Delhi District Court
Ito vs M/S Style Syntex Pvt. Ltd. on 5 April, 2018
IN THE COURT OF SH. PAWAN SINGH RAJAWAT:
ADDL. CHIEF METROPOLITAN MAGISTRATE (Spl. Acts):
CENTRAL: TIS HAZARI COURTS, DELHI.
ITO vs M/s Style Syntex Pvt. Ltd.
U/s 276-C (1), 276-C(2), 277 r/w Sec. 278-B of the Act
for the AY 2002-03.
CC No.295277/2016
JUDGMENT
(a)Date of commission of offence : 2002-2003
(b)Name of complainant : Sujata Maitra
(c)Name, parentage, residence: 1) M/s Style Syntex Pvt. Ltd.
B-1/A-20, Mohan Co-operative Indl. Area,Mathura Road, New Delhi.
2) Sh. Amit Chaturvedi, Director of above 1-B, 23 Girdhar Apptt.
Ferozshah Road, New Delhi.
3) Sh. Sanjay Chaturvedi, Director of above 1-B, 23 Girdhar Apptt.
Ferozshah Road, New Delhi.
4) Sh. Parveen Junaja, Director of above E-47, G.K-II, New Delhi. (Already Discharged on 18.11.2014).
(d)Offence complained of/ proved : U/s 276-C (1), 276-C(2), 277 r/w Sec. 278-B of the Act for the AY 2002-03
(e)Plea of accused : Pleaded not guilty
(f)Final order : Convicted
(g)Date of such order : 05.04.2018 Date of Institution of complaint : 09.04.2007 Arguments heard/order reserved : 15.03.2018 Date of Judgment : 05.04.2018 ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 1 of 24 Brief statement of the reasons for the decision:-
1. The complainant through Ms. Sujata Maitra, the then DCIT, Central Circle-11 filed the present complaint against accused no. 1 company M/s. Style Syntex Pvt. Ltd. and against Sh. Amit Chaturvedi, accused no. 2, Sh. Sanjay Chaturved, accused no.3 and Sh. Parveen Junaja, accused no. 4 being its Directors and responsible for day-to-day affairs of accused no. 1 alleging offences punishable under Section 276-C (1), 276-C(2), 276-D, 277 r/w Sec. 278-B of the Income Tax Act for the AY 2002-03.
2. Succinctly, the facts of the case are that accused no. 1 has filed return of income under Section 115 JB of Income Tax Act for the assessment year 2002-2003 on 31.10.2002 which on assessment found to be false and there is willful attempt to evade tax by concealment of actual income and also by furnishing inaccurate particulars of such income. The complainant issued notices under Section 143(2), 142(1) and 144 of the Act which were remained uncomplied and accordingly, ex-parte assessment was completed determining the total income and penalty was imposed which remained unpaid. Hence, present complaint.
3. The accused were summoned who appeared before the court and copy of complaint and of documents were supplied and the matter was fixed for pre-charge evidence.
4. In the pre-charge evidence, complainant examined PW-1 ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 2 of 24 Smt. Sujata Maitra and PW-2, Sh. P.K. Singh. Thereafter, arguments on charge heard and in terms of order dated 18.11.2014, accused no. 4 was discharged. However, charge under Section 276C(1), 276C(2) and 277 r/w Section 278B of the Act were framed against the accused no. 1, 2 & 3.
5. After completion of complainant evidence, statement of accused was recorded on 15.03.2016 wherein accused chose to lead defence evidence. In defence, accused examined DW-1, Sh. Brij Lal Belwal, MTS on behalf of ROC, Delhi & Haryana and DW-2, Manmohan Singh from the Office of Hon'ble Income Tax Appellate Tribunal.
6. Thereafter, final arguments were heard.
7. Ld. SPP for the complainant argued that offences are proved against the accused persons as by under reporting, the income and showing excess losses, accused persons have willfully attempted to evade tax. He further argued that even after deletion of the penalty by the ITAT, the assessment itself has not been set-aside. He prays for conviction of the accused persons.
8. On the other hand, ld. Counsel for the accused persons has filed written submissions and also argued the matter at length. He argued that accused no. 2 & 3 have been roped in on the basis of vicarious liability, without proving that they were incharge of or responsible for the conduct of the affairs of accused no. 1 company on the date of alleged commission ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 3 of 24 of the offence. He further argued that accused no. 2 & 3 had resigned from the Directorship of the accused no. 1 company before the assessment order, therefore in view of the settled law, no vicarious liability can be attached onto the accused no. 2 & 3. He further argued that the basis of filing the complaint i.e. the assessment order dated 22.03.2005, itself goes, as the notices were dispatched on an incorrect address. He further argued that the assessment order dated 22.03.2005 and also the penalty imposed by the assessing officer has itself been set-aside, meaning thereby that the entire fulcrum of the case itself is gone. He further argued that no mens rea of the accused persons has been proved and complaint is not based on any evidence, but on the basis of an assessment order which is merely in the form of opinion and presumptions and the said witness is not an expert as per Section 45 of Evidence Act. He further argued that despite the witness deposing adversely against the prosecution case during cross-examination of the witnesses, the prosecution has failed to re-examine them. He prays for acquittal of the accused persons.
9. Whether accused no. 2 & 3 were in-charge and responsible for conduct of affairs of accused no. 1?
As per complainant PW-1, accused are the persons responsible for the day-to-day affairs of the company and accused no. 2 has signed the return of income as Director and accused no. 2 & 3 has signed the balance sheet as Directors. During cross-examination, she admitted that Directors of a company may change from time to time. She ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 4 of 24 also showed ignorance whether such changes are also reflected in the annual returns but admitted that record of a company pertaining to the Directorship can be accessed from the office of ROC. She admitted that she has not verified the name of Directors before filing the complaint. But stated that she filed a complaint against accused persons as their names are reflecting as Directors in the Income Tax Returns for the relevant year and therefore, verification from ROC was not required. She admitted that in Income Tax Returns, the functions of Directors, duties and part played by them is not mentioned. She also admitted that she has no knowledge about which day-to-day activities, the accused persons were looking after. PW-1 was confronted with Ex. CW-1/D1 which is copy of Form No. 32. DW-1 has stated that accused no. 2 & 3 have resigned as Directors on 27.09.2004 as reflected in Ex. DW-1/1. During cross-examination by Ld. SPP, DW-1 admitted that the annual returns of ROC, Balance Sheet and Profit & Loss Accounts were filed by the Directors on board prior to their resignation and that Amit Chaturvedi and Sanjay Chaturvedi were Directors of Style Syntex Pvt. Ltd. during the year 01.04.2001 to 31.03.2002 is referred as assessment year 2002-2003/financial year 2001-2002. DW-1 further admitted that the Balance Sheet and Profit & Loss Accounts statement filed before the Income Tax Department is also filed before the ROC.
10. As per Section 2(20) of Income Tax Act, the "Director" in relation to a company have the meaning assigned to it in the ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 5 of 24 Companies Act, 2013. Section 2 (34) of Companies Act provides "Director" means Director appointed to the Board of a company. Section 2 (51) of the Companies Act, 2013 defines "key managerial personnel" in relation to a company means (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed.
11. Admittedly, accused no. 2 & 3 are the whole time Directors of accused no. 1 and therefore, they come within the definition of key managerial personnel. Moreover, the return of income for the assessment year 2002-2003 was filed on 31.10.2002 and on that day, accused no. 2 & 3 were the Directors of accused no. 1. The offence stands completed on the date when return of income was filed which is before the date of resignation of accused no. 2 & 3 from the Directorship of accused no. 1. Moreso, there is no denial from accused no. 2 or 3 that they have not signed the return of income or the balance sheet in question. Thus, resignation after the date of filing of return does not have any bearing in respect of their liability as Directors qua accused no. 1. This proposition was also discussed in the matter of ITO Vs. Anil Batra & Ors. by Hon'ble High Court of Delhi in CRL LP No. 241/2012. In the matter of ITO Vs. Dinesh Kumar Shah (1997) 223 ITR 68 (Madras) while interpreting Section 278B of the Act, it was held that :-
"18. The effect of this section is to make ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 6 of 24 every person who was in charge of and was responsible to the company for the conduct of the business of the company at the time the offence was committed, apart from the managing director, who signed the return, liable to be proceeded against and punished. The position earlier was that only the principal officer (which term included the managing director in the case of a company) could be prosecuted and punished. Under section 278B, the basic requirement is that the prosecution must prove that the persons concerned were in charge of, and were responsible to, the company or the firm, as the case may be, for the conduct of the business of the company or the firm at the time when the offence was committed. It is only then that they can be vicariously prosecuted along with the company or the firm, as the case may be.
19. A consistent view has been expressed by the Courts that a company being a juridical person can not be made liable for corporeal punishment like imprisonment. It is also held that if the contravention is by a company, the persons who may be held guilty and punished are : (i) the company itself; (ii) every person who, at the time the contravention was committed was incharge of, and was responsible to, the company for the conduct of the business of the company (the person incharge); and (iii) any director, manager, secretary or other officer of the company with ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 7 of 24 whose consent or connivance or acts of neglect attributed to whom the offence had been committed, i.e. an officer of the company. Any one or more or all of them may be prosecuted and punished. The person incharge may also be prosecuted."
12. In their statement under Section 313 Cr.P.C., accused no. 2 claimed that he was only Director (Marketing) and PW-3 claimed that he was Director (Production) and they are not concerned with day-to-day affairs of accused no. 1 but accused no. 2 & 3 have not led any evidence to show that they are working as Director (Marketing) and Director (Production) and they are not the person responsible for day- to-day affairs of accused no. 1. By signing the return of income and the balance sheet of accused no. 1, the accused no. 2 & 3 have themselves demonstrated that they are the persons responsible for the affairs of accused no. 1 as they are entrusted with important responsibilities which can only be given if the accused persons have control and command over the affairs of accused no. 1. The absence of knowledge on the part of PW-1 about the day-to-day activities of accused company which accused no. 2 & 3 were looking after is of no consequence as accused no. 2 & 3 are involving in activities having material bearing on the affairs of the company. The plea of accused no. 2 & 3 that Sh. Praveen Juneja was the Director (Corporate & Finance) who is looking after all the accounts and financial matters of accused no. 1 is without any basis as no evidence to prove the said fact is ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 8 of 24 led by them. In the written submissions filed on behalf of the accused persons, multiple number of judgments have been cited. Same were also perused. The judgments are not applicable to the facts of the present case as admittedly, the accused were the whole-time Directors on 31.10.2002 and they resigned on 27.09.2004. There are specific allegations against the accused no. 2 & 3 that they have signed the ITR and the balance sheet which amounts to disclosing specific part played by them in the transaction in question. Hence, it is proved that accused no. 2 & 3 are the persons in-charge and responsible for the conduct of business of accused no. 1 during the relevant period.
13. Whether the dispatch of notice under Section 143(2) and 142(1) of the Act on incorrect address proves fatal to the case of complainant?
Ld. Counsel for accused strongly argued that since the notices were not sent on the correct address, therefore, the prosecution should fail as accused has not the opportunity to reply to the said notices. PW-1 admitted in her cross- examination that she has not issued the notice under Section 142 of the Act. She also admitted that as per Ex. PW-1/4, the address of accused company is B-1/A-20, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi-44. She also admitted that Ex. PW-2/1 and Ex. PW-1/5 i.e. the notices are addressed to the Principal Officer, M/s. Style Syntex Pvt. Ltd., 3-B, IInd Floor, Pusa Road, New Delhi but she denied that Ex. PW-1/5 and Ex. PW-2/1 were never served on the accused.
ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 9 of 24
14. PW-2 stated that he issued notice Ex. PW-1/5 and also issued Ex. PW-2/2 having speed post receipt Ex. PW-2/3 which were not replied by anyone. PW-2 admitted that no service proof of notice dated 22.03.2005 is placed on record. He also admitted that Ex. PW-1/5 and Ex. PW-2/1 were sent at Pusa Road address. He also admitted that Ex. PW-1/4 was having address of Mathura Road. Admittedly, Ex. PW-1/5 as well as Ex. PW-2/1 were sent at the incorrect address of accused no. 1 at Pusa Road whereby, the accused no. 1/principal officer was called upon to prepare and furnish correct return of income and attend the office along with documents in support of the return filed. PW-2 However stated that Ex. PW-2/2 dated 23.02.2005 and Ex. PW-2/3 dated 11.03.2005 were sent at the correct address of accused no. 1 show causing to explain after giving details of previous notices under Section 142(1) and by by enclosing copy of the said notice and by affording an opportunity of hearing. In the letter dated 11.03.2005, Ex. PW-2/3 once again, the details were mentioned and reasonable time was given for submitting the requisite details. However, accused choses to neither file any reply/documents nor appeared in person to defend their case and therefore, the ex-parte assessment order under Section 144 of the Act was passed on 22.03.2005 which is Ex. PW-2/4.
15. I have perused the contents of Ex. PW-2/2 and Ex. PW-2/3 which have mentioned in detail the proceedings against the accused persons. There is no denial that these letters were ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 10 of 24 received at the correct address of accused persons. There is further no denial that these notices are also enclosed with copy of notice under Section 142 (1) of the Act which implies that accused persons have the knowledge of the case against them. Since sufficient opportunity has been given to the accused persons and despite that, they have not taken any corrective steps. Therefore, the argument of Ld. Counsel that in the absence of delivery of the notice Ex. PW- 1/5 and Ex. PW-2/1, no case is made out is rejected.
16. Whether the deletion of penalty by the Hon'ble ITAT by order dated 19.06.2017 which is Ex. DW-2/2 takes away the entire case against the accused persons?
The order was passed by the ITAT on 19.06.2017 i.e. after the conclusion of the evidence in the present case and when the matter has reached the stage of defence evidence whereby ITAT has deleted the penalty against the accused persons. DW-2 is the official from ITAT who has brought the certified copy of orders dated 25.07.2008 and 19.06.2017 which are Ex. DW-1/1 and Ex. DW-1/2. During cross- examination by Ld. SPP, he has again proved the said document Ex. DW-2/1. Ld. SPP has pointed out that the assessment itself has not been set-aside and only the penalty has been deleted by the ITAT and he further pointed out that offence under Section 276C(1)(ii) is made out as the accused have filed the Return of Income which is incorrect. He further argued that in view of the presumption of Section 278E of the Act, the offence is made out and order of ITAT will have no implication in the present prosecution. On the ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 11 of 24 other hand, ld. Counsel for the accused pointed out that after the conclusion of adjudicatory proceedings in favour of the accused, the trial can not continue.
17. ITAT by order dated 02.08.2013 Ex. DW-2/1 directed the assessing officer to rework-out the income while dis- allowing 5% of the expenses including the purchases and other expenses while working out the gross profit rate. It was further directed to verify the gross profit rate whether it was 13.05% or 12.97%. In terms of order dated 02.08.2013 of the ITAT, the assessing officer has recalculated the income at Rs. 22,21,577/- and decided that there was concealment of income as well as furnishing inaccurate particulars of income which attracts penalty under Section 271(1)(c). In compliance of order of ITAT, the assessing officer reverified the gross profit rate from the immediately preceding year and it was found that the addition of Rs. 13,71,751/- taking the gross profit rate at 13.05%. Accordingly, assessing officer after giving effect to the orders of the ITAT, computed the income to the extent of Rs. 20,01,569/- and imposed a minimum penalty of 100% by Rs. 7,93,102/-.
18. Hon'ble ITAT by order dated 19.06.17 has deleted the penalty on the ground that the assessing officer has not recorded any clear finding whether the assessee was guilty of concealment of income or for furnishing the inaccurate particulars of income. ITAT has relied upon the judgment in the matter of CIT & Anr. Vs. SSAS's Emerald Meadows 2016 (8) TMI 1145 wherein after holding that the notice ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 12 of 24 issued by AO under Section 274 r/w 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)c) of the Act, the penalty proceedings have been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. In para no. 5.3, Hon'ble ITAT has therefore, deleted the penalty in dispute deciding the same in favour of the accused herein. It is to be noted that before the Hon'ble ITAT, the accused has challenged the order dated 31.03.2015 of CIT (Appeals) 2, New Delhi praying for setting-aside the order imposing the penalty by the assessing officer and sustaining of the same by CIT (Appeals) 2 and for deletion of the penalty.
19. Section 271 in Chapter XXI deals with penalties imposable for failure to furnish return, comply with notices, concealment of income, etc. Further, Section 271(1)(c) provides, if the assessing officer is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. Then such amount is liable.
20. In the matter of CIT Vs. Kaushalya 1995 216 ITR 660 Bom, Hon'ble Bombay High Court held that merely not striking of specific limb can not by itself invalidate notice under Section 274 of the Act. It was further held that every concealment of fact may ultimately result in filing of non- furnishing of inaccurate particulars. Mere non-striking of inaccurate particular or concealment would not invalidate if the details of the exact charge of department is mentioned ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 13 of 24 which having not impaired or prejudiced the right of assessee. Mere mistake in the language used could not itself invalidate the notice.
21. The SLP in the matter of SSA's (Supra) was dismissed by the Hon'ble Supreme Court by a non-speaking order denying the grant of leave of appeal. In the matter of Indian Oil Corporation Ltd. Vs. State of Bihar & Anr., AIR 1986 SC 1780, Hon'ble Supreme Court explained the dismissal of SLP. "It was clarified that effect of a non-speaking order of dismissal of a special leave petition, without anything more indicating the reason of dismissal must by necessary implication be taken to be that this court had decided only that it was not a fit case where special leave should be granted. This conclusion may have been reached by this court due to several reasons. When the order passed by this court was not a speaking one, it is not correct to assume that this court had necessarily decided implicitly all the questions in relation to the merits of the award, which was under challenge before this court in special leave petition. It was further clarified that it is not the policy of Supreme Court to entertain special leave petitions and grant leave under Article 136 of the Constitution except in those case where some substantial question of law of general or public importance is involved or there is manifest injustice resulting from the impugned order or judgment."
22. By dismissal of a special leave petition, in limine by a non-speaking order does not therefore justify any inference ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 14 of 24 that by necessary implications, the contentions raised in the SLP on the merits of the case have been rejected by this court. It was further held that the granting of leave is a discretionary jurisdiction and an order refusing SLP was not stands substituted in place of the order under challenge. If the order refusing leave to appeal is speaking order i.e. giving reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in order is declaration of law and secondly, the findings recorded would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex court of the country.
23. Admittedly, in the SSA's (supra) case the refusal to grant the leave to appeal was done by the Hon'ble Supreme Court by a non-speaking order. Therefore, by necessary implication, it does not justify the inference that the contentions raised in the said SLP has been rejected on merits by the Hon'ble Supreme Court and therefore, the findings in the said matter is binding in all courts in the territory of India.
24. Moreover, in the matter of Radheyshyam Kejriwal Vs. State of West Bengal (2011) 3 Supreme Court Cases 581 after discussing various judgments dealing with the implication of decision of adjudication proceedings on the decision of criminal prosecution, it was held in para no. 38 that :-
ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 15 of 24 "The ratio which can be culled out from these decisions can broadly be stated as follows :
(i) Adjudication proceedings and criminal prosecution can be launched simultaneously;
(ii) Decision in adjudication proceedings is not necessary before initiating criminal prosecution;
(iii) Adjudication proceedings and criminal proceedings are independent in nature to each other;
(iv) The finding against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution;
(v) Adjudication proceedings by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20(2) of the Constitution of Section 300 of the Code of Criminal Procedure;
(vi) The finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceedings is on technical ground and not on merit, prosecution may continue; and
(vii) In case of exoneration, however, on merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances can not be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.
25. The accused have not claimed that the income added by the assessing officer is incorrect but the only contention is ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 16 of 24 that since the penalty has been deleted, the prosecution can not sustain against them. In another limb of argument on this context is that the finding of assessing officer is incorrect as he has wrongly taken the gross rate of profit at the rate of 13.05%. I have also gone through the Form 3(c)
(d) of the accused no. 1 wherein at Point No. 32(a), the gross profit/turnover has been claimed as 11.85% for the assessment year 2002-2003 despite the fact that sales have increased during the year to Rs. 11,47,06,548/- from Rs. 10,42,85,121/- i.e. by Rs. 1,04,21,427/- but there is no explanation why the rate of gross profit has been shown on a decline from 13.05% to 11.85%.
26. There is no justification available on record which may suggest such a decline in the percentage of gross profit for the year under consideration vis-a-vis the percentage of gross profit for the preceding year. In the absence of the same, the gross profit rate of the year's profit is taken at 13.05% which is the gross profit rate for the preceding year in question.
27. I have carefully gone through the order of ITAT. There is no averment on the part of the accused person herein that they have challenged the assessment order itself.
28. In my humble opinion, the use of word "furnishing of inaccurate particulars of income" and further use of word "concealment/furnishing inaccurate particulars of income"
can not be construed as the assessing officer has not made ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 17 of 24 up his mind whether there was concealment of income or inaccurate declaration of income. When an assessee files a return of income with inaccurate details, the concealment is inherent in such return of income. The mentioning of concealment/furnished inappropriate particulars of income in the assessment order appears to be a standard language used in the format of assessment orders by the assessing officers of the Income Tax Department. It can not be construed that the satisfaction/finding of assessing officer has not been recorded in clear terms. The assessing officer has given the working of arriving at the amount of Rs. 20,01,569/- for which, the accused despite opportunity has not offered any explanation. In the present case, the deletion of penalty by the ITAT was not on merits as the assessment itself was not set-aside but due to non-striking off of the words 'concealment/ inaccurate particulars of income' in the assessment order, a view was taken that the assessing officer has not given any clear finding as to whether there was concealment of income or the assessee has furnished inaccurate particulars of income. The findings in the order of ITAT dated 19.06.2017 have not exonerated the accused on merits but the adjudication was done by taking a technical view of non-striking off the words used in the assessment order with respect to concealment/ inaccurate particulars in the return of income. In view of the ratio in Radheyshyam Kejriwal (supra), I am satisfied that since the deletion of penalty was not on merits, the prosecution shall continue in the present matter.
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29. Whether there was no mens rea on the part of the accused?
It was argued on behalf of the accused that the onus is upon the complainant to independently prove the mens rea against the accused persons as no specific role of accused no. 2 & 3 is mentioned in the complaint. On the other hand, Ld. SPP pointed out that in view of Section 278E, there is presumption as to culpable mental state on the part of accused and it is for the accused to prove the fact that he had no such mental state. Section 278E deals with the presumption as to culpable mental state, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The question is on whom the burden lies, either on the prosecution or the assessee, under Section 278E to prove whether the assessee has or has not committed willful default in filing the returns. Court in a prosecution of offence, like Section 276CC has to presume the existence of mensrea and it is for the accused to prove the contrary and that too beyond reasonable doubt. Section 278E of the Act provides that :-
"278E. Presumption as to culpable mental state.-(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 19 of 24 had no such mental state with respect to the act charged as an offence in that prosecution.
30. In Sasi Enterprises Vs. Asstt. CIT, (2014) 361 ITR 163 (SC), it was held as under -
"Section 278E deals with the presumptions as to culpable mental state, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The question is on whom the burden lies, either on the prosecution or the assessee, under Section 278E to prove whether the assessee has or has not committed willful default in filing the returns. Court in a prosecution of offence, like Section 276CC has to presume the existence of mensrea and it is for the accused to prove the contrary and that too beyond reasonable doubt. Resultantly, the appellants have to prove the circumstances which prevented them from filing the returns as per Section 139(1) or in response to notices under Sections 142 and 148 of the Act."
31. In C.S.D. Swamy Vs. State 7 1960 SCR (1) 461 it was held that it is permissible to shift the burden of going forward with the defendant where an inference is raised on the reasonableness adopted. It was also held that if there is reasonable nexus between the offence created and the case to be dealt with, then the procedure, the presumption and the burden of proof placed on the accused is not unjust, unfair or unreasonable, offending articles 21 and 14; it also does not violate article 20(3) and the sections were, ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 20 of 24 therefore, held to be valid.
32. Applying this ratio, it can be safely concluded that section 278E of the Act does not violate article 14, 20(3) or 21 of the Constitution. PW-1 categorically stated that accused no. 2 & 3 have not produced the Books of Accounts and attempted to evade tax by making false verification. During cross- examination, even though PW-1 admitted that he has no personal knowledge about the role, duties, responsibilities and functions of the Directors of accused no. 1. But she stated that it seems the Directors are personally incharge of and responsible for day-to-day business of the accused persons and her knowledge is derived in view of Schedule H filed with the Income Tax Return. She denied that accused no. 2 & 3 are not responsible for the business of accused no.
1. The ITR has been filed under signature of accused no. 2 and the balance sheet is having signatures of accused no. 2 as well as accused no. 3. Hence, I am satisfied that the accused no. 2 & 3 have failed to rebut the presumption under Section 278E of the Act.
33. Whether complainant has been able to prove falsity in the return of income?
PW-1 has stated that accused has made false verification in the return of income by not declaring the actual income. During cross-examination, PW-1 denied that mere dis- allowing expenses not being in agreement of profit declared by assessee need not fall for imposition of penalty or prosecution by the department. However, no suggestion has ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 21 of 24 been put to PW-1 by the defence that the verification was not false. PW-2 admitted in examination that in Ex. PW-2/4, it is not mentioned that the assessee has made any false statement or false verification. However, he stated that for filing any inaccurate particulars, penalty proceedings were initiated in the assessment order. The return of income Ex. PW-1/4 was filed on 31.10.2002 declaring NIL income which on assessment was found to be inaccurate. Moreso, it has not been denied that same bears the signatures of accused no. 2. Accused no. 3 has not denied that he had signed the balance sheet as Director wherein the gross profit rate has been shown as 11.85% in the year in question when compared to the previous years where the gross profit rate was shown as 13.05% despite increase in the total sales. In Ex. PW-1/7, it is specifically mentioned that the accused herein has not produced the relevant record and supporting documents for verification of the return of income. This inaction on the part of the accused can only lead to one conclusion that the accused have not disclosed the true particulars which amounts to falsification itself.
34. Whether the complaint is based on assumptions only and without any basis?
PW-1 has stated that the accused was assessed a total income of Rs. 18,43,480/- vide assessment order dated 22.03.2005. However, during cross-examination, she admitted that she is not aware as to what happened after the dismissal of appeal by the CIT. Ld. Counsel for accused argued that the complainant witnesses are not experts in ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 22 of 24 terms of Section 45 of Indian Evidence Act. PW-1 as well as PW-2 are officers from the Income Tax Department having a specialized job of scrutiny, assessment and recovery of Income Tax from the assesses. The argument that they are not experts is rejected as both the witnesses are dealing in the specialized field of Income Tax Laws and just because they have not been able to explain few facts can not disregard their entire testimony. Moreso, no suggestion to this effect has been given to PW-1 & PW-2 that they have no knowledge of the present case. On the contrary, PW-1 as well as PW-2 have given detailed explanation as to how there was concealment by the assessee. PW-2 denied the suggestion that he is making evasive statement. He further stated that since assessee has not filed details of income and expenses in accordance with notice under Section 142(1), it can be said that assessee has not filed correct particulars of his income. PW-1 denied the suggestion that she has filed the wrong complaint without ascertaining the correct facts. Hence the argument of ld. Counsel for accused stands rejected.
35. In the light of aforesaid discussions, this court is of the considered opinion that the prosecution has been successful in proving its case against the accused no. 1 M/s. Style Syntex Pvt. Ltd. as well as accused no. 2 Amit Chaturvedi & accused no. 3 Sanjay Chaturvedi both Directors of accused no. 1 beyond reasonable doubt by proving that the accused no. 2 & 3 were the directors and was responsible for day to day affairs of the accused no. 1 company during the period ITO Vs. M/s. Style Syntex Pvt. Ltd. CC No.295277/2016 23 of 24 in question. Accused no.2 filed income tax return by concealing true income and accused no. 2 & 3 attempted to evade the tax by showing lower rate of gross profit as reflected in the balance sheet for the year ending on 31.03.2002. Accused no. 2 & 3 further filed the said return of income and Balance sheet having knowledge that same are false. Accordingly, accused no. 1 M/s. Style Syntex Pvt. Ltd. as well as accused no. 2 Amit Chaturvedi & accused no. 3 Sanjay Chaturvedi are convicted for the offence punishable under Section 276-C(1), 276-C(2) & 277 r/w section 278B of the Income Tax Act, 1961.
Copy of judgment be given free of cost to all the convicts. Let accused be heard on sentence on 21.04.2018.
Announced in open
Court on 05th April, 2018
(PAWAN SINGH RAJAWAT)
ACMM (Special Acts):CENTRAL
TIS HAZARI COURTS:DELHI
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