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TMI Blog2024 (8) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... such Principal Officer is whereby deemed to be assessee in default . In respect of assessment year 2017-2018, a positive order has been passed holding the Company not to be Assessee in Default . No order imposing penalty (either initially or further penalty) as deemed to be an assessee in default under Section 221 has been passed against the company or any of the petitioners. The petitioners are Directors of the Company, however, no averment has been made in the complaints regarding Consent , Connivance or negligence as required under Section 278B (2) of the I.T Act. In the present case, the Revenue has chosen not to invoke the provisions of Section 221 r/w Section 201 (1) of the I.T Act to impose penalty against the company or the principal officer of the company for failure to pay the whole or any part of tax, as required by or under this Act . The Revenue cannot now be permitted to prosecute the petitioners for the same substantive act which is also categorized as an offence under Section 276B of the I.T. Act. As such, further trial of the petitioners by the criminal Court cannot be permissible which would tantamount to abuse of process of the Court. The Counsel has, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Show cause notices came to be issued to the assessee and it s Directors i.e the petitioners herein. The petitioners tendered their explanation to the respondent No. 1. However, respondent No. 1 arrived at a conclusion that the assessee and it s Directors are responsible for paying tax as per section 204 of the I.T Act and have, therefore, committed default under Section 200 of the I.T Act r/w Rule 30 of the Income Tax Rules without reasonable cause or to pay the tax so deducted under the various sections of the I.T Act from payment made to various parties, which amounts to an offence punishable under section 276B r/w Section 278B of the I.T Act. 9. The CIT (TDS) accorded sanction under section 279 (1) of the I.T Act to prosecute the assessee and it s Directors under section 276B r/w 278B of the I.T. Act as, prima facie, they are liable to be prosecuted under these sections. Complaints, therefore, came to be filed being C.C. No.529/SW/2019; C.C. No.532/SW/2019; C.C.No.530/SW/2019; C.C. No.2365/SW/2018; C.C. No.531/SW/2019 and C.C. No.27/SW/2020 in the Court of Additional Chief Metropolitan Magistrate, Mumbai. 10. The Additional Chief Metropolitan Magistrates, Mumbai vide orders da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 (35) (b) of the I.T Act has been issued by the Assessing Officer to any of the petitioners to treat any of them to be the Principal Officer of the Company. It is an admitted fact that the TDS deducted by the company has already been deposited with interest as provided under section 201 (1A) of the IT Act. 16. Per contra, Mr. Sureshkumar, learned Counsel for the respondent No. 1 while taking strong exception to the arguments of Mr. Jain would argue that in view of Section 204 of the I.T Act, the petitioners are responsible as Directors of the Company to deduct TDS. Merely because demand was made before the show cause notice would not wipe out the offence. Mr. Sureshkumar has placed reliance on a decision of the Hon ble Supreme Court in a case of Madhumilan Syntex Ltd and others Vs. Union of India and another (2007) 11 Supreme Court Cases 297. 17. Mr. Sureshkumar has invited my attention to paragraph 10 of the impugned order wherein the learned Additional Sessions Judge observed that there is a specific averment in the complaint with regard to the petitioners being Directors who are responsible for paying tax as per Section 204 of the I.T Act. A show cause notice was, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, even with some delay, Section 276B would not be attracted. 25. At this stage, learned Counsel for the respondents places reliance on a decision of the Supreme Court in case of Madhumilan Syntex Ltd (supra), which, according to Mr. Sureshkumar still holds the field. However, Mr. Jain, learned Counsel for the petitioners countered that the decision in case of Madhumilan Syntex Ltd (supra) would not apply to the case in hand in view of a subsequent CBDT Circular issued by the respondents. According to Mr. Jain, Madhumilan Syntex Ltd (supra) dealt with the Assessment Year 1989-1990 (i.e prior to the 1997 Amendment) and cannot apply to the cases during the Assessment Year 2011-2012, 2012-2013, 2013-2014, 2014-2015, 2016-2016 and 2017-2018. 26. Mr. Jain would invite my attention to the Circular F. No. 285/90/2008 IT (Inv-I)/05 dated 24.04.2008. Clause 3 of the said Circular reads thus; 3. Identification and processing of potential prosecution cases: 3.1 The following categories of offences shall be processed for launching prosecution:- (i) Offences u/s 276B: Failure to pay taxes deducted at source to the credit of Central Government; Cases, where the amount of tax deducted is Rs. 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above facts and arguments of both the parties, the Court has gone through the materials available on record. For ready reference, 276 (B) of the said Act is quoted hereinbelow:- 276 (B) Failure to pay tax to the credit of the Central Government under Chapter XII-D or Chapter XVII-B Section 276B of the Income Tax Act, 1961 lays down that if a person fails to pay to the credit of the Central Government: (I) The tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or (II) The tax payable by him, as required by or under (a) Sub-section (2) of section 115-O; or (b) The second proviso to section 194B, within the prescribed time, as above, the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, along with fine. 16. Section 201 (1A) of the Act is also quoted hereinbelow, which speaks as follows:- (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deducted amount with interest, the prosecution has been launched against the petitioners, which is not in accordance with law. If the petitioners failed to deposit the amount in question within the stipulated time i.e by the 7th day of the subsequent month, it was required to launch the prosecution immediately, which has not been done in the cases in hand. Moreover Section 278 (AA) of the Act clearly states that no person for any failure referred to under Section 276(B) of the Act shall be punished under the said provisions, if he proves that there was reasonable cause for such failure. The judgment relied by Ms Amrita Sinha, the CBDT guidelines were not considered. On this ground these cases are distinguishable in view of the facts and circumstances of the cases relied upon by Ms. Amrita Sinha. 18. The amount has already been deposited with interest and there is no reason why the criminal proceeding shall proceed and the criminal proceeding was launched after receiving the said amount with interest, had it been a case that the case was immediately instituted and thereafter the TDS amount has been deposited with interest, the matter would have been different. As such the conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Gee Motors Tractors Vs. Income Tax Officer (supra), it has been observed at pages 157 to 158 and I quote; JUDICIAL ANALYSIS EXPLAINED IN The above Instruction was explained in the High Court judgment cited above, as follows: The words not normally precede the words be proposed when the amount involved and/or the period of default is not substantial and the amount has also been deposited in the meantime to the credit of the Government . It is true that the word normally does not mean that it is necessary or incumbent upon the authorities concerned so as not to launch proceedings under section 276B but when the conditions for exempting the assessee from prosecution as spelled out in the instructions are available, in the considered view of this Court it will not be open for the authorities then also to have discretion in the matter as otherwise, the authorities concerned may exempt an assessee from the prosecution in one set of circumstances and to prosecute another assessee in the same or identical facts. That would undoubtedly be violative of article 14 of the Constitution of India. The argument of Mr. Sawhney with regard to discretion of the officer concerned can be accepted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifically depositing TDS amount with interest, prosecution was sanctioned under Section 279 (1) of the I.T Act. The assessee had explained that the delay was due to factors like market sluggishness, insolvency proceedings and COVID-19 pandemic with no mens rea involved. It is held that the Authorities ought to have taken into consideration explanation offered by assessee, particularly for the reasons that the Company had suffered insolvency and bankruptcy proceedings and restrictions imposed during COVID-19 Pandemic. Since the prosecution had been initiated by the Revenue after having received TDS amount along with interest, it is held that in such circumstances, entire proceeding initiated against the assessee was to be quashed. 35. A combine reading of Circulars dated 28th May, 1980 and 24th April, 2008 contemplate that prosecution ought not be launched where the tax has been deposited. The words where the amount of default has been deposited in the meantime in the Circular dated 28th May, 1980 signify such intent and the words in addition to the recovery steps as may be necessary in such cases in Circular dated 24th April, 2008 also signify that there are pending arrears which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chairman and Managing Director of accused No. 1 Company. They were charged under Section 276B r/w 278B of the I.T Act. Summons were issued to all the accused persons including the applicants. They moved for discharge which came to be rejected by the Magistrate and, therefore, they approached this Court. A Single Judge of this Court made following observations; 4. It is the contention of the applicants/accused that they are not the principal Officers of the said company Accused No. 1. They are only the non executive Directors of the Company. Accused No.2 L.K Khosla is the Chairman and Managing Director and accused No.8 Yogesh Khosla is whole time Director of the said Company and hence, the liability for deducting income tax and crediting to the Central Government is that of accused No.2, 8 and Company, accused No. 1. It is also contended that no notice was given by the Commissioner of Income Tax to the applicant/accused prior to his granting sanction to prosecute the accused under section 279 (1) of the Act. Principles of natural justice required that the notice ought to have been given to the applicants by the Commissioner before according sanction. 5. The aforesaid submissions we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant time in charge of the business. In the absence of any such proof no partner could be convicted . 38. It can, thus, be seen that merely issuance of notice would not ipso facto become a final determination of classification and identification of a person as Principal Officer . Since treating a person as such would not only have Civil but also penal consequences. As such, an order making such determination is necessary. The said adjudication is contemplated under Section 201 when such person (other than a Company) is held to be a Principal Officer and is also thereafter deemed to be an assessee in default. Any person aggrieved by such order would have remedies available under Section 246 (1) (i) of the I.T Act. There is one more significant aspect to be noted which is the term Principal Officer has been used singular and not in plural and the word officer is further premised by the word principal which signifies main officer and not all the officers who may someway connected with the management or administration of the company. The said determination can, therefore, be done only while passing an order under section 201 (1) of the I.T Act. Section 204 (iii) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 276B ought to be interpreted (which is in relation to failure to pay the TDS deducted) to be the Principal Officer who has been made responsible, under Section 204 (iii) of the I.T Act, for paying the tax. Proviso to Section 278B (1) prescribes absence of knowledge as a valid defence for invoking the said section. Where a person is declared a principal officer of a company by an order under section 201 (1), it would, prima facie, fulfill the requirement of presumption of knowledge. The term Director which has been separately defined under section 2 (20) of the I.T Act has not been used in Section 278B (1). As such director is not covered thereunder. 41. Turning to sub-section (2) of Section 278B of the I.T Act which commences with non obstante clause provides an action to prosecute a person which expressly applies to a Director. Emphasis is on the words with the consent , connivance or attributable to the neglect of such Director, Manager, Secretary or other office of the company. The offence in the present case being an offence under Section 276B of the I.T Act would, therefore, imply that the failure to pay the TDS deducted, must have direct relation namely consent, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the offence. By necessary implication, it follows that a person who does not bear out the requirements is not vicariously liable under Section 22-C (1) of the Act. The proviso, which is in the nature of an exception, states that a person who is liable under sub-section (1) shall not be punished if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. The onus to satisfy the requirements to take benefit of the proviso is on the accused, but it does not displace or extricate the initial onus and burden on the prosecution to first establish the requirements of sub-section (1) to Section 22-C of the Act. The proviso is to give immunity to a person who is vicariously liable under sub-section (1) to section 22-C of the Act. 11. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [(2005) 8 SCC 89] in relation to pari materia proviso in Section 141 of the Negotiable Instruments Act, 1881, this Court observed: (SCC pp. 96 98, paras 4 9) 4 A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, does not reverse the onus under the main provision, namely Section 22-C (1) of the Act, which remains on the prosecution and not on the person being prosecuted. 13. Sub-section (2) states that notwithstanding anything contained in sub-section (1), where any offence under the Act has been committed by a company, and it is proved that such offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any Director, manager, secretary or other officer of the company, then such Director, manager, secretary or other officer of the company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Without much ado, it is clear from a reading of sub-section (2) to Section 22-C of the Act that a person cannot be prosecuted and punished merely because of their status or position as a Director, manager, secretary or any other officer, unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part. The onus under sub-section (2) to Section 22-C is on the prosecution and not on the person being prosecuted . 43. It is nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271 (1) (iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and, therefore, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the view taken by the learned Magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable . The ratio laid down in the aforesaid decision is squarely applicable to the present set of facts. 45. The Hon ble Supreme Court in the case of G.L. Didwania and another Vs. Income Tax Officer and another 1995 Supp (2) Supreme Court Cases 724 while dealing with an appeal preferred by the assessee made following observations in paragraph 4; 4. In the instant case, the crux of the matter is attracted and whether the prosecution can be sustained in view of the order passed by the Tribunal. As noted above, the assessing authority held that the appellant - assessee made a false statement in respect of income of M/s. Young India and Transport Company and that finding has been set aside by the Income-tax Appellate Tribunal. If that is the position then we are unab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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