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TMI Blog2021 (2) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to 8 are the Directors of the said Company. It is stated that 2.1. The Company follows the accrual accounting system i.e., income and expenses are accounted regardless of whether or not money/cash actually change hands. The sale is entered into the books when the agreement to sell is entered into with the customer rather than when the money/cash is collected. Irrespective as to whether the purchaser pays the amount or not, the income is shown in the books of account of the Company and tax is paid thereon. 2.2. The Company had submitted its returns for the assessment year 2013-14 on 30.09.2013 declaring a total income of Rs. 17,98,20,900/-. As per the income declared, the tax payable thereon was Rs. 6,41,89,214/-. However, since the Company did not have the money to make the payment of tax and they had a negative balance in the bank account of the first petitioner Company, the said tax amount was not paid. 2.3. On 08.12.2015, the Deputy Commissioner of Income Tax issued notice to one of the Directors calling upon him to attend the office of the Deputy Commissioner of Income Tax and give evidence. In his place, the third petitioner appeared and gave a statement as regards the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Company. It is stated that 4.1. The Company follows the accrual accounting system i.e., income and expenses are accounted regardless of whether or not money/cash actually change hands. The sale is entered into the books when the agreement to sell is entered into with the customer rather than when the money/cash is collected. Irrespective as to whether the purchaser pays the amount or not, the income is shown in the books of account of the Company and tax is paid thereon. 4.2. The Company had submitted its returns for the assessment year 2014-15 on 30.09.2014 declaring a total income of Rs. 21,49,19,000/-. As per the income declared, the tax payable thereon was Rs. 8,08,49,132/-. It is claimed that they had made payment of tax of Rs. 7,83,69,785/-. However, no such payment had been made, since the Company did not have the money to make the payment of tax and they had a negative balance in the bank account of the first petitioner Company, the said tax amount was not paid. 4.3. On 04.02.2016, the Deputy Commissioner of Income Tax issued a show cause notice calling upon as to why the penalty proceedings should not be initiated. This was replied by the petitioner on 23.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the time prescribed, he must reject the landlord's application for eviction. In the present case, it is not in dispute that the tenant did not pay the rent from December 1977 to May 1978 before the institution of the suit. Under the eviction notice served on him in December 1977 he was called upon to pay the rent from December 1977 only. The appellant tenant did not pay or tender the rent from December 1977 to May 1978 not because he had no desire to pay the rent to the respondents but because he bona fide believed that he was entitled to purchase the property under the oral agreement of 14-10-1977. He had also paid Rs. 5000 by way of earnest money under the said oral agreement. True it is, his suit for specific performance of the said oral agreement has since been dismissed but he has filed an appeal which is pending. He, therefore, bona fide believed that he was entitled to purchase the property under the said oral agreement and since he had already paid Rs. 5000 by way of earnest thereunder he was under no obligation to pay the rent to the respondents. In order to secure eviction for non- payment of rent, it must be shown that the default was intentional, deliberate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner -Company avoided or evaded payment of taxes inasmuch as 50% of the tax amounts have been paid for assessment year 2013-14 and the balance would have been paid by the petitioner-Company in due course as and when it received cash flows irrespective of the proceedings adopted by the Income Tax Department. 5.8. In this regard, he relies upon the decision of this Court in Crl.P No.4891/2014 c/w Crl.P No.4892/2014 [M/s.Vyalikaval House Building Co-operative Society Ltd., and others vs. The Income Tax Department] more particularly Paras 9 and 10 thereof, which are extracted hereunder for easy reference: "9. In the instant case, the only circumstance relied on by the respondent in support of the charge levelled against the petitioners is that, even though accused filed the returns, yet, it failed to pay the self-assessment tax along with the returns. This circumstance even if accepted as true, the same does not constitute the offence under Section 276C (2) of the Act. The act of filing the returns by itself cannot be construed as an attempt to evade tax, rather the submission of the returns would suggest that petitioner No.1 had voluntarily declared his intention to pay tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction of the Court, in this regard he relies on Front Row Media Pvt. Ltd. & ors. vs. M/s. Bid & Hammer Auctioneers Pvt. Ltd., and anr. [W.P.Nos.3154-3158/2016 - DD 24.06.2019] 4. Dealing with Section 202 of Cr.P.C Hon'ble Supreme Court of India in ABHIJIT PAWAR VS. HEMANT MADHUKAR NIMBALKAR AND ANOTHER reported in (2017) 3 SUPREME COURT CASES 528 in para 12.1.1 has held as under: "12.1.1. It is submitted that the procedure stipulated in the said provision is mandatory which imposes an obligation on the Magistrate to ensure that before summoning an accused, who resides beyond his jurisdiction, the Magistrate shall make necessary inquiries into the case himself or direct investigation to be made by a police officer or by such other person as he thinks fit for finding out whether or not there is sufficient ground to proceed against the accused. It was submitted that indisputably A-1 resides outside the jurisdiction of the trial court at Kolhapur as he is resident of Pune." In para 23, the Hon'ble Supreme Court has laid down as under: "23. Admitted position in law is that in those cases where the accused is residing at a place beyond the area in which the Magistrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the delay was wilful. 7. Mr. Sawhney submits that opportunities were given to the assessee to make the payment, but the firm as well as the individuals had failed to make the payment. 8. It may be so. However, in the absence of positive evidence to show that they had the resources, it cannot be said that the delay was wilful. 5.13. Sushil Kumar Saboo vs. State of Bihar and another [(2009) SCC Online Pat 691] 9. The tax court in the case of ITO v. Chiranjilal Cotton Industries reported in [2002] 254 ITR 181 (P&H) held that if prosecution under section 276C(2) of the Income-tax Act would not succeed, if there is no evidence on record to show that the assessee had enough resources to pay the amount and he wilfully evaded to pay tax. 10. In the instant case it would appear that assessee had filed an application within time for some more time to pay the due amount on account of financial crunch. 11. Thus, I am of the view that there has been no wilful evasion on the part of the assessee to evade the payment of tax. As such I quash the impugned order dated March 30, 2006 passed by the Presiding Officer, Special Judge, Economic (C)/2006. 5.14. As regards the issuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven therein while coming to the conclusion that there is prima facie case against the accused, though the order need not contain detailed reasons. A fortiori, the order would be bad in law if the reason given turns out to be ex facie incorrect. 5.16. S.K.Alagh vs. State of Uttar Pradesh and others [(2008) 5 SCC 662] 16. The Penal Code, save and except some provisions specifically providing therefor, does not contemplate any vicarious liability on the part of a party who is not charged directly for commission of an offence. 19. As, admittedly, drafts were drawn in the name of the Company, even if the appellant was its Managing Director, he cannot be said to have committed an offence under Section 406 of the Penal Code. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a Company or an employee cannot be held to be vicariously liable for any offence committed by the Company itself. (See Sabitha Ramamurthy v. R.B.S. Channabasavaradhya) 5.17. National Small Industries Corporation Limited vs. Harmeet Singh Paintal and another [(2010) 3 SCC 330] 13. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted in accordance with the Act, the Rules, Regulations, Orders made thereunder. In the face of such a general statement, which does not contain any allegation, specific or otherwise, it is difficult to hold that the Chief Judicial Magistrate rightly took cognizance of the complaint and issued summons to G.N. Verma. The law laid down by this Court in Harmeet Singh Paintal [National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (though in another context) would be squarely applicable. Under the circumstances, we are of the opinion that on the facts of this case and given the absence of any allegation in the complaint filed against him no case for proceeding against G.N. Verma has been made out. 5.19. Tamil Nadu Electricity Board vs. Rasipuram Textile Private Limited and others [(2008) 17 SCC 285] Head Note: Electricity Act, 1910,-Ss 39(1), 44(1)(c) and 49-A proviso-liability-burden of proof-when shifts under S.49-A proviso- Complainant did not aver nor prove that the named directors were in charge and were responsible for the conduct of the business of the company-Trail court convicted the Directors by relying on S.49-A proviso, which puts the burden on the accused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(35) of the Act. It is but required for a criminal prosecution to be initiated that there has to be mens rea on the part of the accused, there has to be specific allegation against the accused, omnibus allegation without any overt act being attributed to the said accused would not be sufficient for initiation of prosecution against the said accused. In the present case, all the directors of the company have been arrayed as accused without there being any specific allegation made against them. In view thereof, he submits that the offence alleged requiring mens rea, particular allegation having not been made against any of the directors, proceedings against all the directors are required to be quashed and the proceeding against the company also required to be quashed since the Company by itself cannot be prosecuted. 5.21. On the above submissions, he contends that the Writ Petition needs to be allowed. 6. Per contra, Sri K.V. Aravind, learned Senior Standing Counsel for the Income Tax Department submits that: 6.1. There is a clear offence which has been made out under Section 277 of the Income Tax Act inasmuch the petitioners have categorically mentioned the BSR Code, challan nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is the Companies Act, 1956 which would apply and in terms of Section 291 thereof, petitioner Nos.2 to 8 are in-charge of the affairs of the Company and therefore, they were required to be prosecuted. 6.9. In this regard, he relies on the decision of Sasi Enterprises vs. Assistant Commissioner of Income-Tax reported in [2014] 41 taxmann.com 500 (SC). Paras 26 and 30 thereof which are reproduced hereunder for easy reference: 26. We have indicated that on failure to file the returns by the appellants, income tax department made a best judgment assessment under Section 144 of the Act and later show cause notices were issued for initiating prosecution under Section 276CC of the Act. Proviso to Section 276CC nowhere states that the offence under Section 276CC has not been committed by the categories of assesses who fall within the scope of that proviso, but it is stated that such a person shall not be proceeded against. In other words, it only provides that under specific circumstances subject to the proviso, prosecution may not be initiated. An assessee who comes within clause 2(b) to the proviso, no doubt has also committed the offence under Section 276CC, but is exempted from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with some imagination of the purposes which lie behind them"- Lenigh Valley Coal Co. v. Yensavage 218 FR 547. The view was re- iterated in Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama AIR 1990 SC 981, and Padma Sundara Rao vs. State of Tamil nadu (2002) 3 SCC 533. 17. One of the significant terms used in Section 276-CC is 'in due time'. The time within which the return is to be furnished is indicated only in sub- section (1) of Section 139 and not in sub- section (4) of Section 139. That being so, even if a return is filed in terms of sub-section (4) of Section 139 that would not dilute the infraction in not furnishing the return in due time as prescribed under sub-section (1) of Section 139. Otherwise, the use of the expression "in due time" would loose its relevance and it cannot be said that the said expression was used without any purpose. Before substitution of the expression "clause (i) of sub-section (1) of section 142" by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.1989 the expression used was "sub-section (2) of section 139". At the relevant point of time the assessing officer was empowered to issue a notice requiring furnishing of a return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act. 6.12. Relying upon the available decisions cited supra and the submission made by the petitioners, he submits that the petitioners are required to stand trial and this Court cannot exercise its power under Section 482 of Cr.P.C., to quash the proceedings and there are prima facie materials made out indicating that the petitioners are involved in the said offence. 7. In the Re-joinder, Sri.Vivek Holla, learned counsel for the petitioners submitted that 7.1. There are no particular allegations which have been made against any of the Directors of the Company in the complaint and all the allegations made are omnibus allegations and therefore, all the Directors have been roped in as accused without any basis and on this ground also, the petition is required to be allowed. 8. In the light of the above submissions made, the points that would arise for determination are: (1) Whether for an offence to be said to be committed under Section 277 of the Income Tax Act, the misstatement is required to be willful to prosecute the assessee? (2) Whether there is a misstatement or willful misstatement by the petitioners in the present proceedings? (3) Whether the delayed payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2013-14 and 30.09.2014 for assessment year 2014-15. 9.6. If at all the petitioner-Company wanted to default on payment, the petitioner- Company could have not even filed its returns and/or filed its return without payment of monies earlier. The fact that the petitioner-Company has made payments would indicate and establish the bonafides of the petitioner-Company. It is also not disputed that the Petitioner company borrowed money to make payment of the Income tax due, since the amounts accounted on the basis of accrual system of accounting was not received by the Petitioner company. 9.7. It was and is required for the Income Tax Department who has provided the facility for an assessee to upload its returns with the actual amount paid and for the system to accept the said returns even though the complete amounts had not been paid. 9.8. On enquiry, Sri.K.V.Aravind, learned Senior Standing counsel for respondent would submit that the system as it exists does not provide for acceptance of returns without the complete amount of income tax being shown as paid. In my view and considered opinion such a system is completely flawed. By not accepting the returns due to non-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be evasion. 10.2. The fact remains that income tax has been paid and the authorities have received the necessary taxes. If at all, for the said delay, there could be an interest component which could have been levied. 10.3. Hence, I answer Point No.3 by holding that delayed payment of Income Tax would not amount to evasion of tax, so long as there is payment of tax, more so for the reason that in the returns filed there is an acknowledgement of tax due to be paid. 11. Answer to Point No.4: Whether all the Directors of the Company can be prosecuted for any violation of the Income Tax Act in terms by relying on the inclusive definition under Section 2(35) of the Income Tax Act? 11.1. It is sought to be contended by Sri.K.V.Aravind, learned Senior Standing Counsel for the respondent that in view of Section 2(35) of Income Tax Act all the persons in charge of the business could be prosecuted. The said section 2(35) of the Income Tax Act is reproduced hereunder for easy reference: (35) ―principal officer, used 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, tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and is extracted below:- "Perused Complaint and Connected papers, materials placed proceed against the A-1 to 8 to take Cognizance. Hence "Cognizance" taken for the offence P/U/Sec 276c(2) and 277 R/W/S. 278B of the Income Tax Act, 1961. Register the case as C.C. in 3rd register and issue Accused Summons to accused No.1 to 8 through RPAD if RPAD charges paid R/by-27-05-2016". 12.2. Shri Vivek Holla, leaned counsel for the petitioners has contended that the Court taking Cognisance is required to apply its mind while taking Cognisance, the above order passed does not indicate such application of mind as such the order of Cognisance is to be set aside. 12.3. The Hon'ble Apex Court as also this Court in a catena of decisions has categorically held that the court taking Cognisance is required to apply its mind to the allegations made and the applicable statute and thereafter pass a reasoned order in writing taking Cognisance, which should be apparent from a reading of the order of Cognisance to indicate that the requirement of "sufficient grounds for proceedings" in terms of Section 204 of the code has been complied with. 12.4. At the time of taking Cognisance, there must be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Magistrate does not satisfy the requirement of arriving at a prima facie conclusion to take Cognisance and issue process let alone to the accused residing outside the Jurisdiction of the said Magistrate. 12.13. Mere reference to the provisions in respect of which offences are alleged to have been committed would not be in compliance with the aforesaid requirement of the statutes as also the various decisions of the Honb'le Apex Court extracted hereinabove. 12.14. When there are multiple accused, the order is required to disclose the application of mind by the Court taking Cognisance as regards each accused. 12.15. The Court taking Cognisance ought to have referred to and recorded the reasons why the said Court believes that an offence is made out so as to take Cognisance more so on account of the fact that it is on taking Cognisance that the criminal law is set in motion insofar as accused is concerned and there may be several cases and instances where if the Court taking Cognisance were to apply its mind, the Complaint may not even be considered by the said Court taking Cognisance let alone taking Cognisance and issuance of Summons. 12.16. In view of the above, I am of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... police station except the power to arrest without warrant. 13.2. A perusal of the Complaint indicates that the address of accused No. 6 provided by the complainant himself is that of Kerala. There is no address of accused No.6 within the jurisdiction of the Magistrate at Bangalore which has been provided. The only allegation which has been made is that he is a Director of accused No. 1 and proceedings have been initiated merely on that ground. 13.3. Admittedly Accused No.6 resides beyond the Jurisdiction of the Learned Trial Court. 13.4. The protection under Section 202 (2) of the Cr P.C. is provided so as to not inconvenience an Accused to travel from outside the Jurisdiction of the Court taking Cognisance to attend to the matter in that Court. Therefore, before issuing Summons to an accused residing outside the Jurisdiction, there has to be an application of mind by the Court issuing Summons and after conducting an enquiry under Section 202 (2) of Cr.P.C. the Court issuing Summons has to come to a conclusion that such Summons are required to be issued to an accused residing outside its jurisdiction. 13.5. Section 202 of Cr.P.C. extracted above provides for the safeguard in re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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