2018 (10) TMI 1508 - HC - Income Tax

Failure to file return of income of company - Offence u/s 276CC read with Section 278B of IT Act - criminal complaint - petitioners (shown in the array of accused) willfully committed breach of the requirements of Section 139(1) by failing to file return of the income of company in respect of the assessment year (AY) 2011-12 by the stipulated date i.e. 30.09.2011, the default having been also committed vis-a-vis the compliance required with the notice under Section 142 (1) which was issued later - person responsible for furnishing the return of income of the company Held that - The prime responsibility of furnishing the return of income of the company is of the managing director of such company. But then, it is not correct to read the above provision so as to conclude that it is always or invariably the responsibility of the managing director alone and of no other. In a situation where the managing director may not be in a position to verify or submit the return of income, this on account of numerous reasons which may be presented as unavoidable and in case of such difficulties for the managing director to abide by the requirements of law on behalf of the company, the responsibility of other directors the provision noticeably uses the expression any director thereof cannot be ignored. In the reply dated 03.11.2014 in answer to the show cause notice, there was no explanation offered for failure on the part of the managing director to furnish income-tax return. Whether or not there was any difficulty on the part of managing director would be a matter of his defence at the trial. It cannot be assumed at this stage that such would be his defence, but if such defence were to be presented, it would be the responsibility of the directors to explain the default. Be that as it may, there is no escape from the conclusion that the directors are also equally responsible for furnishing of return on behalf of the company as is the case of the managing director. The petitions are found devoid of substance.

Issues Involved:
1. Jurisdiction and propriety of the Commissioner of Income Tax (CIT) in initiating prosecution.
2. Impact of subsequent filing of income tax return and assessment order on criminal prosecution.
3. Relevance of non-imposition of penalty under Section 271F of the Income Tax Act.
4. Responsibility of managing director versus directors for filing income tax returns of the company.

Detailed Analysis:

1. Jurisdiction and Propriety of the Commissioner of Income Tax (CIT) in Initiating Prosecution:
The petitioners argued that the CIT improperly initiated proceedings leading to criminal prosecution by issuing a show cause notice under Section 279(1) of the Income Tax Act and sanctioning prosecution, which they claimed should have been within the domain of the assessing authority (ACIT). The court found no merit in this argument, stating that under the proviso to Section 279(1), prosecution can be initiated by authorities superior to the assessing authority, including the CIT. Therefore, there was no impropriety in the CIT issuing the show cause notice and granting sanction for prosecution.

2. Impact of Subsequent Filing of Income Tax Return and Assessment Order on Criminal Prosecution:
The petitioners contended that the subsequent filing of the income tax return and the passing of the assessment order should have been considered, arguing that these facts were omitted in the complaint. The court held that these facts do not aid the petitioners in evading prosecution. The offence under Section 276CC pertains to the failure to furnish returns of income within the stipulated time, and whether there was justification for such default is a matter of defense to be agitated during the trial. The court cited the Supreme Court's observations in Sasi Enterprises v. Assistant Commissioner of Income Tax, emphasizing that the offence is committed on the non-filing of the return, irrespective of subsequent assessments.

3. Relevance of Non-Imposition of Penalty under Section 271F of the Income Tax Act:
The petitioners argued that the absence of a penalty under Section 271F indicated that there was no willful default, and thus, the requisite mens rea for Section 276CC was missing. The court noted that Section 278E of the IT Act allows for the presumption of culpable mental state and that the imposition of a penalty under Section 271F is discretionary. The omission to impose such a penalty does not imply that the default was not willful. The explanation offered in response to the show cause notice would need to be examined during the trial.

4. Responsibility of Managing Director Versus Directors for Filing Income Tax Returns of the Company:
The petitioners argued that the responsibility to verify and submit the ITR lies with the managing director, and thus, it was unfair to prosecute the directors. The court acknowledged that while the prime responsibility lies with the managing director, other directors are not absolved of responsibility. Section 140(c) of the IT Act indicates that in the absence or inability of the managing director, any director can fulfill this responsibility. Therefore, the directors are equally responsible for ensuring compliance with the requirements of filing returns.

Conclusion:
The court dismissed the petitions, finding no substance in the arguments presented. The CIT's actions were within legal bounds, the subsequent filing of returns and assessment orders did not negate the offence under Section 276CC, the non-imposition of a penalty under Section 271F did not imply a lack of willful default, and both the managing director and directors are responsible for filing the company's income tax returns. The petitions and pending applications were dismissed.

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