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TMI Blog2021 (4) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... only an amount of Rs. 6.95 Crore out of Rs. 13.17 Crore of TDS demand was deposited by the accused company by20.03.2014. Accordingly, a proposal to initiate prosecution u/s 276 B of Income Tax Act was sent by the then, Assessing officer to CIT which is Ex. CW1/6. 3. It is stated that a notice u/s 2(35) of the Income Tax Act dated 06.02.2014 Ex. CW1/7 was sent to accused no. 2 for treating him as Principal Officer of the accused no. 1 company. No reply to the said notice was filed by accused no. 2. Thereafter, vide order dated 25.02.2014 passed u/s 2(35) of the Income Tax Act Ex. CW1/8, accused no. 2 was treated as the Principal Officer of accused no. 1 company. 4. Thereafter a show cause notice dated 19.05.2014 Ex. CW1/9 was issued and no explanation regarding the default of late deposit of TDS was given. Thereafter, another show cause notice dated 01.07.2015 Ex. CW1/10 was issued. A reply was filed by the company which is Ex. CW1/11. The reply was considered by the CIT and was not found satisfactory. The sanction u/s 279 (1) of the Income Tax Act dated 11.08.2015 Ex. CW1/2 was granted by Sh. Avdhesh Kumar Mishra CIT (TDS) Delhi to prosecute acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for deduction and deposit of the TDS but despite that accused has been erroneously prosecuted. It is submitted that the accused was given first show cause notice u/s 279 (1) of the Income Tax Act on 19.05.2014 and the second show cause notice on 01.07.2015. He submits that the accused gave reasonable explanation pursuant to the first show cause notice and the matter was culminated, but despite that second show cause notice was issued. He submits that sanction order is also silent regarding the fate of the proceedings held pursuant to the first show cause notice. It is argued that the time limits as mandated in CBDT circulars is not adhered during the proceedings before the authorities. Payment of TDS amount 8. I have heard the arguments and perused the record. In present case the prosecution has alleged the offences under Section 276B read with Section 278 B of the Income Tax Act, 1961. In the complaint, it is stated that the accused company had deposited only amount of Rs. 6.95 Crores out of Rs. 13.17 Crores of TDS amount. On the other hand, it is argued by Ld. Defence Counsel that accused company had already made the complete payment of TDS along with interest. It is submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard is without any merit and hence rejected. Role of accused no. 2. 12. In the memo of parties of the complaint, accused no. 2 Pradeep Kumar Jain is prosecuted in capacity of 'Chairman/Managing Director'. In the notice u/s 2(35) of the Income Tax Act Ex. CW1/7, accused no. 2 is shown as 'Chairman' of the accused no 1 company. In the order u/s 2(35) of the Income Tax Act Ex. CW1/8 the responsibility of the accused is fixed as 'CMD'. The relevant portion of the order u/s 2(35) of the Income Tax Act by which he was chosen as the Principal officer is reproduced below: "Sh. Pradeep Kumar Jain did not appear on the fixed date neither any written submissions for the same has been filed by the deductor company. Therefore, in the absence of the specifically mentioned to whom the responsibility is fixed as Principal Officer while committing such default Mr. Pradeep Kumar Jain CMD of M/s Parsvnath Developers Ltd is held to be a "Principal Officer" within the meaning of subsection 35 of Section 2 of the Act for the purpose of ensuing initiation of the proceedings as per the provisions of Section 276 B of the I.T.Act, 1961. 13. Para 5 of the order u/s 2(35) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held as Principal Officer when there were other Directors and responsible officers in the accused company. Vol. The accused no. 2 was the CMD of the accused no. 1 at the relevant time. It is not a thumb rule to declare the CMD as the Principal Officer but generally the CMD is declared as principal officer" 16. CW2 Mr Amit Mohan Mittal in his cross examination stated that accused no 2 was considered as CMD of the accused no 1 company on the basis of MCA record, but the said MCA record is not filed on record. He also admitted that there were six directors in the accused no1 company but only accused no 2 has been prosecuted. The relevant portion of his testimony is reproduced below: "Qns: What evidence did you have or placed on record that stated accused no. 2 was the CMD of the accused no. 1 company and was actively involved in the functioning of accused no. 1 in his capacity of CMD of such company? Ans. On the basis of MCA records, it was established that accused no. 1 was CMD of accused no. 2 company. It is correct that MCA record were not filed on record. It is correct that there were six directors in the accused no. 1 company. It is correct that only accused no. 2 Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit of the TDS within the statutory prescribed period. Qns: Whether one Director or all Directors of the company are responsible for deposit of TDS within the statutory period? Ans: As per Ex. CW3/4 and Ex. CW3/3, accused no. 2 is responsible for deposit of TDS / financial affairs of the accused no. 1. I can not say as to why only accused no. 2 who is one of the Director was only prosecuted and why the other Directors who were there in the company at the relevant period were not prosecuted as the prosecution was initiated by my Ld. Predecessor". 19. A bare perusal of the complaint, order u/s 2(35) of the Income Tax Act and the sanction order u/s 279(1) of the Income Tax Act shows that accused no. 2 was prosecuted being the Charmian and the Managing Director of the accused no. 1 company. But the documents filed by the complainant itself militate against it and shows accused no. 2 as one amongst other Director during the relevant period. No document is placed on record by the complainant showing the accused as the 'Managing Director' in the accused no. 1 company for the relevant period. The company Master Data Ex 3/2 shows accused no 2 only as one of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200. (1) Any person deducting any sum in accordance with the foregoing provisions of this Chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Meaning of "person responsible for paying". 204. For the purposes of the foregoing provisions of this Chapter and section 285, the expression "person responsible for paying" means (iii) in the case of credit, or, as the case may be, payment of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof; 22. In IncomeTax Officer v. Roshni Cold Storage (P.) Ltd., 1998 SCC Online Mad 1237 it was held that: "10. Further, it was made clear in the above ruling that nonissuance of individual notices for other offences such as section 276C, 276CC or 277 is of no consequence. Therefore it is very clear that even after the introduction of section 278B with effect from October 1, 1975, it is mandatory to issue notice under section 2(35)(b) in case the prosecution is for the offence under section 276B and not otherwise. 13. In view of the above th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principal officer is pre requisite. 25. In other words, the basis or the foundation stone prior to launch of prosecution under section 276B is the order u/s 2(35) wherein the directors of the company are treated as Principal officers and then prosecuted. The nonservice of notice or defect in notice u/s 2(35) goes to the root of matter and affects the cardinal indispensable prerequisite prior to launch of prosecution. 26. Complainant has placed on record the list of Directors of accused company which is at page no. 28 of the complaint. The said list shows the address of accused no. 2 as resident of 7, Central Lane, Bengali Market, New Delhi110001. The notice u/s 2(35) of the Income Tax Act Ex. CW1/7 is not sent at the aforesaid address of the accused. It is argued by the Ld. Special Public Prosecutor that the address mentioned in the notice u/s 2(35) of the Income Tax Act is the address of the company. Even, in respect of the address of the company no postal receipt or the service report is placed on record showing the proof of delivery of the aforesaid notice. Para 5 of the complaint is silent about the mode of service by which the notice u/s 2(35) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s partially visible on the Ex. CW1/8. Qns: On what basis above, you have stated that the said order Ex. CW 1/7 and Ex. CW1/8 was served on the accused? Ans: After perusing the office file brought by witness, he states that the order was dispatched vide Diary no. 2447 as in the Income Tax Office file which is mentioned on the top of order under Section 2(35) of the Income Tax Act and therefore the same was presumed to be served on the accused no. 1 company." 29. From the evidence on record, it is clear that the complaint does not mention about the mode of service of notice and order u/s 2(35) Ex CW1/7 and Ex CW1/8 of the Income Tax Act; CW1 and CW2 confirmed that no proof of service is placed on record and the diary number on CW1/8 was incomplete and no clarification was brought on record despite court observation. Merely, on the basis of partial diary number written on the notice, it cannot be safely presumed that the notice and order u/s 2(35) of the Income Tax Act Ex CW1/7 and Ex CW1/8 have been served upon the accused no.2. From the record, it is clear that the complainant has failed to prove the service of notice and order u/s 2(35) of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Singh who was responsible for the deduction and collection of TDS. In view of the aforesaid, accused no 2 Sh. Pradeep Kumar Jain is given benefit of doubt and acquitted for the offence u/s 276B r/w S. 278B of the Income Tax Act, 1961. Financial Difficulties 34. It is argued by the Ld. Defence Counsel that due to recession in the real estate sector the accused no 1 company was suffering from severe liquidity crunch and was not able to fulfill obligations like payment of salaries, taxes and has to obtain huge amount of loans. It is submitted that the said position was also apprised to the complainant department in the reply dated 10.07.2015 Ex 1/11 filed by the accused no 1 company, but the said exigencies were not considered in the sanction order u/s 279 (1) Ex CW1/2 and the sanction for prosecution was granted. Ld. Defence counsel submits that accused in its defence evidence has proved the reasonable cause and the case is covered u/s 278AA of the Income Tax Act, 1961. 35. To appreciate these contentions, it will be appropriate the reproduce the provisions of Section 276 B and 278 AA of the Income Tax Act, 1961. Section 276 B : If a person fails to pay to the credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court of Patna held that: "26. The petitioners have stated in the petition that the aforesaid tax could not be deposited within time due to oversight on the part of the Accountant, who was appointed to deal with the Accounts and Income Tax matters. This mistake was detected at the time of audit of Books of Accounts by the Statutory Auditors of the petitionercompany in August, 2010. Thereafter, the petitioner immediately deposited the amount of tax along with interest in the year 2010 itself. Section 278 AA of the Act specifically says that no person shall be punished for any failure referred to under the said provisions if the assessee proves that there was reasonable cause for such failure. Reasonable cause would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bonafides." 37. From the aforesaid judgments, it is clear that the case of accused will be covered u/s 278 AA of the Income Tax Act, if he is able to prove the reasonable cause existed when the default was committed. There is initial onus on prosecution to establish the ingredients of offence alleged and prove absen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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