2022 (7) TMI 966 - HC - Income Tax

Prosecution proceedings u/s 276CC - failure to file ITR in time - Violation of Section 276-CC read with Section 278-B - manadation of seeking valid sanction u/s 278B - As per DR Assessee company not filed the Income Tax Returns (ITR) for the assessment year 2012-13 by 30th September, 2012 which was the last date to file the ITR - HELD THAT - In the present case, the sanction which is placed on the record as Annexure P-9 may be seen. It refers to the Company M/s ASM Traxim Pvt. Ltd as the assessee . It refers to a response to the show cause notice under Section 276 CC dated 20th March, 2014 vide a letter dated 25th March, 2014 by Mr. B.L. Gupta ITP on behalf of the assessee company , contending that the return had been filed within time allowed u/s 139(4) and that there was no willful default. It refers to the petitioner only in para no.10 in the following words, AND WHEREAS it is seen that the return of income was verified by Sh Vipul Agarwal director by digital signature , and nothing more. Thus, the sanction is specifically to institute a criminal complaint against the Company M/s ASM Traxim Pvt Ltd. It is crystal clear that the sanction has been accorded for the prosecution only of the person named as the assessee , namely the Company M/s ASM Traxim Pvt. Ltd. There is no sanction qua the petitioner, even as a person being a director/being responsible to the conduct of the business of the company. It cannot be held that the observation in para no.10 of this sanction, that the petitioner had verified the returns filed by appending his digital signatures, would tantamount to sanction qua him. That would be stretching language too far. Since the law provides that without sanction u/s 278B of the IT Act, the Department cannot proceed against a person found liable to prosecute him for the offence under Section 276 CC of the IT Act, the present prosecution must fail qua the petitioner. In the absence of a specific sanction for prosecuting the petitioner, the learned ACMM could not have taken cognizance of the complaint against him and then framed charge against him. The edifice built without foundation must crumble. The complaint and all proceedings emanating therefrom, including the impugned orders qua the petitioner Vipul Aggarwal, stand quashed. WP allowed.

Issues Involved:
1. Violation of Section 276-CC read with Section 278-B of the Income Tax Act, 1961.
2. Validity of the framing of charges against the petitioner.
3. Adequacy of the sanction under Section 279 of the IT Act.
4. Determination of the petitioner as the Principal Officer of the company.

Issue-wise Detailed Analysis:

1. Violation of Section 276-CC read with Section 278-B of the Income Tax Act, 1961:
The petitioner and the company were accused of not filing the Income Tax Returns (ITR) for the assessment year 2012-13 by the due date, 30th September 2012. The returns were filed only on 12th August 2013, after a notice under Section 142(1) of the IT Act was issued. Consequently, an offence under Section 276-CC read with Section 278E was alleged. A Show Cause Notice was issued on 20th March 2014, and the prosecution was sanctioned on 14th July 2014, leading to the filing of the complaint on 6th August 2014.

2. Validity of the framing of charges against the petitioner:
The learned ACMM concluded that sufficient material existed to frame charges against the petitioner and the company under Section 276-CC read with Section 278-B of the IT Act. The contention that there was no willful default was considered a defense to be addressed during the trial. The revision petition challenging this order was dismissed by the Special Judge, who upheld the framing of charges, noting that the petitioner's responsibility for the company's conduct was a matter for trial.

3. Adequacy of the sanction under Section 279 of the IT Act:
The petitioner argued that the prosecution was faulty due to the lack of specific sanction for his prosecution under Section 279 of the IT Act. The court examined the sanction order, which authorized prosecution against the company but did not specifically sanction prosecution against the petitioner. The court held that without a specific sanction against the petitioner, the learned ACMM could not have taken cognizance of the complaint against him. Therefore, the prosecution against the petitioner must fail due to the absence of a specific sanction.

4. Determination of the petitioner as the Principal Officer of the company:
The petitioner contended that he was not issued a prior notice indicating he would be treated as the Principal Officer under Section 2(35)(b) of the IT Act. The court found that the notice dated 26th July 2013 was addressed to the Managing Director/Principal Officer of the company, and the petitioner responded by filing the ITR with his digital signature. However, the court concluded that being a Director and appending digital signatures for statutory compliance did not automatically make the petitioner the Principal Officer. The court emphasized that the Assessing Officer's intention to treat a Director as the Principal Officer must be explicitly conveyed through a notice, which was not done in this case.

Conclusion:
The court quashed the complaint dated 6th August 2014 and all proceedings emanating therefrom, including the impugned orders against the petitioner, due to the absence of a specific sanction for prosecuting the petitioner. The petition was allowed, and the pending application was disposed of. The judgment was to be transmitted to the learned Trial Court electronically and uploaded on the website forthwith.

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