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TMI Blog1998 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... g the provisions of section 269SS of the Act. In the case of Vaiyapuri, an amount of Rs. 30,000 was received in cash on January 8, 1985. The complainant issued summons to the accused to produce books of account on March 16, 1988. In response to his summons, the second accused had appeared before the complainant with the relevant books of account. The second accused has admitted the default under section 276DD and pleaded his ignorance of the provision and represented the same as unintentional. A show-cause notice under section 278AA was also issued to the accused. The first accused company has violated section 269SS by acceptance of loans and deposits otherwise than by account payee cheque or bank draft. The first accused has committed an offence punishable under section 276DD. The second, third and fourth accused being the executives of the first accused who were in charge and responsible for the conduct of the business have committed an offence punishable under section 276DD read with section 278B of the Income-tax Act. The complainant was examined as P. W. 1 who is an authorised representative of the Income-tax Appellate Tribunal, Chennai. When P.W. 1 perused the account pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 10, 1985. The other grounds in the complaint are similar to the complaint filed in the other case. P. W. 1, the complainant has marked exhibits P-1 to P-10. The incriminating materials available in the evidence of P. W. 1 were explained to the accused and the accused denied the same. Criminal Appeal No. 651 of 1990 : The appeal is preferred by the Assistant Commissioner of Income-tax against the order of acquittal passed in F. O. C. C. No. 345 of 1989. The complaint was filed in respect of Rs. 10,000 received by the accused by cash on October 17, 1984. The other averments in the complaint are similar to the complaint filed in Criminal Appeal No. 647 of 1990. In this case also P. W. 1 was examined and documents exhibits P-1 to P-10 were marked. The accused denied the evidence of P. W. 1, when examined under section 313 of the Criminal Procedure Code. Criminal Appeal No. 652 of 1990 : The appeal is preferred by the Assistant Commissioner of Income-tax against the order of acquittal passed in F. O. C. C. No. 346 of 1989. The above complaint was filed in respect of an amount of Rs. 50,000 received by the accused by cash on October 16, 1984. In this case also P. W. 1 was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trial court has completely misconstrued the provisions of sections 278AA and 278E of the Income-tax Act. The trial court has wrongly held that the prosecution should prove that the respondents had no reasonable cause or excuse. The trial court has power to call for the production of the affidavit either from the prosecution or from the respondents under section 165 of the Indian Evidence Act. The trial court failed to see that the complaint was instituted well before the omission of the penal section 276DD of the Income-tax Act, and in view of the provisions of section 6 of the General Clauses Act, it is the duty of the trial court to try the case as if the penal provision has not been omitted. The judgment of the learned judicial magistrate is contrary to law. Learned counsel for the respondents advanced arguments in all the appeals. As all the appeals involve common questions of fact and law, this common judgment is delivered. The point for determination in all the appeals is, whether the accused are liable to be punished for alleged violation of section 269SS of the Income-tax Act. The first accused is a private limited company running a spinning mill in Salem. It is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplainant-Department not satisfied with the above explanation has launched prosecution against the accused. P.W.-1, the Assistant Commissioner of Income-tax, has stated that he verified the accounts of the first accused company and that exhibit P-1 is the deposit register and that exhibit P-2 is the entries in cash register, exhibit P-4 is the authorisation given by the Department to launch the prosecution. Exhibits P-5 to P-7 are the statements given by the accused. The Income-tax Department also issued a show-cause notice to the accused under exhibit P-9. The reply given by the accused is marked as exhibit P-10. It is stated in exhibit P-10 that due to the prevalent tight money conditions at that time, it was very difficult to mobilise deposits and that too at the lowest rate of 15 per cent. and that they have no other alternative, except accepting the above deposits to meet their working capital requirements. In the statement recorded in the enquiry, the accused have stated that at the time of accepting the deposits they did not know the provisions of the Act and that, therefore, they accepted it. It is admitted that the accused have also submitted affidavits of persons from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences for violation of section 269SS has to be decided only with reference to old section 276DD and not new section 271D. Learned counsel for the appellant relies upon a decision in C. A. Baloo v. Union of India [1992] 197 ITR 545 (Mad). It is stated in the above decision that the principle enacted in section 6 of the General Clauses Act that unless a contrary intention appears, the repeal of an Act would not affect any right, privilege, obligation or liability accrued under any enactment so repealed, would apply to repeal of one of the sections of the Income-tax Act, 1961. It is also held in the above decision that with effect from April 1, 1989, section 271D had been introduced while omitting section 276DD with effect from the same date and that it is not possible to gather a contrary intention that the Legislature desired that prosecutions which are permissible under section 276DD of the Act and already initiated before the insertion of the new section were to be erased or obliterated. It is thus clear from the above decision that the repeal of section 276DD after the proceedings were initiated by the Department will not take away the rights of the Department to prove the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provision of the Act be punishable... with rigorous imprisonment which shall not be less than six months but which may extend to seven years. In the above decision, the Supreme Court has held that section 271(1)(a) provides that penalty may be imposed if the Income-tax Officer is satisfied that any person has, without reasonable cause, failed to furnish the return of total income and that it is clear that in the above case, what is intended is a civil obligation while in the latter that is, section 276C what is imposed is a criminal sentence. The court has further held that there can be no dispute that having regard to the provisions of section 276C which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. It is also held in the above decision that reasonable cause is an ingredient of the offence for which the punishment is provided and the taxing authority has prima facie to prove the absence of reasonable cause in the sense that has been explained above. The distinction between sections 276C and 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' occurring in section 276 (now section 272A(2)) of the Income-tax Act, 1961, show that mens rea is an ingredient before punishing the defaulter. It must be shown that the default was deliberate and conscious. It is not enough for the Department to show that the payment or return was not made or filed in time. It has to go further and prove that it was without reasonable cause or excuse. Unless the prosecution proves by evidence that there was no reasonable cause or excuse for not filing the return or depositing the money within the prescribed time, no offence can be said to have been committed." In the above decision, the decision of the Supreme Court reported in CIT v. Anwar Ali [1970] 76 ITR 696 is referred to. In the above decision, it is held thus : "Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." It is thus clear from the above decisions that it is for the prosecution to prove that the accused without reasonable cause or excuse failed to receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the affidavits are in their file. The explanation given by the accused during the enquiry proceedings and also the affidavits of depositors produced by the accused were in the file of the complainant. But, unfortunately the complainant has not even stated in the complaint that the explanation and reasons given by the accused for receiving the deposits in cash are not true and that the accused without any reasonable excuse received the cash. The complainant ought to have given reasons in the complaint as to why the explanation given by the accused is not valid in law. It is no doubt true that the ignorance of law is not an excuse for committing the offence. But the other reasons given by the accused for accepting the cash could have been considered by the Department before launching the prosecution. As already stated, mere acceptance of cash from the depositors is not an offence. The complainant must further allege and prove that the accused accepted the loan or deposit without reasonable cause or excuse. The circumstances under which the accused accepted the cash could be proved only by producing the affidavits sworn by the depositors. But, learned counsel for the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the appellant. The complainant is in possession of the affidavits produced by the accused. The law is well settled that the party who is in custody of the best evidence must produce the same before the court and in such cases he cannot invoke the abstract doctrine of burden of proof. Therefore, it has to be held that the complainant who is in possession of the best evidence failed to produce it before the trial court and invite the court to give a finding on the question whether the explanation trotted out by the accused is true or not. From the facts discussed above, it has to be held that mere contravention of section 269SS is not an offence unless and until it is proved that the accused have no reasonable cause or excuse to accept the loan or deposits in cash. I hold that the complainant failed to aver and prove that the accused without reasonable cause or excuse accepted the deposits in cash. In the absence of an allegation in the complaint that the accused without reasonable cause or excuse accepted the deposits in cash, the accused cannot be said to have committed an offence under section 276DD. Learned counsel for the respondent further contended that when the offen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing the business of the firm and that there was no other evidence on record on this aspect, it could not be said that when the offence was committed all the partners were conducting the business of the firm. Therefore, they would not be liable for conviction." In Greatway (P.) Ltd. v. Asst. CIT [1993] 199 ITR 391 (P H) it is held that when the complaint is silent as to whether any person had been appointed as the principal officer of the petitioner-company and in the absence of such an appointment, a director or the managing director of the company could not be prosecuted. It is alleged in the complaint that the first accused is the company and accused Nos. 2 to 4 are the principal officers of the first accused who are responsible for the conduct of the business of the first accused company. In paragraph 8 of the complaint, it is stated that accused Nos. 2 to 4 being the executives of the first accused at the material time who were in charge of and responsible for the conduct of the business have committed the offence. P.W.-1 was not cross-examined on this aspect by the accused. Further, in the statements given by the accused, exhibits P-5 to P-8, they did not state that they ..... X X X X Extracts X X X X X X X X Extracts X X X X
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