2020 (1) TMI 53 - HC - Income Tax

Prosecution u/s 276-B - failure to remit the tax deducted at source during the financial year 2010-2011 and 2011-2012 - as per petitioner show-cause notice is issued in respect of nine companies whereas the prosecution is launched only against the petitioners which is legally untenable - HELD THAT - After narrating the circumstances of notice, it is stated therein that the said notice was issued to convey the intention of the Department to treat him as the Principal Officer of the above companies. It is not a show cause notice. On the other hand, in the complaint, it is specifically stated that show cause notice was issued to accused on 14.08.2013. Petitioner has not referred to the said document. Therefore, the argument of learned counsel for petitioners based on Annexure-'B' is totally misconceived and cannot be a ground to quash the proceedings. Show cause notice was issued only to petitioner No.1 namely Managing Director and not to the Company - petitioner No.2 and in that view also, the prosecution launched against the petitioners are defective and contrary to section 276 - Second contention urged by petitioners is also misconceived for the reason that the said argument is also built upon Annexure-'B'. Learned counsel has based his argument on the impression that under the said intimation, a joint notice was issued to all the Companies; but it is not so. On the other hand, order passed under section 201(1) and 201(1A) (Annexure-'E') makes it evident that the order was passed only against petitioner - Company and not against all the Companies as contended by learned counsel for petitioners. Therefore, even this plea is liable to be rejected. Tax deducted at source by the petitioners was remitted much earlier to the issuance of sanction order, which fact is not reflected in the sanction order indicating that the sanction order has been issued without application of mind - Coming to the next contention that the sanction order issued for prosecution of petitioners does not reflect application of mind is concerned, I have gone through the said sanction order wherein the Commissioner of Income Tax/ Sanctioning Authority has narrated the facts of the case, referred to provisions of law applicable to the facts and has observed that an opportunity was given to the assessee in default to make the payment. If any amount was paid pursuant to the said show cause notice, the proof thereof could have been produced by petitioners so as to avoid criminal prosecution. There is nothing on record to show that the remittances made by petitioners have been brought to the notice of the Central Government. Petitioners has produced the copies of the communication obtained from the Office of Assistant Commissioner of Income Tax (TDS), Circle-I(1), Bangalore along with challan details report for making payments. It reflects that on 10.09.2014 a sum of ₹ 1,52,675/- and another sum of Rs,1,69,974/- was remitted not by the petitioners herein, but by Avestha Gengraine Technologies Private Limited. The said remittances do not relate to the case in hand. As a result, even the sanction order does not reflect any errors warranting interference by this Court. Hence, this argument is also rejected. Section provides for mandatory term of imprisonment coupled with fine in respect of the offences committed by a company - The last contention, urged by learned counsel for petitioners is no more res integra in view of the Constitution Bench decision of the Hon'ble Supreme Court in Standard Chartered Bank v. Directorate of Enforcement 2005 (5) TMI 327 - SUPREME COURT we hold 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

Issues:
Prosecution under section 276-B of the Income Tax Act, 1961 for failure to remit tax deducted at source, validity of show-cause notice, application of mind in sanction order, and legality of prosecution for offences punishable with fine and imprisonment.

Analysis:

Issue 1: Prosecution under section 276-B of the Income Tax Act
The petitioners were sought to be prosecuted under section 276-B for failure to remit tax deducted at source during specific financial years. The petitioners challenged the prosecution on various grounds, including the legality of prosecuting individuals when the notice was issued to companies, and the absence of application of mind in the sanction order. The Supreme Court's decision in Assistant Commissioner v. Villiappa Taxtiles Ltd. was cited regarding criminal prosecution for offences punishable with fine and imprisonment.

Issue 2: Validity of Show-Cause Notice
The petitioners contended that the show-cause notice was issued to the Managing Director only, not to the Company, which they argued made the prosecution defective. The court analyzed the notices issued and found that they were not show-cause notices but rather communications to inform the Managing Director of the Company's status. The court clarified that the notice was not a ground to quash the proceedings.

Issue 3: Application of Mind in Sanction Order
The petitioners argued that the sanction order for prosecution did not reflect proper application of mind as the tax deducted at source had been remitted before the order was issued. The court examined the sanction order and found that it detailed the facts, legal provisions, and gave the defaulting party an opportunity to make payments. The court also noted that the remittances made by the petitioners were not brought to the notice of the Central Government, thus rejecting this argument.

Issue 4: Legality of Prosecution for Offences Punishable with Fine and Imprisonment
The petitioners raised the argument that prosecution for offences punishable with fine and imprisonment, as per the Act, was not sustainable. The court referred to the Standard Chartered Bank v. Directorate of Enforcement case, where it was held that companies could be prosecuted for serious offences even when imprisonment was mandatory, as the court could impose a fine instead. The court emphasized the importance of holding corporate bodies accountable for serious financial irregularities.

In conclusion, the court dismissed the petition, finding no grounds to accede to the prayer made by the petitioners, and upheld the prosecution under section 276-B of the Income Tax Act.

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