Karnataka High Court
M/S. Confident Projects (India) ... vs The Income Tax Department on 28 January, 2021
Author: 307.89 Kb
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF JANUARY, 2021
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
CRIMINAL PETITION NO.5480 OF 2016
C/W
CRIMINAL PETITION NO.5481 OF 2016
BETWEEN:
1. M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.574, PARK HOUSE, 80 FT. ROAD,
8TH BLOCK, KORAMANGALA,
BANGALORE - 560 095,
REPRESENTED BY ITS DIRECTOR,
MR. VASUDEVAN SUDHINDRANATH.
2. DR. CHIRIANKANDATH JOSEPH ROY,
CHAIRMAN & MANAGING DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.574, PARK HOUSE, 80 FT. ROAD,
8TH BLOCK, KORAMANGALA,
BANGALORE - 560 095,
3. SRI. VASUDEVAN SUDHINDRANATH
DIRECTOR-FINANCE,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.51/7/1, "CHITRAKOOT", RATNA AVENUE,
RICHMOND ROAD,
BANGALORE - 560 025.
4. MRS. LINY MOONJELY ROY
CHAIRMAN & MANAGING DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.574, PARK HOUSE, 80 FT. ROAD,
8TH BLOCK, KORAMANGALA,
BANGALORE - 560 095.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
2
5. SRI. ABDUL GAFFAR PALLIKANDY
DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
3/2, AL AMEEN APARTMENTS,
PATALAMMA TEMPLE STREET,
BASAVANAGUDI,
BANGALORE - 560 004.
6. SRI. JOSEPH THERUVIPARAMBLI ALEXANDER
DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
THERUVIPARAMBIL HOUSE,
P.O. KUMBALANGHI,
ERNAKULAM - 682 O07,
KERALA.
7. SRI. SUNIL PARAKKAL KRISHNAN
DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.81/6, JYOTHI,
NANDIDURGA EXTENSION,
BENSON TOWN,
BANGALORE - 560 046.
8. CHIRIYANKANDATH VARGHESES JOSEPH
DIRECTOR,
M/S. CONFIDENT PROJECTS (INDIA) PVT. LTD.,
NO.110, 1ST MAIN, 7TH BLOCK,
KORAMANGALA,
BANGALORE - 560 095. ... PETITIONERS
(COMMON)
(BY SRI.VIVEK HOLLA, ADVOCATE OF M/S. HOLLA & HOLLA)
AND:
THE INCOME TAX DEPARTMENT,
BY DEPUTY COMMISSIONER OF
INCOME TAX, CIRCLE-2(1) (1),
BENGALURU - 560 095,
REPRESENTED BY DR. K.J. DIVYA.
... RESPONDENT
(COMMON)
(BY SRI. K.V. ARAVIND, ADVOCATE)
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
3
THESE CRIMINAL PETITIONS ARE FILED UNDER SECTION
482 OF CR.P.C. PRAYING TO SET ASIDE THE ORDER DATED
29.03.2016 PASSED BY THE COURT OF SPECIAL COURT
(ECONOMIC OFFENCES), BANGALORE IN C.C.NO.85/2016 AND
C.C.NO.86/2016 RESPECTIVELY (ANNEXURE -B) AND QUASH THE
COMPLAINT FILED IN [C.C.NO.85/2016 AND C.C.NO.86/2016
RESPECTIVELY ON THE FILE OF THE COURT OF THE SPECIAL
COURT (ECONOMIC OFFENCES), BANGALORE (ANNEXURE-A)
THESE CRIMINAL PETITIONS COMING ON FOR ADMISSION
AND HAVING BEEN RESERVED FOR ORDERS ON 11.12.2020, THIS
DAY, THROUGH VIDEO CONFERENCE THE COURT PRONOUNCED
THE FOLLOWING:
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
2.1. The Company follows the accrual
accounting system i.e., income and
expenses are accounted regardless of
whether or not money/cash actually
change hands. The sale is entered into the
books when the agreement to sell is
entered into with the customer rather than
when the money/cash is collected.
Irrespective as to whether the purchaser
pays the amount or not, the income is
shown in the books of account of the
Company and tax is paid thereon.
2.2. The Company had submitted its returns for
the assessment year 2013-14 on
30.09.2013 declaring a total income of
Rs.17,98,20,900/-. As per the income
declared, the tax payable thereon was
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
Rs.6,41,89,214/-. However, since the
Company did not have the money to make
the payment of tax and they had a
negative balance in the bank account of
the first petitioner Company, the said tax
amount was not paid.
2.3. On 08.12.2015, the Deputy Commissioner
of Income Tax issued notice to one of the
Directors calling upon him to attend the
office of the Deputy Commissioner of
Income Tax and give evidence. In his
place, the third petitioner appeared and
gave a statement as regards the questions
asked for on that day.
2.4. In the said statement recorded on
01.12.2015, he was specifically asked if
the Company has made payment of taxes
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
for the year 2013-14, where he has
specifically answered "no" and on enquiry
as to the reasons for non-payment, he has
given a detailed answer stating that the
same is mainly on account of the drop in
sales and drop in the receipt of amount
from such sale.
2.5. In furtherance thereof, another show
cause notice came to be issued by the
Deputy Commissioner of Income Taxes on
31.12.2015 on account of the default
having been accepted by the said Director
and called upon the Principal Officer of the
Company to appear before the Deputy
Commissioner of Income Tax to show
cause as to why penalty proceedings
should not be initiated.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
2.6. In reply thereto, the Chartered Accountant
of the Company appeared before the
Deputy Commissioner of Income Tax and
gave a letter stating that the real estate
market is going through a sluggish period
and that there has been drastic fall in the
receipt of money by the Company. They
are in the process of obtaining loan for the
purpose of making payment of the due
tax.
2.7. Despite this, the Assessing Officer on
14.01.2016, i.e., the Deputy
Commissioner of Income Tax passed a
penalty order under Section 221(1) of the
Income Tax Act imposing a penalty of
Rs.46,36,961/- and issued two notices.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
accounting system i.e., income and
expenses are accounted regardless of
whether or not money/cash actually
change hands. The sale is entered into the
books when the agreement to sell is
entered into with the customer rather than
when the money/cash is collected.
Irrespective as to whether the purchaser
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
pays the amount or not, the income is
shown in the books of account of the
Company and tax is paid thereon.
4.2. The Company had submitted its returns for
the assessment year 2014-15 on
30.09.2014 declaring a total income of
Rs.21,49,19,000/-. As per the income
declared, the tax payable thereon was
Rs.8,08,49,132/-. It is claimed that they
had made payment of tax of
Rs.7,83,69,785/-. However, no such
payment had been made, since the
Company did not have the money to make
the payment of tax and they had a
negative balance in the bank account of
the first petitioner Company, the said tax
amount was not paid.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
4.3. On 04.02.2016, the Deputy Commissioner
of Income Tax issued a show cause notice
calling upon as to why the penalty
proceedings should not be initiated. This
was replied by the petitioner on
23.02.2016. However, considering the
same on the very same day, the Income
Tax Department passed an order imposing
a penalty of Rs.78,36,979/- and filed a
proceedings in C.C.No.86/2016 on
29.03.2016 alleging offences under
Sections 276 (c) (2) and 277 of Income
Tax Act, which was taken cognisance by
the Magistrate on 29.03.2016 and
summons were issued. It is aggrieved by
the same that the petitioners are before
this Court.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
5. Sri.Vivek Holla, learned counsel for the petitioners
would submit that
5.1. For the purpose of applicability of Sections
277 and 276 (C) (2) of the Income Tax Act,
there must be a willful attempt on the part of
the petitioners and/or the assessee to make
false statement willfully and attempt to evade
tax which is not the situation in the present
case. In this regard he relies on Rakapalli
Raja Rama Gopala Rao vs. Naragani
Govinda Sehararao and another [(1989)
4 SCC 255]
4. The short question then is whether it can be
said that the tenant's default to pay or tender rent
from December 1977 to May 1978 was not wilful
to avail of the benefit of the proviso extracted
above. It may be noticed that in cases where the
tenant has defaulted to pay or tender the rent he
is entitled to an opportunity to pay or tender the
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"
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c/w Crl.P. No.5481 OF 2016
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 landlord's application for eviction. In the
present case, it is not in dispute that the tenant
did not pay the rent from December 1977 to May
1978 before the institution of the suit. Under the
eviction notice served on him in December 1977
he was called upon to pay the rent from December
1977 only. The appellant tenant did not pay or
tender the rent from December 1977 to May 1978
not because he had no desire to pay the rent to
the respondents but because he bona fide believed
that he was entitled to purchase the property
under the oral agreement of 14-10-1977. He had
also paid Rs 5000 by way of earnest money under
the said oral agreement. True it is, his suit for
specific performance of the said oral agreement
has since been dismissed but he has filed an
appeal which is pending. He, therefore, bona fide
believed that he was entitled to purchase the
property under the said oral agreement and since
he had already paid
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
Rs.5000 by way of earnest thereunder he was
under no obligation to pay the rent to the
respondents. In order to secure eviction for non-
payment of rent, it must be shown that the default
was intentional, deliberate, calculated and
conscious with full knowledge of its consequences.
Here is a tenant who felt that even though he had
invested Rs.5000 as earnest the vendor has sold
the property to the respondents in total disregard
of his right to purchase the same. This is not a
case of a tenant who has failed to pay the rent
without any rhyme or reason. He was not averse
to paying the rent but he genuinely believed that
he was under no obligation to do so as he had a
prior right to purchase the property. We are,
therefore, of the opinion that this is a case in
which the Controller should have invoked the
proviso and called upon the appellant to pay the
arrears from December 1977 to May 1978 within a
certain time. Failure to do so has resulted in
miscarriage of justice. We are, therefore, of the
opinion that the ejectment decree cannot be
allowed to stand.
5.2. The petitioners have not made any such
willfully false statement and evaded the
payment of tax inasmuch as the taxes due
have been paid from time to time.
5.3. The first petitioner Company while filing its
returns for the assessment year 2013-14
was required to file returns by 30.09.2013
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 30.09.2013.
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 Rs.2.90
crores had already been paid towards the
total amount due of Rs.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
avoided or evaded payment of taxes
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
inasmuch as 50% of the tax amounts have
been paid for assessment year 2013-14
and the balance would have been paid by
the petitioner-Company in due course as
and when it received cash flows
irrespective of the proceedings adopted by
the Income Tax Department.
5.8. In this regard, he relies upon the decision
of this Court in Crl.P No.4891/2014 c/w
Crl.P No.4892/2014 [M/s.Vyalikaval
House Building Co-operative Society
Ltd., and others vs. The Income Tax
Department] more particularly Paras 9
and 10 thereof, which are extracted
hereunder for easy reference:
"9. In the instant case, the only circumstance relied on
by the respondent in support of the charge levelled
against the petitioners is that, even though
accused filed the returns, yet, it failed to pay the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
self-assessment tax along with the returns. This
circumstance even if accepted as true, the same
does not constitute the offence under Section
276C (2) of the Act. The act of filing the returns by
itself cannot be construed as an attempt to evade
tax, rather the submission of the returns would
suggest that petitioner No.1 had voluntarily
declared his intention to pay tax. The act of
submitting returns is not connected with the
evasion of tax. It is only an act which is closely
connected with the intended crime, that can be
construed as an act in attempt of the intended
offence. In the backdrop of this legal principle, the
Hon'ble Supreme Court in the case of Prem Dass -
vs - Income Tax Officer cited supra, has held that
a positive act on the part of the accused is
required to be established to bring home the
charge against the accused for the offence under
Section 276C(2) of the Act.
10. In the case on hand, conduct of petitioner
No.1 making payments in terms of the returns
filed by him, though delayed and made after
coercive steps were taken by the Department do
not lead to the inference that the said payments
were made in an attempt to evade tax declared in
the returns filed by him. Delayed payments, under
the provisions of the Act, may call for imposition of
penalty or interest, but by no stretch of
imagination, the delay in payment could be
construed as an attempt to evade tax so as to
entail prosecution of the petitioners for the alleged
offence under Section 276C(2) of the Act. In that
view of the matter, the prosecution initiated
against the petitioners, 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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 jurisdiction of
the Court, in this regard he relies on Front
Row Media Pvt. Ltd. & ors. vs. M/s. Bid
& Hammer Auctioneers Pvt. Ltd., and
anr. [W.P.Nos.3154-3158/2016 - DD
24.06.2019]
4. Dealing with Section 202 of Cr.P.C Hon'ble
Supreme Court of India in ABHIJIT PAWAR VS.
HEMANT MADHUKAR NIMBALKAR AND ANOTHER
reported in (2017) 3 SUPREME COURT CASES 528
in para 12.1.1 has held as under:
"12.1.1. It is submitted that the procedure
stipulated in the said provision is mandatory which
imposes an obligation on the Magistrate to ensure
that before summoning an accused, who resides
beyond his jurisdiction, the Magistrate shall make
necessary inquiries into the case himself or direct
investigation to be made by a police officer or by
such other person as he thinks fit for finding out
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
whether or not there is sufficient ground to
proceed against the accused. It was submitted
that indisputably A-1 resides outside the
jurisdiction of the trial court at Kolhapur as he is
resident of Pune."
In para 23, the Hon'ble Supreme Court has laid
down as under:
"23. Admitted position in law is that in those
cases where the accused is residing at a place
beyond the area in which the Magistrate exercises
his jurisdiction, it is mandatory on the part of the
Magistrate to conduct an enquiry or investigation
before issuing the process."
5. In view of the ratio laid down in the aforesaid
decision and in the light of the specific provision
contained in Section 202 of Cr.P.C., petitions are
allowed. Process issued to the petitioners is set
aside. Matter is remitted to the learned Magistrate
to proceed in the matter after compliance of the
requirements of Section 202 of Cr.P.C. All other
contentions urged by the petitioners are left upon
for consideration at appropriate stage.
5.11. Lakshmi Narayan Das vs. Amitabh Das
[Crl.P No.4941/2011 - DD 18.08.2018]
18. It is also necessary to note that the petitioner
is a resident of Bihar State. Section 202 of Cr.P.C.
cast a mandatory duty on the Court to hold an
enquiry before issuance of process, when the
accused is residing at a place beyond the area in
which the Court exercises its jurisdiction. There is
nothing in the impugned order to indicate that the
learned Magistrate has conducted any enquiry as
contemplated under Section 202 of the Cr.P.C. In
any case, the complainant himself having failed to
make out that the allegations contained in the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 Rs. 4,114.30. Nothing has been
produced on record to show that the delay was
wilful.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
7. Mr. Sawhney submits that opportunities were
given to the assessee to make the payment, but
the firm as well as the individuals had failed to
make the payment.
8. It may be so. However, in the absence of
positive evidence to show that they had the
resources, it cannot be said that the delay was
wilful.
5.13. Sushil Kumar Saboo vs. State of Bihar
and another [(2009) SCC Online Pat
691]
9. The tax court in the case of ITO v. Chiranjilal
Cotton Industries reported in [2002] 254 ITR 181
(P&H) held that if prosecution under section
276C(2) of the Income-tax Act would not succeed,
if there is no evidence on record to show that the
assessee had enough resources to pay the amount
and he wilfully evaded to pay tax.
10. In the instant case it would appear that
assessee had filed an application within time for
some more time to pay the due amount on
account of financial crunch.
11. Thus, I am of the view that there has been no
wilful evasion on the part of the assessee to evade
the payment of tax. As such I quash the impugned
order dated March 30, 2006 passed by the
Presiding Officer, Special Judge, Economic
(C)/2006.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
5.14. As regards the issuance of summons, he
submitted that the said order dated
29.03.2016 does not indicate application of
mind by the Economic Offences Court
inasmuch as the order does not reflect
whether the Magistrate has come to the
conclusion that any offence has been
committed or not and on this ground also
the proceedings ought to be quashed. In
this regard, he relies on the following
decisions:
5.15. Sunil Bharti Mittal vs. Central Bureau of
Investigation [(2015) 4 SCC 609]
Head Note D:- Criminal Procedure Code, 1973 -
Ss. 190 and 200 to 204- Cognizance - Meaning
and scope-Cognizance can be taken under the
three conditions mentioned in S.190-Expression
"taking cognizance" has not been defined in Cr.PC-
However, when the Magistrate applies his mind for
proceedings against persons concerned, he is said
to have taken cognizance of an offence-Sine qua
non for taking cognizance of offence is application
of mind by Magistrate and his satisfaction that
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
allegations, if proved, would constitute an offence-
It is, therefore, imperative that on a complaint or
on a police report, Magistrate is bound to consider
question as to whether the same discloses
commission of an 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 order is liable to be
set aside if no reason is given therein while coming
to the conclusion that there is prima facie case
against the accused, though the order need not
contain detailed reasons. A fortiori, the order
would be bad in law if the reason given turns out
to be ex facie incorrect.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
5.16. S.K.Alagh vs. State of Uttar Pradesh and
others [(2008) 5 SCC 662]
16. The Penal Code, save and except some
provisions specifically providing therefor, does not
contemplate any vicarious liability on the part of a
party who is not charged directly for commission
of an offence.
19. As, admittedly, drafts were drawn in the name
of the Company, even if the appellant was its
Managing Director, he cannot be said to have
committed an offence under Section 406 of the
Penal Code. If and when a statute contemplates
creation of such a legal fiction, it provides
specifically therefor. In absence of any provision
laid down under the statute, a Director of a
Company or an employee cannot be held to be
vicariously liable for any offence committed by the
Company itself. (See Sabitha Ramamurthy v.
R.B.S. Channabasavaradhya)
5.17. National Small Industries Corporation
Limited vs. Harmeet Singh Paintal and
another [(2010) 3 SCC 330]
13. Section 141 is a penal provision creating
vicarious liability, and which, as per settled law,
must be strictly construed. It is therefore, 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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
consonance with strict interpretation of penal
statutes, especially, where such statutes create
vicarious liability.
5.18. G.N.Verma vs. State of Jharkhand and
another [(2014) 4 SCC 282]
19. It has been laid down, in the context of
Sections 138 and 141 of the Negotiable
Instruments Act, 1881 in National Small Industries
Corpn. Ltd. v. Harmeet Singh Paintal [National
Small Industries Corpn. Ltd. v. Harmeet Singh
Paintal, that Section 141 is a penal provision
creating a vicarious liability. It was held as follows:
(SCC p. 336, para 13)
"13. ... It is therefore, 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."
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 of the mine and in that
capacity was bound to see that all mining
operations were conducted in accordance with the
Act, the Rules, Regulations, Orders made
thereunder. In the face of such a general
statement, which does not contain any allegation,
specific or otherwise, it is difficult to hold that the
Chief Judicial Magistrate rightly took cognizance of
the complaint and issued summons to G.N. Verma.
The law laid down by this Court in Harmeet Singh
Paintal [National Small Industries Corpn. Ltd. v.
Harmeet Singh Paintal, (though in another
context) would be squarely applicable. Under the
circumstances, we are of the opinion that on the
facts of this case and given the absence of any
allegation in the complaint filed against him no
case for proceeding against G.N. Verma has been
made out.
5.19. Tamil Nadu Electricity Board vs.
Rasipuram Textile Private Limited and
others [(2008) 17 SCC 285]
Head Note: Electricity Act, 1910,-Ss 39(1),
44(1)(c) and 49-A proviso-liability-burden of
proof-when shifts under S.49-A proviso-
Complainant did not aver nor prove that the
named directors were in charge and were
responsible for the conduct of the business of the
company-Trail court convicted the Directors by
relying on S.49-A proviso, which puts the burden
on the accused to prove that the offence was
committed without his knowledge-held, in the
absence of any averment in complaint petition or
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
any evidence to satisfy the requirements of S.49-A
of the Act, the respondents could not have been
convicted-only in the event it is proved that a
Director or a group of Directors of the Company
were in charge of and/or wee 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 to S.49-A-
Evidence Act, 1872-Ss.101 and 102.
12. In terms of the aforesaid provision, therefore,
it was obligatory on the part of the complainant
not only to make requisite averments in the
complaint petition but also to prove that any of the
Directors who had been prosecuted for alleged
commission of the aforementioned offence was in
charge of and was otherwise responsible for the
conduct of the affairs of the Company.
13. We have noticed hereinbefore that how the
learned trial Judge has dealt with the entire
aspect. The learned trial Judge has misconstrued
and misinterpreted the provisions of 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.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 initiated prosecution against all the
directors of the company merely by relying
upon a provision of Section 2(35) of the
Act. It is but required for a criminal
prosecution to be initiated that there has
to be mens rea on the part of the accused,
there has to be specific allegation against
the accused, omnibus allegation without
any overt act being attributed to the said
accused would not be sufficient for
initiation of prosecution against the said
accused. In the present case, all the
directors of the company have been
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
arrayed as accused without there being
any specific allegation made against them.
In view thereof, he submits that the
offence alleged requiring mens rea,
particular allegation having not been made
against any of the directors, proceedings
against all the directors are required to be
quashed and the proceeding against the
company also required to be quashed since
the Company by itself cannot be
prosecuted.
5.21. On the above submissions, he contends
that the Writ Petition needs to be allowed.
6. Per contra, Sri K.V. Aravind, learned Senior
Standing Counsel for the Income Tax Department
submits that:
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
6.1. There is a clear offence which has been
made out under Section 277 of the Income
Tax Act inasmuch the petitioners have
categorically mentioned the BSR Code,
challan number and the amount which are
alleged to have been paid by the
petitioners towards the income tax.
6.2. This itself is with an intention to evade tax
for the reason that it is only during re-
conciliation process conducted by the
Income Tax Department that it came to
the light that the said payments has not
been paid, therefore, resulting in issuance
of notices.
6.3. If the re-conciliation process had not been
initiated and the amounts found due, the
petitioners would have kept quite depriving
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
and cheating the Income Tax Department
of the tax dues thereby being successful in
evading the payment of tax.
6.4. In the present case, it is not evasion as
normally understood, but the evasion on
account of misstatement or a wrong
statement made with a malafide purpose
that an offence under Section 277 of the
Act is committed and it is only on account
of the said misstatement that the offence
of evasion of tax under Section 276 (C) (2)
of the Act has been committed.
6.5. The misstatement being the foundation of
the criminal prosecution against the
petitioner-Company and there being no
defence to the same, more so when
admittedly, neither the petitioner -
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 the petitioners
could be prosecuted under the said
provision.
6.8. Insofar as the returns for the year 2013 is
concerned, it is the Companies Act, 1956
which would apply and in terms of Section
291 thereof, petitioner Nos.2 to 8 are in-
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
charge of the affairs of the Company and
therefore, they were required to be
prosecuted.
6.9. In this regard, he relies on the decision of
Sasi Enterprises vs. Assistant
Commissioner of Income-Tax reported
in [2014] 41 taxmann.com 500 (SC).
Paras 26 and 30 thereof which are
reproduced hereunder for easy reference:
26. We have indicated that on failure to file the
returns by the appellants, income tax department
made a best judgment assessment under Section
144 of the Act and later show cause notices were
issued for initiating prosecution under Section
276CC of the Act. Proviso to Section
276CC nowhere states that the offence
under Section 276CC has not been committed by
the categories of assesses who fall within the
scope of that proviso, but it is stated that such a
person shall not be proceeded against. In other
words, it only provides that under specific
circumstances subject to the proviso, prosecution
may not be initiated. An assessee who comes
within clause 2(b) to the proviso, no doubt has
also committed the offence under Section 276CC,
but is exempted from prosecution since the tax
falls below Rs.3,000/-. Such an assessee may file
belated return before the detection and avail the
benefit of the proviso. Proviso cannot control the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
main section, it only confers some benefit to
certain categories of assesses. In short, the
offence under Section 276CC is attracted on failure
to comply with the provisions of Section 139(1) or
failure to respond to the notice issued
under Section 142 or Section 148 of the Act within
the time limit specified therein.
30. Section 278E deals with the presumption as to
culpable mental state, which was inserted by the
Taxation Laws (Amendment and Miscellaneous
Provisions) Act, 1986. The question is on whom
the burden lies, either on the prosecution or the
assessee, under Section 278E to prove whether
the assessee has or has not committed willful
default in filing the returns. Court in a prosecution
of offence, like Section 276CC has to presume the
existence of mens rea and it is for the accused to
prove the contrary and that too beyond reasonable
doubt. Resultantly, the appellants 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:
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
in Union of India v. Filip Tiago De Gama of Vedem
Vasco De Gama AIR 1990 SC 981, and Padma
Sundara Rao vs. State of Tamil nadu (2002) 3 SCC
533.
17. One of the significant terms used in Section
276-CC is 'in due time'. The time within which the
return is to be furnished is indicated only in sub-
section (1) of Section 139 and not in sub- section
(4) of Section 139. That being so, even if a return
is filed in terms of sub-section (4) of Section
139 that would not dilute the infraction in not
furnishing the return in due time as prescribed
under sub-section (1) of Section 139. Otherwise,
the use of the expression "in due time" would
loose its relevance and it cannot be said that the
said expression was used without any purpose.
Before substitution of the expression "clause (i) of
sub-section (1) of section 142" by Direct Tax Laws
(Amendment) Act, 1987 w.e.f. 1.4.1989 the
expression used was "sub-section (2) of section
139". At the relevant point of time the assessing
officer was empowered to issue a notice requiring
furnishing of a return within the time indicated
therein. That means the infractions which are
covered by Section 276-CC relate to non-
furnishing of return within the time in terms of
sub-section (1) or indicated in the notice given
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
under sub-section (2) of Section 139. There is no
condonation of the said infraction, even if a return
is filed in terms of sub-section (4). Accepting such
a plea would mean that a person who has not filed
a return within the due time as prescribed under
sub-sections (1) or (2) of Section 139 would get
benefit by filing the return under Section
139(4) much later. This cannot certainly be the
legislative intent.
21. Whether there was wilful failure to furnish the
return is a matter which is to be adjudicated
factually by the Court which deals with the
prosecution case. Section 278-E is relevant for this
purpose and the same reads as follows:
"Presumption as to culpable mental state- (1) In
any prosecution for any offence under this Act
which requires a culpable mental state on the part
of the accused, the court shall presume the
existence of such mental state but it shall be a
defence for the accused to prove the fact that he
had no such mental state with respect to the act
charged as an offence in that prosecution.
Explanation: In this sub-section, "culpable mental
state" includes intention, motive or 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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 that the petitioners
are required to stand trial and this Court
cannot exercise its power under Section
482 of Cr.P.C., to quash the proceedings
and there are prima facie materials made
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
out indicating that the petitioners are
involved in the said offence.
7. In the Re-joinder, Sri.Vivek Holla, learned counsel
for the petitioners submitted that
7.1. There are no particular allegations which
have been made against any of the
Directors of the Company in the complaint
and all the allegations made are omnibus
allegations and therefore, all the Directors
have been roped in as accused without any
basis and on this ground also, the petition
is required to be allowed.
8. In the light of the above submissions made, the
points that would arise for determination are:
(1) Whether for an offence to be said to be
committed under Section 277 of the
Income Tax Act, the misstatement is
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
required to be willful to prosecute the
assessee?
(2) Whether there is a misstatement or
willful misstatement by the petitioners in
the present proceedings?
(3) Whether the delayed payment of income
tax would amount to evasion of tax or
not?
(4) Whether all the Directors of the
Company can be prosecuted for any
violation of the Income Tax Act by
relying on the inclusive definition under
Section 2(35) of the Income Tax Act?
(5) Whether the order of cognizance by the
Economic Offences Court is proper and
correct?
(6) Whether the Magistrate is required to
follow the proceedings under Section
202 even for the offences under the
Income Tax Act?
(7) What Order?
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
9. Answer to Point No.1: Whether for an offence
to be said to be committed under Section 277
of the Income Tax Act, the misstatement is
required to be willful to prosecute the
assessee?
Answer to Point No.2: Whether there is a
misstatement or willful misstatement by the
petitioners in the present proceedings?
9.1. Both the above points being related to
each other are taken up for consideration
together.
9.2. Sri.K.V.Aravind, learned Senior Standing
Counsel for Income-tax Department would
contend that there is reverse burden of
proof under Section 277 of the Income Tax
Act inasmuch as requiring the assessee to
support the statements made in the
returns.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
9.3. Though that may be the case, it cannot be
contended that the statements made by
the assessee are wrong until proven right.
For the purposes 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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
9.6. If at all the petitioner-Company wanted to
default on payment, the petitioner-
Company could have not even filed its
returns and/or filed its return without
payment of monies earlier. The fact that
the petitioner-Company has made
payments would indicate and establish the
bonafides of the petitioner-Company. It is
also not disputed that the Petitioner
company borrowed money to make
payment of the Income tax due, since the
amounts accounted on the basis of accrual
system of accounting was not received by
the Petitioner company.
9.7. It was and is required for the Income Tax
Department who has provided the facility
for an assessee to upload its returns with
the actual amount paid and for the system
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
to accept the said returns even though the
complete amounts had not been paid.
9.8. On enquiry, Sri.K.V.Aravind, learned
Senior Standing counsel for respondent
would submit that the system as it exists
does not provide for acceptance of returns
without the complete amount of income
tax being shown as paid. In my view and
considered opinion such a system is
completely flawed. By not accepting the
returns due to non-payment of the
complete income tax, the Income Tax
Department itself is forcing an assessee to
default on uploading of its returns.
9.9. The non filing of returns would also result
in separate prosecution. It is not in every
case that the assessee would have the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
money to make payment of the income
tax. If there is a default or delay in
payment, the authorities can always levy
interest on the said amount.
9.10. 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, in my considered
view 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.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
9.11. Hence, I answer Point Nos.1 and 2 by
holding that there is no straight-jacket
formula which could be laid down as
to determine what is a misstatement
and what is not. It would be required
for the Court and/or the Assessing
Officer or the Appellate Authority to
determine the same on the facts of the
case liberally in favour of the
assessee.
9.12. For an offence to 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.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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?
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 been
paid and the authorities have received the
necessary taxes. If at all, for the said
delay, there could be an interest
component which could have been levied.
10.3. Hence, I answer Point No.3 by holding
that delayed payment of Income Tax
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
would not amount to evasion of tax,
so long as there is payment of tax,
more so for the reason that in the
returns filed there is an
acknowledgement of tax due to be
paid.
11. Answer to Point No.4: Whether all the
Directors of the Company can be prosecuted
for any violation of the Income Tax Act in
terms by relying on the inclusive definition
under Section 2(35) of the Income Tax Act?
11.1. It is sought to be contended by
Sri.K.V.Aravind, learned Senior Standing
Counsel for the respondent that in view of
Section 2(35) of Income Tax Act all the
persons in charge of the business could be
prosecuted. The said section 2(35) of the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
Income Tax Act is reproduced hereunder
for easy reference:
(35) ―principal officer, used with reference to
a local authority or a company or any other
public body or any association of persons or
any body of individuals, means--
(a) the secretary, treasurer, manager or agent
of the authority, company, association or body,
or
(b) any person connected with the
management or administration of the local
authority, company, association or body upon
whom the Assessing Officer has served a notice
of his intention of treating him as the principal
officer thereof;
11.2. Sri.Vivek Holla, learned counsel for the
petitioners would contend that Section
2(35) of the Income Tax Act is more or
less in pari materia with Section 138 of
Negotiable Instrument Act and as such, he
by relying upon the decisions in Alagh's
case, Ramkishan Rohtagi's case,
Harmeet Singh Paintal's case,
G.N.Verma's case and Rasipuram
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
Textile Private Limited's case contends
that unless a specific averment has been
made to implicate the particular Director in
the said offence, no criminal prosecution
could be initiated against the said Director.
11.3. A perusal of the complaint as filed by
respondent-Income Tax Department would
indicate that there are only omnibus
allegations which had been made against
the Directors. The contention and/or the
allegation is that the uploading of the
income tax returns with false data
amounts to misstatement for the purposes
of evasion. For this purpose, it would have
had to be ascertained as to who has made
such a statement for the purpose of
initiating action.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 Complaint and Connected papers,
materials placed proceed against the A-1 to 8 to
take Cognizance. Hence "Cognizance" taken for
the offence P/U/Sec 276c(2) and 277 R/W/S. 278B
of the Income Tax Act, 1961. Register the case as
C.C. in 3rd register and issue Accused Summons to
accused No.1 to 8 through RPAD if RPAD charges
paid R/by-27-05-2016".
12.2. Shri Vivek Holla, leaned counsel for the
petitioners has contended that the Court
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
taking Cognisance is required to apply its
mind while taking Cognisance, the above
order passed does not indicate such
application of mind as such the order of
Cognisance is to be set aside.
12.3. The Hon'ble Apex Court as also this Court
in a catena of decisions has categorically
held that the court taking Cognisance is
required to apply its mind to the
allegations made and the applicable
statute and thereafter pass a reasoned
order in writing taking Cognisance, which
should be apparent from a reading of the
order of Cognisance to indicate that the
requirement of "sufficient grounds for
proceedings" in terms of Section 204 of
the code has been complied with.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
12.4. At the time of taking Cognisance, there
must be a proper application of judicial
mind to the materials before the said Court
either oral or documentary, as well as any
other information that might have been
submitted or made available to the Court.
12.5. The test that is required to be applied by
the Court while taking Cognisance is as to
whether on the basis of the allegations
made in the Complaint or on a police
report or on information furnished by a
person other than a police officer, is there
a case made out for initiation of criminal
proceedings.
12.6. For the above purpose, there is an
assessment of the allegations required to
be made applying the law to the facts and
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
thereby arriving at a conclusion by a
process of reasoning that Cognisance is
required to be taken.
12.7. An order of Cognisance cannot be
abridged, formatted or formulaic. The said
order has to make out that there is a
judicial application of mind. Since without
such application, the same may result in
the initiation of criminal proceedings when
it was not required to be so done.
12.8. The order of taking Cognisance is a
safeguard inbuilt in the criminal justice
system so as to avoid malicious
prosecution and/or frivolous complaints.
12.9. When a complaint or a police report or
information by a person other than police
officer is placed before the Court, the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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 does not satisfy the
requirement of arriving at a prima facie
conclusion to take Cognisance and issue
process let alone to the accused residing
outside the Jurisdiction of the said
Magistrate.
12.13. Mere reference to the provisions in respect
of which offences are alleged to have been
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
committed would not be in compliance
with the aforesaid requirement of the
statutes as also the various decisions of
the Honb'le Apex Court extracted
hereinabove.
12.14. When there are multiple accused, the
order is required to disclose the application
of mind by the Court taking Cognisance as
regards each accused.
12.15. The Court taking Cognisance ought to have
referred to and recorded the reasons why
the said Court believes that an offence is
made out so as to take Cognisance more
so on account of the fact that it is on
taking Cognisance that the criminal law is
set in motion insofar as accused is
concerned and there may be several cases
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
and instances where if the Court taking
Cognisance were to apply its mind, the
Complaint may not even be considered by
the said Court taking Cognisance let alone
taking Cognisance and issuance of
Summons.
12.16. In view of the above, I am of the
considered opinion that the order dated
29.03.2016 taking Cognisance is not in
compliance with applicable law and
therefore is set aside.
12.17. I answer Point No.5 by holding that
the order of Cognisance dated
29.03.2016 in both matters is not in
compliance with the requirement of
Section 191(1)(a) of the Cr.P.C and
further does not indicate the
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
procedure under Section 204 of Cr.P.C
having been followed. At the time of
taking Cognisance and issuance of
process, the Court taking Cognisance
is required to pass a sufficiently
detailed order to support the
conclusion to take Cognisance and
issue process, in terms of the
discussion above. The judicious
application of mind to the law and
facts of the matter, should be
apparent on the ex-facie reading of
the order of Cognisance.
13. Answer to Point No.6: Whether the Magistrate
is required to follow the procedure under
Section 202 even for the offences under the
Income Tax Act?
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
13.1. Section 202 of Cr.P.C. is extracted hereunder
for easy reference:
"202. Postponement of issue of process.-
1. Any Magistrate, on receipt of a complaint of an
offence of which he is authorised to take Cognisance
or which has been made over to him 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- in- charge of a police station
except the power to arrest without warrant.
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
13.2. A perusal of the Complaint indicates that the
address of accused No. 6 provided by the
complainant himself is that of Kerala. There
is no address of accused No.6 within the
jurisdiction of the Magistrate at Bangalore
which has been provided. The only allegation
which has been made is that he is a Director
of accused No. 1 and proceedings have been
initiated merely on that ground.
13.3. Admittedly Accused No.6 resides beyond
the Jurisdiction of the Learned Trial Court.
13.4. The protection under Section 202 (2) of the
Cr P.C. is provided so as to not inconvenience
an Accused to travel from outside the
Jurisdiction of the Court taking Cognisance to
attend to the matter in that Court. Therefore,
before issuing Summons to an accused
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
residing outside the Jurisdiction, there has to
be an application of mind by the Court issuing
Summons and after conducting an enquiry
under Section 202 (2) of Cr.P.C. the Court
issuing Summons has to come to a conclusion
that such Summons are required to be issued
to an accused residing outside its jurisdiction.
13.5. Section 202 of Cr.P.C. extracted above
provides for the safeguard in relation to
persons not residing within the jurisdiction of
the said Magistrate, not to be called or
summoned by the said Court unless the
Magistrate were to come to a conclusion that
their presence is necessary and only
thereafter issue process against the accused.
13.6. In the present case, as could be seen from
the extract of the order dated 29.03.2016 in
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
answer to point No.5 above, there is no such
postponement made by the Magistrate, but
as soon as the Magistrate received a
complaint, he has issued process to accused
No.6, who is residing outside the jurisdiction
of Magistrate.
13.7. In view of the above, it was required for the
Magistrate to conduct a mandatory enquiry
as per Section 202 (2) of the Cr.P.C.
13.8. There being a violation of the requirement
under Section 202 of Cr.P.C., I am of the
considered opinion that the Magistrate could
not have issued summons to petitioner No.6
without following the requirement and
without conducting an enquiry under Section
202 of Cr.P.C. as held by the Hon'ble Apex
Court in Vijay Dhanka vs. Najima
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
Momtaj reported in (2014) 14 SCC 638
as also by this Court in
B.S.YEDIYURAPPA vs. State of Karnataka
[Crl.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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
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
Crl.P. No.5480 OF 2016
c/w Crl.P. No.5481 OF 2016
such, the complaints in C.C.No.85/2016
and C.C. No. 86/2016 are hereby quashed.
Sd/-
JUDGE
PL/Prs*
