2023 (12) TMI 988 - HC - Income Tax

Offence punishable u/s 276-B r/w 278-B of IT Act - statutory requirement of service of notice as contemplated by Section 2(35)(b) -to principal officer - as contented petitioner is not the principal officer under Section 2(35) of the I.T. Act, and he was never served with any notice treating him as a principal officer as required under clause (b) of Section 2(35) to initiate a prosecution under sections 276-B read with 278-B - HELD THAT - The term person is defined under section 2(31) of the I.T. Act and includes a company. As per sub-section (35) of Section 2 of the I.T. Act, principal officer with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means (a) the secretary, treasurer, manager or agent of the authority, company, association or body, or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof. In order to treat a person as a Principal Officer as defined under section 2(35)(b) of the I.T. Act, he must be a person connected with the management or administration of the company, and Assessing Officer must have served upon him a notice of his intention of treating him as the principal officer of the company. In the present case, it is not the case of respondent No. 1 that the notice as contemplated by Section 2(35) of the I.T. Act has been served upon the petitioner. Although, the petitioner is not classified under Section 2(35)(a) as an individual who can be treated as a principal officer without notice, but he falls under the category of persons specified under Section 2(35)(b), where he can be treated as a principal officer only upon service of notice to prosecute him under the purview of Sections 276-B and 278-B of the I.T. Act. Though the Department claimed that it sent the notice to the assessee company and its directors, the fact remains that it was never delivered to the petitioner. Further, the record does not indicate that the Department took any steps to ensure the delivery of the notice before initiating prosecution. Since the Department did not comply with the mandatory condition as enumerated in Section 2(35)(b), this Court finds it difficult to accept the contention of respondent No. 1/Department that it followed all necessary procedures before initiating prosecution against the petitioner. Additionally, a bare perusal of the Order shows that before issuing the process, the learned Magistrate did not take into consideration the relevant provisions of the I.T. Act and determine whether the mandatory notice u/s 2(35)(b) of the I.T. Act was delivered to the accused or not. Needless to state that an order of issuance of process is not an empty formality and requires the Magistrate to apply his mind before issuing the process. Passing orders of issuance of a process without appreciating the statutory provisions and cautiously examining the material on record may put the wheels of criminal law in motion and summon an innocent individual to stand trial. Such orders are liable to be quashed and set aside. This Court is satisfied that the statutory requirement of service of notice as contemplated by Section 2(35)(b) of the I.T. Act is not complied with. This non-compliance goes to the root of the matter and dents the prosecution against the petitioner.

Summary

Issues Involved:
The judgment involves a challenge to the Order dated 18 February 2014 and the Order dated 21 July 2022, regarding the issuance of process and fresh summons in Criminal Case No. 52/SW/2014 under sections 276-B read with 278-B of the Income Tax Act, 1961.

Comprehensive details of the judgment for each issue involved:

1. Challenge to Orders:
The petitioner sought to challenge the Orders dated 18 February 2014 and 21 July 2022, contending that the process was issued against him without proper application of mind by the learned Magistrate. The petitioner argued that the complaint lacked specific averments regarding his role in the alleged offence and that he was not served with a notice treating him as a principal officer as required by the I.T. Act.

2. Legal Considerations:
The Court examined the provisions of the I.T. Act, particularly sections 276-B and 278-B, which deal with the liability of individuals in cases of non-payment of tax deducted at source by a company. The Court also referred to the definition of 'Principal Officer' under section 2(35) of the I.T. Act, emphasizing the requirement of serving a notice to an individual connected with the management or administration of a company to be treated as a principal officer.

3. Analysis of Compliance:
The Court analyzed the actions of the Department in following the necessary procedures before initiating the prosecution. It was noted that the Department failed to serve the mandatory notice under section 2(35)(b) of the I.T. Act to the petitioner, who was a non-executive independent director of the company. The Court highlighted the importance of compliance with statutory requirements before initiating criminal proceedings.

4. Quashing of Criminal Case:
Based on the non-compliance with the mandatory notice provision and the lack of proper consideration by the Magistrate, the Court quashed Criminal Case No. 52/SW/2014 and the related Orders dated 18 February 2014 and 21 July 2022 specifically concerning the petitioner. The Court emphasized that the failure to serve the notice undermined the prosecution against the petitioner and warranted the quashing of the case.

5. Conclusion:
The Court allowed the petition challenging the Orders and the Criminal Case, highlighting the significance of adhering to procedural requirements and ensuring proper legal considerations before initiating criminal proceedings. The judgment focused on the specific issue of non-compliance with the notice provision under the I.T. Act, leading to the quashing of the case against the petitioner.