of accused no. 1 or that he was person responsible for deduction and deposit of TDS. It further held that since accused Sumit Arora was not a Director and therefore, he cannot be responsible for day to day affairs of accused no.1.
13. After post charge evidence, statements of accused no.1 company (through AR of accused no. 1) was recorded u/s 313 Cr.P.C. read with section 281 Cr.P.C separately. In the statement, AR of accused no. 1 denied the allegations and submitted that accused no. 1 has been falsely implicated in this case.
14. I have heard the arguments on behalf of both the parties and gone through the record of the case. I have also gone through ITO vs M/s Great India Notanki CC No. 538258/16 6 of 13 the relevant provisions of Income Tax Act, 1961.
15. Relevant provisions of section 276B & 278B of the Act are reproduced below for reference:-
[276B. Failure to pay tax to the credit of Central Government under Chapter XIID or XVIIB. - If a person fails to pay to the credit of the Central Government, - the tax deducted at source by him as required by or under the provisions of Chapter XVIIB; or the tax payable by him, as required by or under, - sub-section (2) of section 115-O; or 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.
16. It is argued on behalf of the complainant that the case has been proved beyond reasonable doubt against the accused person in view of the testimony of witnesses. He prays for conviction of the accused.
17. On the other hand, Ld. Counsel for accused no. 1 argued that complaint is not maintainable as the prosecution was launched on the basis of wrong information. He further argued that accused no. 2 (since discharged) was never a director of accused no. 1 and therefore, the prosecution sanction stand vitiated. He also argued that the department has not considered that accused no. 1 in its reply Ex. CW-1/12 has been able to show reasonable cause of the ITO vs M/s Great India Notanki CC No. 538258/16 7 of 13 delay in deposit of TDS amount as provided U/s 278AA of the Act and therefore, complaint should be dismissed and accused be acquitted.
18. Ld. Counsel has argued that the present prosecution cannot sustain in view of judgment in the matter of Assistant Commissioner Income Tax Vs. Velliappa Textiles Ltd. :
Manu/SC/1218/2003 wherein Hon'ble Supreme Court by its order dt. 16.09.03 has held that the company cannot be prosecuted for offences U/s 276C, 277 and 278 read with section 278 since each one of these section requires the imposition of a mandatory term of imprisonment coupled with a fine and leaves no choice to the court to impose only a fine.
19. However, Ld. SPP pointed out that the said judgment of Hon'ble Supreme Court was overruled by the judgment in the matter of Standard Chartered Bank & Ors. Vs. Directorate of Enforcement & ORS.: (2005) 4 Supreme Court Cases 530 wherein the question before Hon'ble Supreme Court was whether a company, or a corporation, being a juristic person, could be prosecuted for an offence for which mandatory sentence of imprisonment and fine is provided, and when found guilty, whether the court has the discretion to impose a sentence of fine only." Hon'ble Supreme Court after referring to the 41 st Law Commission Report and judgment in the matter of MCD Vs. J.B. Bottling Company Pvt. Ltd. Held in para 32 that " there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment (sic and fine). We overrule the views expressed by the majority in velliappa Textiles on ITO vs M/s Great India Notanki CC No. 538258/16 8 of 13 this point and answer the reference accordingly. Various other contentions have been urged in all appeals, including this appeal, they be posted for hearing before an appropriate Bench."
20. In view of the judgment in the matter of Standard Chartered (supra) I am satisfied that the complaint is maintainable.
21. Ld. Counsel also pointed out that the CW-1 has admitted that the circular dt. 07.02.13 Ex. CW-1/D1 does not specify that the condition of minimum retention period of 12 months for filing prosecution has been done away with and therefore, the prosecution is bad as most of the TDS defaults were deposited within 12 months of the due date. I have gone through Ex. CW-1/D1 whereby the Central Board of Direct Taxes after taking note of malpractice adopted by certain deductors and collectors wherein they retain large amount of TDS/TCS and deposit the same just before expiry of 12 months for the date of deduction to avoid launching of prosecution. The CBDT has modified the guild lines and has done away with the 12 months minimum retention period for possessing of prosecution as in para 3(i)(a) of the said circular there is no time period mentioned which ipso facto implies that the department has done away with 12 months period as the intent of CBDT is to identify such deductors who deliberately keep the government money with them for substantial period of time for their business/non business use. Hence, the argument of Ld. Counsel stands rejected.
22. Whether there was due sanction for the present prosecution: CW-1 has proved the show cause notice Ex. CW-1/9. She also proved the sanction order dt. 30.06.2018 which is ITO vs M/s Great India Notanki CC No. 538258/16 9 of 13 Ex.CW1/2. In the sanction order it is clearly mentioned that there was deliberate intention of default of accused no. 1 within the meaning U/s 200 of the Act as the company with deliberate intention of using government money for its own purpose has defaulted in timely deposit of TDS and the amount of TDS remained with the company and was available with it for the use in business/non business purposes as the case may be. The sanction order has considered the stand taken by accused no. 1 claiming peculiar nature of business and it went on to hold that "the deductor assessee is purely running an entertainment business. Had it been in the line of furtherance of culture, tradition, etc. it could have formed a company registered under section 25 of the Company's Act or an entity; entitled for various exemptions. Further, the TDS amount was a portion from the dues paid to artists or other agencies who are entitled to claim it from the department when they file their Income Tax Returns irrespective of the fact whether deductor deposits such TDS or not but simply acknowledges the same while filing its TDS statements." The argument of Ld. Counsel that the sanction order is faulty is humbly rejected as the sanction order mentions in detail the default. The accused no. 1 has only challenged the proving of the Ex.CW1/2 i.e. Sanction order on the grounds that its executor was not examined by the complainant. The sanction order was passed in the official capacity by the then CIT and the accused has not disputed the passing of said order. CW- 1 has explained the process of sanction and same has not been challenged.
23. Ld. Counsel has brought my attention to the proposal for launching prosecution Ex. CW-1/9 and pointed out that the said proposal was for launching of prosecution against Sumit Arora as ITO vs M/s Great India Notanki CC No. 538258/16 10 of 13 Director of accused no. 1 and it was not against the company itself. Ld. Counsel also point4ed out that in Form F annexed with Ex. CW- 1/9, the name of only accused is mentioned as Sumit Arora and the company is not arrayed as accused in the performa for submitting proposal for prosecution. However, Ld. SPP has referred to the annexed B of Ex. CW-1/9 and pointed out that in the brief facts annexed with the showcause notice, the concerned ITO has mentioned that the assessee company is the defaulter. At the time of seeking sanction, the complainant department having no reason to believe that Sumit Arora was not the director as his designation on the TRACES module was uploaded by the company itself. Moreover, in none of the replies filed on behalf of accused no.1, there were no averments that either who was responsible for the day to day activities of the company or that Sumit Arora is not the person responsible. Even in reply dt. 29.02.16 Ex. CW-1/6 and reply dt. 07.04.16 Ex. CW-1/7 to the showcause notice U/s 2(35) of I.T. Act, the Authorized Representative of accused no.1 has never denied that Sumit Arora was not the Principal Officer and the only plea taken is that the company has also received notices from ACIT, TDS Circle, Gurgaon. Hence, it is proved that there was due sanction for launching of the present prosecution against accused no.1.
24. Whether there was delay in deposit of TDS amount:
As per the Income Tax Act, the TDS amount deducted in a month should have been deposited on or before 7 th of the subsequent month. As per Ex. CW-1/4 running from page no. 13 to 42, the accused no. 1 has committed default in timely deposit of TDS amount of Rs.1,28,94,348/- during the relevant financial year. It is noted that the delay in deposit of TDS is ranging from 4 to 15 months. The accused have not disputed that there was delay in ITO vs M/s Great India Notanki CC No. 538258/16 11 of 13 deposit of TDS amount. However, it is claimed that the delay was not deliberate due the peculiar business model and operations of the company.
25. Section 278 AA of Income Tax Act provides notwithstanding anything contained in provisions of Section 276A, 276AB or 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.
26. The onus is upon the accused no. 1 to show that there was reasonable cause for the delay in deposit of TDS. To show the same accused has not examined any defence witness. No witness has been examined by the accused no. 1 to show the genuine and bonafide difficulty in timely deposit of TDS. The accused despite opportunity, has chosen not to bring forth any material to justify the delay. I am satisfied that there was delay in deposit of TDS and accused no. 1 has failed to discharge the burden of showing reasonable cause for the default in deposit of TDS amount. The accused no. 1 also failed to rebut the presumption U/s 278 E of the Act.
27. Undisputedly, the tax deducted at source by the accused no.1 company was not deposited within prescribed period. The offence u/s 276B of Income Tax Act is complete when the tax deducted at source is not deposited in time. Company can not be allowed to take unfair advantage and use the tax amount so deducted for any other purposes. In view of the aforesaid discussions and facts and circumstances of the case, it is held that the prosecution has proved its case against accused no. 1 beyond ITO vs M/s Great India Notanki CC No. 538258/16 12 of 13 reasonable doubt. Accordingly, accused no.1 M/s Great India Notanki Co. Pvt. Ltd. is held guilty for the offence u/s 276B r/w Sec. 278B of the Act for deducting TDS for the financial year 2012-13 and not depositing the same in the Government account within prescribed period.
28. Copy of the judgment be given free of cost.
Digitally signed by PAWAN PAWAN SINGH
SINGH RAJAWAT
Date: 2018.12.17
RAJAWAT 16:57:35 +0530
(PAWAN SINGH RAJAWAT)
ACMM(Special Acts) CENTRAL
TIS HAZARI COURTS DELHI
Announced in Open Court
on 10th of December, 2018.
ITO vs M/s Great India Notanki CC No. 538258/16 13 of 13