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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 ..... e BSR code, challan number as also the amount paid as income tax. It is alleged that if not for the reconciliation, the petitioner-Company would have got away with non-payment of the taxes. We are unable to accept such a submission. It is not that there was non- payment of any tax before uploading of the returns. The 26 AS returns indicated payment of substantial amount of money due to tax deduction at source. Apart there from, the first petitioner-Company has also made several payments on account of the income tax dues. But however on account of non availability of funds, the entire amount could not be paid before the returns were to be uploaded and/or filed The assessee in the present case has been forced to upload the returns by mentioning that the entire amount had been paid since without doing so the returns would not have been accepted by the software system set up by the Income Tax Department. Therefore, the said statement made has been forced upon the assessee by the Income Tax Department and cannot be said to be misstatement within the meaning and definition thereof under Section 277 of the Income Tax Act. For an offence to be said to be committed under Section 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that all the Directors of the Company cannot be automatically prosecuted for any violation of the Income Tax Act. There has to be specific allegations made against each of the Directors who is intended to be prosecuted and such allegation would have to amount to an offence and satisfy the requirement of that particular provision under which the prosecution is sought to be initiated, more so when the prosecution is initiated by the Income Tax department who has all the requisite material in its possession, and a preliminary investigation has been concluded by the Income Tax department before filing of the criminal complaint. Whether the order of cognizance by the Economic Offences Court is proper and correct? - When there are multiple accused, the order is required to disclose the application of mind by the Court taking Cognisance as regards each accused. 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 severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no presence within the jurisdiction of the Magistrate where the offence has been committed, then it would be mandatory for an enquiry under Section 202 of the Cr.P.C to be held. Order - The prosecution initiated by the respondent against the petitioners is misconceived and not sustainable and as such, the complaints are hereby quashed. - CRIMINAL PETITION NO.5480 OF 2016 C/W CRIMINAL PETITION NO.5481 OF 2016 - - - Dated:- 28-1-2021 - THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ FOR THE PETITIONERS : BY SRI.VIVEK HOLLA, ADVOCATE OF M/S. HOLLA HOLLA FOR THE RESPONDENT : BY SRI. K.V. ARAVIND, ADVOCATE ORDER Criminal Petition No.5480 of 2016 1. The petitioners are before this Court seeking for setting aside the order dated 29.03.2016 passed in C.C.No.85/2016 pending on the file of the Court of Special Court (Economic Offences), Bengaluru, in issuing summons to the petitioners herein. 2. The first petitioner is a Company carrying on the business of construction of apartments and development and sale of plots. Petitioner Nos.2 to 8 are the Directors of the said Company. It is stated that 2.1. The Company follows the accrual accounting syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Income Tax Act imposing a penalty of ₹ 46,36,961/- and issued two notices. 2.8. Immediately thereafter on 20.01.2016 and 21.01.2016, a search and seizure was conducted on the first petitioner - Company and its various premises. 2.9. Notices were issued on 01.02.2016 and 05.02.2016 to the Company to show cause as to why prosecution under Section 277 of the Income Tax Act were not to be initiated. Though the petitioner-Company replied the same, the proceedings in C.C.No.85/2016 came to be initiated by the Income Tax Department against the petitioners for the alleged offence under Sections 276 (C) (2) and 277 of the Income Tax Act. Criminal Petition No.5481 of 2016 3. The petitioners are before this Court seeking for setting aside the order dated 29.03.2016 passed in C.C.No.86/2016 pending on the file of the Court of Special Court (Economic Offences), Bengaluru, in issuing summons to the petitioners herein. 4. The first petitioner is a Company carrying on the business of construction of apartments and development and sale of plots. Petitioner Nos.2 to 8 are the Directors of the said Company. It is stated that 4.1. The Company follows the accrual acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same if his default is not wilful. The proviso is couched in negative form to reduce the rigour of the substantive provision in Section 10(2) of the Act. An act is said to be wilful if it is intentional, conscious and deliberate. The expressions wilful and wilful default came up for consideration before this Court in S. Sundaram Pillai v. V.R. Pattabiraman. After extracting the meaning of these expressions from different dictionaries (see pp. 659 and 660: SCC pp. 605 and 606) this Court concluded at p. 661 as under: (SCC 606, para 26) Thus, a consensus of the meaning of the words 'wilful default' appears to indicate that default in order to be wilful must be intentional, deliberate, calculated and conscious, with full knowledge of legal consequences flowing therefrom. Since the proviso with which we are concerned is couched in negative form the tenant can prevent the decree by satisfying the Controller that his omission to pay or tender the rent was not wilful. If the Controller is so satisfied he must give an opportunity to the tenant to make good the arrears within a reasonable time and if the tenant does so within the time prescribed, he must reject the landlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uploading the returns and balance sheet on the web portal of the Income Tax Department on 30.09.2013. 5.4. The first petitioner Company while filing its returns for assessment year 2014-15 was required to file returns by 30.09.2014 being the last date of filing and as such did and in fact filed its returns in time by uploading the returns and balance sheet on the web portal of the Income Tax Department on 30.09.2014. 5.5. Since the portal did not accept the return without the amount paid as income tax being entered into it, the said amount was entered and the income tax returns were up-loaded. 5.6. It is not that the entry was made to avoid or evade payment of tax, the same was made only for the purpose of up-loading the return on the web portal, by that time as per Section 26AS returns of the first petitioner-Company, an amount of ₹ 2.90 crores had already been paid towards the total amount due of ₹ 6,41,89,214/- for the assessment year 2013-14. As regards assessment year 2014-15, the Petitioner not having any money to pay the previous year's tax had not made any payment for assessment year 2014-15. 5.7. It is not that the first petitioner -Company avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in my considered opinion, is illegal and tantamount to abuse of process of Court and is liable to be quashed . 5.9. Relying on the aforesaid decision, he submits that in the present case, it is not that the payments have not made at all, all dues of income tax have been made. Referring to Vyalikaval's case, he contends that this Court in the said case, taking into consideration the payments were made even after coercive steps were invoked, has quashed the proceedings. But, in the present case, payments have been made even before any coercive steps have been taken. Therefore, the petitioners in the present matter stand at a better footing than that of the Vyalikaval's case and the benefit of the said decision ought to be extended to the petitioners' case also. 5.10. As regards the Directors, he submits that the petitioner No.6 is a resident of Kerala and summons ought not to have been issued to respondent No.6 without following the due procedure under Section 202 of Cr.P.C. inasmuch it is mandatory for inquiry by the Special Court (Economic Offences) Bangalore to apply its mind as to whether process has to be issued to a person residing outside the jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegations contained in the legal notice issued by petitioner were defamatory in nature and that they were made/published with an intent to harm reputation of the complainant, in my view the prosecution of the petitioner is wholly illegal and cannot be sustained. In the above circumstances, continuation of the proceedings against the petitioner is an abuse of the process of law and therefore liable to be quashed. Accordingly the petition is allowed. The proceedings in C.C. No.8002/2011 in so far as the petitioner is concerned are hereby quashed. 5.12. Admittedly, the petitioners did not have money to make payment of the income tax. It is not that the petitioners had money and did not make the payment of the amount. In this regard, he relies on Income Tax Officer vs. Chiranjilal Cotton Industries and others [(2001) SCC Online P H 1615] 6. Learned counsel is unable to refer to any evidence on record to show that the assessee had the resources, but it had failed to pay. Still further, the manner in which the payments have been made is indicative of the assessee's financial position. Even, in the bank account the total amount was ₹ 4,114.30. Nothing has been prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n offence and is required to form such an opinion in this respect-words and Phrases- Cognizance . 48. Sine qua non for taking cognizance of the offence is the application of mind by the Magistrate and his satisfaction that the allegations, if proved, would constitute an offence. It is, therefore, imperative that on a complaint or on a police report, the Magistrate is bound to consider the question as to whether the same discloses commission of an offence and is required to form such an opinion in this respect. When he does so and decides to issue process, he shall be said to have taken cognizance. At the stage of taking cognizance, the only consideration before the court remains to consider judiciously whether the material on which the prosecution proposes to prosecute the accused brings out a prima facie case or not. 53. However, the words sufficient ground for proceeding appearing in Section 204 are of immense importance. It is these words which amply suggest that an opinion is to be formed only after due application of mind that there is sufficient basis for proceeding against the said accused and formation of such an opinion is to be stated in the order itself. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. (emphasis in original) It was then concluded: (SCC p. 345, para 39) 39. (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. 20. Insofar as the criminal complaint is concerned, it does not contain any allegation against G.N. Verma. The only statement concerning him is that he was the Chief General Manager/deemed agent of the mine and was exercising supervision, management and control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 49-A of the Act. 14. In terms of sub-section (1) of Section 49-A, it is for the complainant to prove that the Director of the Company at the time when the theft was committed was in charge of and/or was responsible for the conduct of its business. Only in the event such an averment is made and sufficient and cogent evidence is brought on record to prove the said allegations, the proviso appended to Section 49-A would be attracted; meaning thereby that only in the event it is proved that a Director or a group of Directors of the Company were in charge of and/or were responsible for the conduct of the business of the Company, the burden would shift on the accused to establish the ingredients contained in the proviso appended to Section 49-A of the Act. 15. The learned Additional Sessions Judge as well as the High Court, in our opinion, therefore, were right in holding that in the absence of any averment made in the complaint petition as also in the absence of any evidence brought on record by the complainant to satisfy the requirements of Section 49-A of the Act, the respondents could not have been convicted. 5.20. The Income Tax Department could not have initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being no defence to the same, more so when admittedly, neither the petitioner -Company had money nor that the Company has made payment of money, the petitioner-Company could not have uploaded income tax returns mentioning the BSR Code and the amount said to have been paid. 6.6. The word 'willful' used in Sections 256 (C) (2) and 277 of the Act, there is a reverse burden under the Income Tax Act, there is a presumption of mens rea on the part of the assessee in evading tax in terms of Section 278E of the Act. The burden of proof is on the assessee to show that the statement made was not willful and/or that there was no willful evasion of tax. Though, he refers to Section 153A second proviso, relating to search and seizure and payment of assessment, he fairly submits that those may not be relevant for these proceedings since the offences alleged against the petitioner-Company is only under Section 276 (C) (2) and 277 of the Act, resulting in prosecution of the Directors of the Company under Section 278 (B) of the Act. 6.7. In terms of Section 2(35) of the Income Tax Act, the person in-charge of conducting the business is broadly defined in the Act and therefore all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have to prove the circumstances which prevented them from filing the returns as per Section 139(1) or in response to notices under Sections 142 and 148 of the Act. 6.10. He further relies on the decision of Prakash Nath Khanna vs. Commissioner of Income-tax reported in [2004] 135 Taxman 327 (SC), more particularly Paras 12, 17, 21 and 22 which are reproduced hereunder for easy reference: 12. It is well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the legislature itself. The question is not what may be supposed and has been intended but what has been said. Statutes should be construed, not as theorems of Euclid , Judge Learned Hand said, but words must be construed with some imagination of the purposes which lie behind them - Lenigh Valley Coal Co. v. Yensavage 218 FR 547. The view was re- iterated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge of a fact or belief in, or reason to believe, a fact (2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability . 22. There is a statutory presumption prescribed in Section 278-E. The Court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the prosecution. Therefore, the factual aspects highlighted by the appellants were rightly not dealt with by the High Court. This is a matter for trial. It is certainly open to the appellants to plead absence of culpable mental state when the matter is taken up for trial. 6.11. The payments have been made after it was brought to the notice of the petitioners and therefore, the subsequent payment made by the petitioners would not absolve them of the offences which have been committed under Sections 277 and 276 (C) (2) of the Income Tax Act. 6.12. Relying upon the available decisions cited supra and the submission made by the petitioners, he submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of contending that there is a misstatement and that misstatement has been made to evade tax, it would be required for the Income Tax Department to prove the said circumstances. 9.4. In the present case, the misstatement is stated to be as regards the income tax having been paid even though such payment had not been made since the uploaded returns reflected the BSR code, challan number as also the amount paid as income tax. It is alleged that if not for the reconciliation, the petitioner-Company would have got away with non-payment of the taxes. I am unable to accept such a submission. It is not that there was non- payment of any tax before uploading of the returns. 9.5. The 26 AS returns indicated payment of substantial amount of money due to tax deduction at source. Apart there from, the first petitioner-Company has also made several payments on account of the income tax dues. But however on account of non availability of funds, the entire amount could not be paid before the returns were to be uploaded and/or filed, more particularly, since the last date of filing was on 30.09.2013 for assessment year 2013-14 and 30.09.2014 for assessment year 2014-15. 9.6. If at all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be said to be committed under Section 277 of the Income Tax Act, the misstatement is required to be willful made with a malafide or dishonest intention in order to prosecute the assessee. 9.13. In view of the discussion hereinabove and the circumstances in which such statement was made, I'am of the considered view that there is no willful misstatement by the petitioners in the present proceedings. 9.14. The Income Tax Department is also directed to consider the provisioning of a facility in its software to upload Income Tax Returns with the actual amount paid and for the system to accept the said returns even though the complete amounts had not been paid. 10. Answer to Point No.3: Whether the delayed payment of Income Tax would amount to evasion of tax or not? 10.1. This question is no longer res integra inasmuch as this Court in Crl.P No.4891/2014 (Vyalikaval's case) has held that delayed payment of income tax would not amount to evasion of tax. Applying the same principle to the present fact situation, the delay caused by the petitioner-Company in making payment of the income tax cannot be said to be evasion. 10.2. The fact remains that income tax has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have had to be ascertained as to who has made such a statement for the purpose of initiating action. 11.4. Be that as it may. Since I have answered point Nos.1 and 2 by holding that in the present case there is no misstatement, the question of the Directors being liable for prosecution would not arise. 11.5. Hence, I answer Point No.4 by holding that all the Directors of the Company cannot be automatically prosecuted for any violation of the Income Tax Act. There has to be specific allegations made against each of the Directors who is intended to be prosecuted and such allegation would have to amount to an offence and satisfy the requirement of that particular provision under which the prosecution is sought to be initiated, more so when the prosecution is initiated by the Income Tax department who has all the requisite material in its possession, and a preliminary investigation has been concluded by the Income Tax department before filing of the criminal complaint. 12. Answer to Point No.5: Whether the order of cognizance by the Economic Offences Court is proper and correct? 12.1. The order of cognizance in both cases is identical and is extracted below:- Perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r information by a person other than police officer is placed before the Court, the judicial officer must apply judicious mind coupled with discretion which is not to be exercised in an arbitrary, capricious, whimsical, fanciful or casual way. 12.10. Any offence alleged being one of commission or omission attracting penal statutes; Cognisance can be taken only if the allegations made fulfil the basic requirement of the said penal provision. At this point, it is not required for the Court taking Cognisance to ascertain the truth or veracity of the allegation but only to appreciate if the allegations taken at face value, would amount to the offence complained of or not. If Yes, Cognisance could be taken, if No, taking Cognisance could be refused. The only manner of ascertaining the above is by the manner of recordal made by the Court in the order taking Cognisance. The order passed by the court taking Cognisance would therefore reflect such application of mind to the factual situation 12.11. In the above background the order passed by the Magistrate does not indicate any such consideration by the Magistrate. 12.12. It can be ex facie seen that the order of the Magistrate doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 192, may, if he thinks fit, postpone the issue of process against the accused, and either inquire into the case himself or direct an investigation to be made by a police officer or by such other person as he thinks fit, for the purpose of deciding whether or not there is sufficient ground for proceeding: Provided that no such direction for investigation shall be made,-- a. where it appears to the Magistrate that the offence complained of is triable exclusively by the Court of Session; or b. where the Complaint has not been made by a Court, unless the complainant and the witnesses present (if any) have been examined on oath under section 200. 2. In an inquiry under sub- section (1), the Magistrate may, if he thinks fit, take evidence of witnesses on oath: Provided that if it appears to the Magistrate that the offence complained of is triable exclusively by the Court of Session, he shall call upon the complainant to produce all his witnesses and examine them on oath. 3. If an investigation under sub- section (1) is made by a person not being a police officer, he shall have for that investigation all the powers conferred by this Code on an officer- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. No.100964/2020, DD 11.09.2020] and SRI. KUNAL BAHL and Another vs. STATE OF KARNATAKA [In CRL. P. No.4676 OF 2020, DD 07.01.2021] 13.9. I answer Point No. 6 by holding that : 13.9.1. In the event of accused being an individual, if the said accused has a temporary residence within the jurisdiction of the Magistrate, again merely because he does not have a permanent residence, there is no enquiry which is required to be conducted under Section 202 of Cr.P.C. It would, however, be required for the Magistrate to in the event of issuance of summons/process record as to why the enquiry under Section 202 of Cr.P.C is not being held. 13.9.2. When the accused has no presence within the jurisdiction of the Magistrate where the offence has been committed, then it would be mandatory for an enquiry under Section 202 of the Cr.P.C to be held. 14. Answer to Point No.7: What Order? 14.1. In view of the above discussion and reasoning, I am of the considered opinion that the prosecution initiated by the respondent against the petitioners is misconceived and not sustainable and as such, the complaints in C.C.No.85/2016 and C.C. No. 86/2016 are hereby quashed. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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