Bombay High Court
Hemant Mahipatray Shah And Anr vs Anand Upadhyay And Anr on 12 August, 2024
Author: Prithviraj K. Chavan
Bench: Prithviraj K. Chavan
2024:BHC-AS:32589 WP-3039-2022.doc
Shailaja
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION NO.3034 OF 2022
a/w
CRIMINAL WRIT PETITION NO.3035 OF 2022
a/w
CRIMINAL WRIT PETITION NO.3036 OF 2022
a/w
CRIMINAL WRIT PETITION NO.3037 OF 2022
a/w
CRIMINAL WRIT PETITION NO.3038 OF 2022
Hemant Mahipatray Shah and another ] Petitioners
Vs.
Anand Upadhyay and another ] Respondents
a/w
CRIMINAL WRIT PETITION NO.3039 OF 2022
Hemant Mahipatray Shah and another ] Petitioners
Vs.
Sahil Arora and another ] Respondents
.....
Mr. Puneet Jain a/w Mr. Pawan Ved, Mr. Sajal Yadav, Ms.
Aishwarya Kantawala, Ms. Diya Jayan i/b Mr. Meghashyam
Kocharekar, for the Petitioners.
Mr. Suresh Kumar a/w Ms. Jyoti Yadav, for Respondent No.1.
Ms. R.S. Tendulkar, A.P.P, for Respondent No.2 - State.
.....
CORAM : PRITHVIRAJ K. CHAVAN, J.
RESERVED ON : 12th July, 2024.
PRONOUNCED ON : 12th August, 2024.
SHAILAJA Digitally signed by SHAILAJA
SHRIKANT HALKUDE
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SHRIKANT Date: 2024.08.14 12:55:42
HALKUDE +0530
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COMMON ORDER:
1. Rule.
2. Rule is made returnable forthwith.
3. Learned Counsel for the respondents waives service.
4. With the consent of the learned Counsel for the parties, the
petitions are taken up for final disposal at the stage of admission.
5. This bunch of petitions arose from identical set of facts
questioning legality and propriety of prosecution of the petitioners
by the respondent No.1.
6. The petitioners, have, therefore, invoked inherent jurisdiction
of this Court under Section 482 of the Code of Criminal Procedure,
1973 (for short "Cr. P.C") r/w Article 227 of the Constitution of
India impugning issuance of process on the basis of the complaints
filed by the Income Tax Officer under Section 279 (1) of the
Income Tax Act, 1961 (for short "I.T Act") to prosecute them for
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the offence punishable under sections 276B r/w 278B of the I.T.
Act. Briefly stated, facts are as follows.
7. Respondent No.1 - Income Tax officer has filed complaints
under Section 279 (1) of the I.T Act along with sanction to
prosecute the petitioners for the offences as referred hereinabove.
The complainants alleged that M/s. Hubtown Ltd (hereinafter
referred to as "assessee" ) is a Company incorporated under the
Companies Act, 1956. It was brought to the notice of the
respondent No.1 by the assessee that it has deducted amounts of Rs.
13,11,35,617/- during the Financial Year 2011-2012 (Relevant
Assessment Year 2012-13); Rs.14,54,20,798/- during the Financial
Year 2013-2014 (relevant Assessment Year 2014-15),
Rs.15,38,51,407/- during the Financial Year 2012-2013 (relevant
Assessment Year 2013-2014), Rs.15,78,03,299/-, during the
Financial Year 2016-2017 (relevant assessment year 2017-2018) ,
Rs. 12,70,04,846/- during the financial year 2014-2015 (Relevant
Assessment Year 2015-2016) and Rs.8,78,68,793/- during the
Financial Year 2017-2018 (relevant Assessment Year 2018-2019) but
delayed in paying the same to the Government Treasury within the
prescribed time limit.
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8. 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.
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10. The Additional Chief Metropolitan Magistrates, Mumbai vide
orders dated 16th November, 2019, 6th March, 2019, 16th
November, 2019 and 25th January, 2021, prima facie, arrived at a
conclusion and issued process against the petitioners and assessee, as
above.
11. The said orders were challenged by filing Criminal Revision
Application No.357 of 2021, Criminal Revision Application
No.360 of 2021, Criminal Revision Application No.358 of 2021,
Criminal Revision Application No.361 of 2021, Criminal Revision
Application No.359 of 2021 and Criminal Revision Application
No.163 of 2021 before the Additional Sessions Court, Mumbai.
However, the said Court also, by the impugned orders dated 2 nd
May, 2022 rejected the Revision Applications and confirmed the
orders of issuance of process passed by the Additional Chief
Metropolitan Magistrates.
12. I heard Mr. Puneet Jain, learned Counsel for the petitioners at
a considerable length as well as Mr. Suresh Kumar, learned Counsel
for the respondents. I have also perused the affidavits-in-reply as
well as affidavits in rejoinder.
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13. Mr. Jain in his elaborate arguments has taken me through
various provisions of the I.T Act and the case laws on the subject.
He would argue that the petitioners are not the principal officers
and they could only be held vicariously liable provided they fulfill
the statutory requirements of section 278B of the I.T Act which is
more or less analogous with the provisions of section 141 of the
Negotiable Instruments Act, 1881, section 34 of the Drugs and
Cosmetics Act as well as section 10 of The Essential Commodities
Act. He would emphasize that the complaint is bereft of essential
ingredients, in the sense, the person sought to be proceeded against
vicariously should be both "In-charge" and "responsible" for
conducting the business of the company. No such basic averments
are present in the complaint and, therefore, interference of this
Court is essential.
14. Mr. Jain would argue that just because a person is Director, it
cannot be presumed that he is In-charge and responsible for the
conduct of business of the company. There is no automatic
presumption of vicarious liability.
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15. Mr. Jain would further argue that no order as contemplated
under section 201 (1) r/w 201 (3) of the I.T Act has been passed
treating any of the petitioners as "Principal Officer" of the company
and by which such principal officer is whereby "deemed to be
assessee in default". No notice under section 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
another1.
1 (2007) 11 Supreme Court Cases 297
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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, came to be issued to the assessee Company who
thereafter sought an adjournment for ten days. The assessee, in
response to the show cause notice, raised various reasons for non
payment of TDS.
18. A few undisputed facts will have to be taken into
consideration before adverting to the various provisions of the I.T
Act, especially, the scope of Section 276B r/w 278 of the I.T Act. It
is an undisputed fact that the complaint has been filed against the
Company and the petitioners who are it's Directors, for delay in
deposit of TDS. Admittedly, TDS deducted by the Company had
already been deposited with interest as provided under section
201(1A) of the I.T Act.
19. No notice has been issued by the "Assessing Officer" to any of
the petitioners under Section 2 (35) (b) of the I.T Act to treat any of
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them as "Principal Officer" of the Company.
20. No order as contemplated under Section 201 (1) r/w Section
201 (3) of the I.T Act has been passed treating any of the petitioners
as 'Principal Officer" of the company and by which such Principal
Officer is whereby "deemed to be assessee in default".
21. In respect of assessment year 2017-2018, a positive order has
been passed holding the Company not to be "Assessee in Default".
22. 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.
23. 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.
24. Now, the scope of section 276B (as amended by the Finance
Act, 1997) will have to be understood in its correct perspective.
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This Section covers cases of "Failure to Pay" and not mere "Delay in
Deposit" of TDS". In Pre-1997 unamended provisions, the words
"as required by or under the provisions of Chapter XVII-B" could
be read along with the words "BOTH". Under the amended
provisions (post 1997), the criminal liability, however, is attracted
on "Failure to Pay". The phrase "as required by or under the
provisions of Chapter XVII-B" is separately mentioned in Clause (a)
of Section 276B and hence, is linked only with and explains the
manner in which tax is required to be deducted and not the manner
of payment thereof. Thus, under the amended provisions, in case
TDS has been paid in full, 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
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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.25,000 or more, and the same is not
deposited even within 12 months from the date
of deduction, shall be processed for prosecution
in addition to the recovery steps as may be
necessary in such cases.
The authority for processing the prosecution
under this section shall be the officer having
jurisdiction over TDS cases. The prosecution
shall preferably be launched within 60 days of
such detection. If any such default is detected
during search/survey, the processing
ADIT/DDIT or the authorised officer shall
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inform the AO having jurisdiction over TDS
forthwith".
27. In case of Madhumilan Syntex Ltd (supra), which was decided
by the Supreme Court on 23rd March, 2007, it has been held thus;
"In view of Section 200, 201 (Chapter XVII),
276B, 278B (Chapter XXII) and 2 (20), 31 and
35 of the I.T Act, it is clear that wherever a
Company is required to deduct tax at source and
to pay it to the account of the Central
Government, failure on the part of the company
in deducting or in paying such amount is an
offence under the Act and has been made
punishable. It, therefore, cannot be said that the
prosecution against a Company or its Directors
in default of deducting or paying tax is not
envisaged by the Act. It is held that although a
Company is not a natural person but "legal" or
"juristic" person that does not mean that
Company is not liable to prosecution under the
Act. "Corporate Criminal Liability" is not
unknown to law".
28. There can be no second view in light of the ratio laid down
by the Supreme Court in case of Madhumilan Syntex Ltd Vs. Union
of India and another (supra), at the relevant time, however, Mr.
Jain has pressed into service two decisions of Punjab and Haryana
High Court and of Jharkhand High Court wherein the aforesaid
Circular has been referred.
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29. Let me now first look into the judgment delivered by the
High Court of Jharkhand at Ranchi in case of M/s. Dev Prabha
Construction Private Limited Vs. The State of Jharkhand and
another2 wherein while deciding a bunch of petitions, the learned
Judge has discussed scope of section 276B of the I.T Act in respect
of quashing of the cognizance taken by the Special Judge of the
Economic Offence, Dhabad, by which cognizance has been taken
against the petitioner for the offences under section 276B of the I.T
Act. It would be apposite to extract paragraphs 15 to 19 of the
judgment;
"15. In view of 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
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(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 or it shall
be liable to pay simple interest.-
(i) at one per cent, for every month or
part of a month on the amount of such tax
from the date on which such tax was
deductible to the date on which such tax is
deducted; and
(ii) at one end one-half per cent, for
every month or part of a month on the
amount of such tax from the date on
which such tax was deducted to the date
on which such tax is actually paid,
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and such interest shall be paid before
furnishing the statement in accordance
with the provisions of sub-section (3) of
section 200."
Provided that in case any person,
including the principal officer of a
company fails to deduct the whole or
any part of the tax in accordance with
the provisions of this Chapter on the
sum paid to a resident or on the sum
credited to the account of a resident
but is not deemed to be an assessee in
default under the first provision to sub-
section (1), the interest under clause (i)
shall be payable from the date on
which such tax was deductible to the
date of furnishing of return of income
by such resident".
17. It is an admitted fact that the TDS
amount in all these cases were deposited
with interest and the chart with respect to
the same is also annexed with the counter
affidavit of the Income Tax Department,
wherein the date of deduction and date of
depositing the said amount has been
mentioned. However, some delay occurred
in depositing the TDS. Apart from one or
two cases, the deducted amount are not
more than 50,000/-. While passing the
sanction under Section 279 (1) of the Act,
the sanctioning authority has not considered
the CBDT instructions, bearing F.
No.255/339/79-IT (Inv.) dated 28.05.1980,
issued in this regard by the CBDT. The
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CBDT guidelines was considered by the
Patna High Court in the case of Sonali Autos
(P) Ltd. (supra) and after considering this
guidelines, the Court has interfered with the
matter and quashed the entire criminal
proceedings. In CBDT instructions, it is
mentioned that prosecution under Section
276 (B) of the Act shall not normally be
proposed when the amount involved and/or
the period of default is not substantial and
the amount in default has also been
deposited in the meantime to the credit of
Government. No such consideration will, of
course, apply to levy of interest under
Section 201 (1A) of the Act. This is quoted
in the case of Sonali Autos (P) Ltd. (Supra).
Moreover after receiving 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.
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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 continuation of the
proceedings will amount to an abuse of the
process of the Court.
19. Accordingly, the entire criminal
proceedings and the cognizance orders in
their respective cases, passed by the learned
Special Economic Offices, Dhanbad, in the
respective C.O. Cases, whereby cognizance
has been taken against the petitioners for the
offences under Sections 276 (B) and 278 (B)
of the Income Tax Act, pending in the Court
of learned Special Judge, Economic
Offences, Dhanbad, are hereby, quashed".
30. The ratio laid down by the Jharkhand High Court would be
squarely applicable to the present set of facts which are identical. In
the said case also, the petitioners had already deposited TDS
amount with interest and that the case was instituted against the
petitioners after considerable lapse of time. The learned Judge
referred the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.)
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dated 28.05.1980. The said guidelines issued by the CBDT were
also considered by the Patna High Court in case of Sonali Autos (P)
Ltd vs The State Of Bihar and others 3, and had interfered with the
matter while quashing the entire criminal proceedings.
31. A Special Leave Petition (Criminal) Diary No (s). 3073 of
2023 challenging the judgment of the Jharkhand has been preferred
by the Revenue in the Supreme Court. However, the Supreme
Court, upon hearing the Counsel, dismissed the SLP on the ground
that it did not find any merit. Thus, the Supreme Court has also not
interfered with the verdict rendered by the Jharkhand High Court.
The decision in the case of Madhumilan Syntex Ltd Vs. Union of
India and another (supra) thus can be distinguished in light of above
discussion.
32. Before considering judicial analysis made in case of Bee Gee
Motors & Tractors and another Vs. Income Tax Officer 4, it would
be expedient to refer to CBDT Circular bearing F. No.255/339/79-
IT (Inv.) dated 28th May, 1980 in this context. Section 276B deals
with prosecution for failure to pay tax deducted at source.
3 [2017] 396 ITR 636 (Patna)
4 [1996] 218 ITR 155 (Punj. & Har.), 157-158
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Prosecution under section 276B should not normally be proposed
when the amount involved and/or the period of default is not
substantial and the amount in default has also been deposited in the
meantime to the credit of the Government. No such situation will,
of course, apply to levy of interest under Section 201 (1A) of the I.T
Act. In Bee 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
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India. The argument of Mr. Sawhney with
regard to discretion of the officer concerned can
be accepted only to the extent that as to what
facts constitute the discretion for launching the
prosecution and what facts would entail
exemption from prosecution shall always
depend upon the facts of each case with regard
to the amount involved or the period of default.
That is always in the discretion of the
authorities concerned which, of course, again is
to be used in a judicious manner. In so far as the
first contention of Mr. Sawhney that it is the
provisions of the statute which shall have
precedents and not the instructions is
concerned, suffice it to say that the court does
not find any inconsistency or contradiction in
the relevant provisions of the statute and the
instructions quoted above. The relevant
provision of the statute no doubt talks of
prosecution but the instructions in the
considered view of the court provide an
exception in limited matters and that too where
the conditions precedent in the instructions are
available or in existence..."
33. Mr. Jain has also pressed into service a recent judgment of
Orissa High Court in case of Sree Metaliks Ltd. Vs. Union of India5,
wherein there is reference of CBDT Circular dated 24 th April, 2008
which came into being after the decision in the case of Madhumilan
Syntex Ltd and others Vs Union of India and another (supra).
Cases, where amount of tax deducted is Rs.25,000/- or more, and
5 [2024] 162 Taxmann.com 161 (Orissa)
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the same is not deposited even within twelve months from the date
of deduction, especially, proceeded for prosecution in addition to
the recovery steps as may be necessary in such cases. The Authority
for processing the prosecution under the said section shall be the
officer having jurisdiction over TDS cases. The prosecution shall
preferably be launched within sixty days of such deduction. If any
such default is detected during search/survey, the processing
ADIT/DDIT or the authorized officer shall inform the A.O having
jurisdiction over TDS forthwith.
34. In case of Sree Metaliks Ltd. Vs. Union of India (supra), the
petitioner was being prosecuted in view of Section 276B r/w Section
278B and 279 of the I.T Act on the basis of failure to pay tax on
distributing profits of domestic companies/deducted at source for
the Assessment Year 2021-21. The assessee failed to deposit TDS
amount for financial year 2019-20 within statutory period, leading
to complaint case under Sections 276B and 278B. Despite
specifically 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
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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 28 th 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
need to be recovered. Mr. Jain is, therefore, right in his contention
that the ratio laid down in Madhumilan Syntex Ltd and others Vs
Union of India and another (supra), would not be made applicable
in view of the Circular dated 24th April, 2008 and, therefore, it
cannot be treated as a precedent for the period after 24 th April,
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2008. It is also expedient to note that Circular dated 24 th April,
2008 prescribes that the prosecution is to be launched within sixty
days of deduction of the default. Though the circular also prefixes
the requirement with the words "preferably", it also signify that if
not in sixty days the period cannot extend indefinitely for an
unreasonable period. If Section 276B is interpreted to include the
delay in deposit of TDS would make the said provision manifestly
arbitrary.
36. Turning to the definition of "Principal Officer" as
contemplated in Section 2 (35) of the IT Act which requires the
assessing officer to issue notice to any person connected with the
management or administration of the company for his intention of
treating him as the 'Principal Officer" thereof. The obligation,
however, does not end with merely a notice. Section 201 (1),
Proviso to Section 201 (1) and 201 (3) of the I.T Act make it
mandatory for the assessing officer to pass an order. The order is
also appealable under section 246 (1) (i) of the I.T Act. The order
would:-
(a) Determine which officer is proposed to be
dealt as "Principal Officer" of the Company;
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(b) Determine in light of the exclusion under
the proviso to section 201 (1), whether the
company and its Principal Officer should be
"deemed to be Assessee in Default".
37. Section 2 (35) (b) of the I.T Act postulates the Assessing
Officer to issue notice of his "intention to treat" a person connected
with the management and administration of the company as it's
"Principal Officer". This point has been enunciated by this Court in
a decision in the case of Homi Phiroz Ranina and others Vs. State of
Maharashtra and others 6 wherein the applicants sought quashing of
an order dated 30th November, 1996 passed by the Additional Chief
Metropolitan Magistrate, 47th Court, Bandra, inter alia, prayed for
their discharge. It was a complaint filed by the Income Tax Officer
TDS, VI, Bombay against the applicants as well as Unique Oil India
Ltd stating therein that the applicants/accused are Directors as well
as 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
6 (2003)263 ITR 636
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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 were made by
the applicants before the learned Magistrate at
the time of hearing their application for
discharge. However, the learned Magistrate
rejected the said contention by a speaking
order. The learned Advocate Mr. Ranina for
the applicants/accused has submitted that the
applicants being non-executive Directors are
not concerned with the day-today affairs of the
Company which are looked after by the
Managing Director and whole time Director.
Admittedly no administrative responsibilities
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were shouldered by the applicants.
Furthermore applicant Nos.1 and 3 are also
practising Advocates and therefore, they cannot
by law act as full time Directors. They could
only act as non-executive Directors not
exercising any administrative powers or
performing any administration duties.
13. Unless the complaint disclosed a prima
facie case against the applicants/accused of
their liability and obligation as Principal
Officers in the day to day affairs of the
Company as Directors of the Company under
section 278 (b) the applicants cannot be
prosecuted for the offences committed by the
Company. In the absence of any material in the
complaint itself prima facie disclosing
responsibility of the accused for the running of
the day to day affairs of the Company process
could not have been issued against them. The
applicants cannot be made to undergo the
ordeal of a trial unless it could be prima facie
showed that they are legally liable for the
failure of the Company in paying the amount
deducted to the credit of the Company.
Otherwise, it would be a travesty of justice to
prosecute them and ask them to prove that the
offence is committed without their knowledge.
The Supreme Court in the case of Shyam
Sundar v. State of Haryana reported in (1989)
4 SCC 630 : A.I.R 1984 page 53 held as
follows:-
"It would be a travesty of justice to
prosecute all partners and ask them to
prove under the proviso to sub-section
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(1) that the offence was committed
without their knowledge. It is significant
to note that the obligation for the
accused to prove under the proviso that
the offence took place without his
knowledge or that he exercised all due
diligence to prevent such offence arises
only when the prosecution establishes
that the requisite condition mentioned in
sub-section (1) is established. The
requisite condition is that the partner
was responsible, for carrying on the
business and was 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"
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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.T Act
also defines and fixes the responsibility for paying tax in relation to
the company on its "Principal Officer".
39. Now, turning to the application of sub-section (1) of Section
278B of the I.T Act which reads thus;
"278B. (1) Where an offence under this Act
has been committed by a company in charge of,
and was responsible to, the company for the
conduct of the business of the company as well
as the company shall be deemed to be guilty of
the offence and shall be liable to be proceeded
against and punished accordingly:
Provided that nothing contained in this sub-
section shall render any such person liable to
any punishment 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.
(2) Notwithstanding anything contained in
sub-section (1), where an offence under this Act
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has been committed by a company and it is
proved that the 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, such director, manager, secretary
or other officer shall also be deemed to be guilty
of that offence and shall be liable to be
proceeded against and punished accordingly.
[(3) Where an offence under this Act has been
committed by a person, being a company, and
the punishment for such offence is
imprisonment and fine, then, without prejudice
to the provisions contained in sub-section (1) or
sub-section (2), such company shall be punished
with fine and every person, referred to in sub-
section (1), or the director, manager, secretary
or other officer of the company referred in sub-
section (2), shall be liable to be proceeded
against and punished in accordance with the
provisions of this Act.]
Explanation.- For the purposes of this section,-
(a) "company" means a body corporate, and
includes-
(i) a firm; and
(ii) an association of persons or a body of
individuals whether incorporated or not; and
(b) "director", in relation to-
(i) a firm, means a partner in the firm;
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(ii) any association of persons, or a body of
individuals, means any member controlling the
affairs thereof.]
40. Since the provision is squarely for prosecuting an offender,
the term 'conduct of business of the Company" must have a nexus
with "the offence committed" and hence, in the context of such
offence under 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
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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, connivance or neglect of such person.
42. A useful reliance has been placed upon a decision in the case
of Dayle De'Souza Vs. Government of India through Deputy Chief
Labour Commissioner (C) and another 7. While interpreting section
22-C (1) and (2) of the Minimum Wages Act, 1948 which relates to
offence of firm and vicarious liability, the Supreme Court
enunciated necessity of requirements under each of the sub-sections.
It is held that the requirements of Section 22-C (2) are different
from those of Section 22-C (1). Relevant paragraphs are extracted
below;
"9. However, in the context of the present appeal, it
is Section 22-C of the Act which is of more
relevance which reads thus:
"22C. Offences by companies. -- (1) If the person
committing any offence under this Act is a company,
7 (2021) 20 Supreme Court Cases 135
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every person who at the time the offence was
committed, was in charge of, and was responsible
to, the company for the conduct of the business of
the company as well as the company shall be
deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-
section shall render any such person liable to any
punishment provided in this Act if he proves that
the offence was committed without his knowledge
or that he exercised all due diligence to prevent the
commission of such offence.
(2) Notwithstanding anything contained in sub-
section (1), where an offence under this Act has
been committed by a company and it is proved
that the 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, 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.
Explanation. -- For the purposes of this
section --
(a) "company" means any body corporate
and includes a firm or other association
of individuals; and
(b) "Director" in relation to a firm means
a partner in the firm."
10. Sub-section (1) to Section 22-C states that
where an offence is committed by a company, every
person who at the time the offence was committed was
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in-charge of and was responsible to the company for
the conduct of the business, as well as the company
itself shall be deemed to be guilty 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 done in the name of the
company are sought to be made personally
liable for acts which result in criminal action
being taken against the company. It makes
every person who, at the time the offence was
committed, was in charge of, and was
responsible to the company for the conduct of
business of the company, as well as the
company, liable for the offence. The proviso to
the sub-section contains an escape route for
persons who are able to prove that the offence
was committed without their knowledge or that
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they had exercised all due diligence to prevent
commission of the offence.
9. The position of a Managing Director or a
Joint Managing Director in a company may be
different. These persons, as the designation of
their office suggests, are in charge of a company
and are responsible for the conduct of the
business of the company. In order to escape
liability such persons may have to bring their
case within the proviso to Section 141(1), that
is, they will have to prove that when the offence
was committed they had no knowledge of the
offence or that they exercised all due diligence
to prevent the commission of the offence."
(Emphasis added)
12. In Aneeta Hada v. Godfather Travels & Tours (P)
Ltd, [(2012) 5 SCC 661] this Court had reiterated
that the proviso to general vicarious liability under
Section 141 of the Negotiable Instruments Act, 1881,
applies as an exception, by observing: (SCC p. 678,
para 22)
"22. On a reading of the said provision, it is
plain as day that if a person who commits the
offence under Section 138 of the Act is a
company, the company as well as every
person in charge of and responsible to the
company for the conduct of business of the
company at the time of commission of
offence is deemed to be guilty of the offence.
The first proviso carves out under what
circumstances the criminal liability would not
be fastened. Sub-section (2) enlarges the
criminal liability by incorporating the
concepts of connivance, negligence and
consent that engulfs many categories of
officers. It is worth noting that in both the
provisions, there is a "deemed" concept of
criminal liability."
(Emphasis added)
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The proviso being an exception cannot be made a
justification or a ground to launch and initiate
prosecution without the satisfaction of conditions under
sub-section (1) of Section 22-C of the Act. The proviso
that places the onus to prove the exception on the
accused, 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 needless to reiterate the ratio laid down by the Supreme
Court in the case of Dayle De'Souza Vs. Union of India through
Deputy Chief Labour Commissioner (C) and another (supra) since it
is incumbent upon the Revenue to prove that the offence in
question has been committed with the consent or connivance or is
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attributable to any neglect on the part of, any Director, Manager,
Secretary or other officer of the company, 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. This is also in pari materia with the
vicarious liability under section 141 of the Negotiable Instruments
Act, 1881, as has been observed in paragraph 12 (supra).
[Emphasis supplied]
44. 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, rightly placed
reliance on a decision in the case of K.C. Builders Vs. Assistant
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Commissioner of Income-Tax8. It would be apposite to extract
relevant paragraph which reads thus;
"14. ......One of the amendments made to the
abovementioned provisions is the omission of
the word "deliberately" from the expression
"deliberately furnished inaccurate particulars of
such income". It is implicit in the word
"concealed" that there has been a deliberate act
on the part of the assessee. The meaning of the
word "concealment" as found in Shorter Oxford
English Dictionary, 3rd Edition, Vol. I, is as
follows:-
"In law, the intentional suppression of
truth or fact known, to the injury or
prejudice of another."
The word "concealment" inherently carries
with it the element of mens rea. Therefore, the
mere fact that some figure or some particulars
have been disclosed by itself, even if takes out
the case from the purview of non-disclosure, it
cannot by itself take out the case 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
8 [2004] 135 TAXMAN 461 (SC)
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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 cancelled by
the Tribunal or otherwise, the penalty cannot
stand by itself and the same is liable to be
cancelled as in the instant case ordered by the
Tribunal and later cancellation of penalty by the
authorities".
24. In the instant case, the penalties levied
under Section 271(1)(c) were cancelled by the
respondent by giving effect to the order of the
Income Tax Appellate Tribunal in I.T.As Nos.
3129-3132. It is settled law that levy of penalties
and prosecution under Section 276-C are
simultaneous. Hence, once the penalties are
cancelled on the ground that there is no
concealment, the quashing of prosecution under
Section 276-C is automatic.
25. In our opinion, the appellants cannot be
made to suffer and face the rigorous of criminal
trial when the same cannot be sustained in the
eye of law because the entire prosecution in view
of a conclusive finding of the Income Tax
Tribunal that there is no concealment of income
becomes devoid of jurisdiction and under Section
254 of the Act, a finding of the Appellate
Tribunal supersedes the order of the Assessing
Officer under Section 143(3) more so when the
Assessing Officer cancelled the penalty levied.
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26. In our view, once the finding of concealment
and subsequent levy of penalties under Section
271(1)(c) of the Act has been struck down by the
Tribunal, the Assessing Officer has no other
alternative except to correct his order under
Section 154 of the Act as per the directions of
the Tribunal. As already noticed, the subject -
matter of the complaint before this Court is
concealment of income arrived at on the basis of
the finding of the Assessing Officer. If the
Tribunal has set aside the order of concealment
and penalties, there is no concealment in the eyes
of the law and, therefore, the prosecution cannot
be proceeded with by the complainant and
further proceedings will be illegal and without
jurisdiction. The Assistant Commissioner of
Income Tax cannot proceed with the prosecution
even after the order of concealment has been set
aside by the Tribunal. When the Tribunal has set
aside the levy of penalty, the criminal
proceedings against the appellants cannot survive
for further consideration. In our view, the High
Court has taken the view that the charges have
been framed and the matter is in the stage of
further cross-examination and, therefore, the
prosecution may proceed with the trial. In our
opinion, 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.
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45. The Hon'ble Supreme Court in the case of G.L. Didwania and
another Vs. Income Tax Officer and another 9 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
unable to see as to how criminal proceedings
can be sustained".
A prosecution was launched by the Revenue qua the assessee on the
ground of making false statement. The Assessing Authority held
that the assessee had intentionally concealed his income derived
from "Y" Company which belonged to him. The appellant
preferred an appeal against assessment order wherein the Appellate
Tribunal set aside the assessment by holding that there was no
material to hold that "Y" company belonged to assessee. A petition
filed by the appellant before the Magistrate to drop the criminal
proceedings, and an application moved before the High Court
9 1995 Supp (2) Supreme Court Cases 724
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under Section 482 of the Cr. P.C to quash the criminal proceedings
came to be dismissed. The Supreme Court, therefore, held that the
whole question was whether the appellant made a false statement
regarding income which, according to the assessing authority had
escaped assessment. It is noted that the said issue attained finality
in light of the finding of the Appellate Tribunal which was
conclusive and, therefore, the prosecution could not sustain.
Accordingly, the Supreme Court quashed the criminal proceedings.
The ratio laid down hereinabove would also be made applicable to
the present set of facts.
46. A corollary of the aforesaid discussion of the facts, material
placed on record vis-a-vis the decisions rendered by various Courts
have persuaded me to allow all the petitions. Now, to the order.
:ORDER:
(a) Petitions are allowed.
(b) Orders of issuance of process in;
(i) C.C No.529/SW/2019 dated 16th
November, 2019;
(ii) C.C. No.532/SW/2019 dated 16th
November, 2019;
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(iii) C.C. No.530/SW/2019 dated 16th
November, 2019;
(iv) C.C. No.2365/SW/2018 dated 6th
March, 2019;
(v) C.C. No.531/SW/2019 dated 16th
November, 2019 and
(vi) C.C. No.27/SW/2020 dated 25th
January, 2021
are quashed and set aside.
(c) Consequent orders passed in;
(i) Revision Application No.357 of 2021;
(ii) Revision Application No.360 of 2021;
(iii) Revision Application No.358 of 2021;
(iv) Revision Application No.361 of 2021;
(v) Revision Application No.359 of 2021
and
(vi) Revision Application No.163 of 2021
passed by the Additional Sessions Judge, Mumbai on 2 nd May,
2022 are also quashed and set aside.
47. The Petitions are disposed of as above with no order as
to costs.
[PRITHVIRAJ K. CHAVAN, J.]
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