TMI Blog2001 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned the prosecution of the company and its two joint managing directors and two directors named in the order to be prosecuted under section 276B and directed the Deputy Commissioner of Income-tax (Assessment) to file a complaint in the court of the special judge for economic offences. In furtherance of this order issued under section 279(1) of the Income-tax Act, 1961, the successor-in-office of the then Commissioner of Income-tax, authorised inclusion of the name of the petitioner also in the order dated March 13, 1991, for being prosecuted under section 276B of the Income-tax Act, 1961, for the alleged default for the assessment year 1982-83. As they would be relevant for the purpose of the present case, the two orders are produced hereinbelow: ---------------------------------------------------------------------------------- ANNEXURE 3 ---------------------------------------------------------------------------------- Order under section 279(1), dated March 13, 1991 Name and address of the assessee: Jodhpur Woollen Mills Ltd. along with its joint managing directors/directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, I, S.S. Ruhela, Commissioner of Income-tax, Jodhpur, hereby accord sanction to prosecute the abovenamed assessee-company and its joint managing directors and directors for the aforesaid offence. 6. I, S. S. Ruhela, Commissioner of Income-tax, Jodhpur, hereby direct the Deputy Commissioner of Income-tax (Assessment), Special Range, Jodhpur, to file complaint under section 276B read with section 278B(1) of the Income-tax Act against the joint managing directors, Svs. S.M. Kankaria, and S.C. Kankaria and directors, Svs. P.M. Kankaria and L.K. Kankaria, for the assessment year 1982-83 in the competent court of law at Jaipur. (Sd.) S. S. Ruhela, Commissioner of Income-tax, Jodhpur. ANNEXURE 3A, DATED JANUARY 20, 1992 Office of the Commissioner of Income-tax, Jodhpur. Dated : January 20, 1992. Authorisation With reference to the order under section 279(1) passed in the case of Jodhpur Woolen Mills Ltd., Jodhpur, for the assessment year 1982-83 on March 13, 1991, by my predecessor, Shri S.S. Ruhela, the then Commissioner of Income-tax, Jodhpur, I, Panna Lal, authorise the name of Shri S. G. Kale, principal officer of the company, to be included in the order un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years have elapsed, yet no reply has been filed so far. In these circumstances, the matter is being heard without any reply from the respondents. In fact the above facts emerge from the record and are not disputed. The first contention of learned counsel for the petitioner in this regard is that no notice to show cause before issuing sanction was given to the petitioner and therefore the sanction accorded without affording an opportunity of hearing is invalid. This contention does not appear to be valid. According to sanction is an administrative function and is only to see that frivolous or avoidable trials do not take place notwithstanding that it is an objective exercise by the sanctioning authority to consider the material on record to satisfy himself whether a case fit for launching prosecution exists. On such satisfaction, the sanction can be accorded and thereafter the trial proceedings in which the person proceeded against has ample opportunity to defend himself against the allegations made against him and to meet the evidence led to substantiate those allegations by the prosecution. There is no provision for pre-hearing before according of sanction. There is a catena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that order by including the name of the petitioner who was responsible for deducting the amount from the interest payable by the company and depositing the same with the Central Government. He further submits that such satisfaction of the authority even if does not appear from the order, can still be established from the other materials by showing that those materials were before the sanctioning authority and by application of mind to that material he could reasonably reach a satisfaction about according sanction for prosecuting a person. In this connection, it was also contended by learned counsel for the petitioner, Mr. Kothari, that annexure 3-A is not an order of sanctioning prosecution, but merely an order of modification or rectification of sanction already issued against the company and its directors vide order dated March 13, 1991, under section 279(1). There is no authority under the Act which empowers the Commissioner to make a rectification of the sanction without application of mind in respect of the person who has to be added as an accused in a prosecution already sanctioned, merely on the basis of satisfaction recorded in respect of some other person. The objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self the evidence before it comes to a conclusion that the prosecution in the circumstances be sanctioned or forbidden....It should be clear from the form of the sanction that the sanctioning authority considered the evidence before it and after a consideration of all the circumstances of the case sanctioned the prosecution, and therefore unless the matter can be proved by other evidence, in the sanction itself the facts should be referred to to the indicate that the sanctioning authority had applied its mind to the facts and circumstances of the case." Again, when the matter arose under the Prevention of Corruption Act, 1947, concerning the validity of a sanction, the court said in Mohd. Iqbal Ahmed v. State of Andhra Pradesh, AIR 1979 SC 677, as to the proof of the valid sanction "It is incumbent on the prosecution to prove that a valid sanction has been granted by the Sanctioning Authority after it was satisfied that a case for sanction has been made out constituting the offence. This should be done in two ways; either (1) by producing the original sanction which itself contains the facts constituting the offence and the grounds of satisfaction, and (2) by adducing evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent within the prescribed time. The relevant provisions of the Act which cast an obligation and in consequence form the necessary relevant provisions of law for the sanctioning authority to bear in mind, the scheme of the Act for collection of tax at source not from the recipient of income but from the person paying the money is housed in Chapter XVII titled as "Collection and recovery of tax". Section 190 envisages that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment, as the case may be, in accordance with the provisions of the said Chapter. Under the various provisions of the said Chapter, of which sections 193 and 194A form part, require deduction at source on payment of interest on securities or interest other than interest on securities, respectively. Section 200 obligates a person deducting any sum in accordance with the various provisions under the Chapter to pay within the prescribed period time in the treasury of the Central Government the sum so deducted to the credit of the Central Government or as the Board dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 201 has recorded a finding that there has been sufficient and good reasons for the assessee not to have deposited the amount deducted at source within time and it was not a case on which penalty at all be imposed and has not imposed the penalty. If read in this light the order of sanction in which only the name of the petitioner has been added subsequently, it is conspicuously silent about the order passed by the assessing authority under section 201 absolving the company, whose officer the petitioner is, and his inclusion in the order of sanction has been authorised only as an accountant of the defaulting company. It is a relevant factor to be considered by the sanctioning authority who is not to grant sanction automatically on being satisfied about the breach but satisfaction has also to be on the question whether on the material disclosed a case for sanctioning prosecution or withholding such sanction has been made out. If material is to the effect that the assessing authority had not even thought it a fit case in which penalty could be imposed at all, it is highly improbable that it is still to be considered a fit case for visiting the defaulter with harsher cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the officer has found the case falling within the proviso to sub-section (1) of section 201. Levy of interest under section 201(1A) is envisaged and the absence of reasonable cause to deduct and/or deposit the amount deductible at source is not the ingredient for levy of interest. The liability to pay interest is irrespective of the fact, whether failure to deposit the tax deducted at source in the treasury is with or without satisfactory explanation. This is so because while sub-section (1) envisages a penal consequence for default and deliberate flouting of law is an essential ingredient of it, the obligation to pay interest under sub-section (1A) flows from principle "He who has the plaintiff's money for his own use, must reimburse or compensate the rightful owner of money for such use". Apparently, allegations made in para 5 of the complaint are contrary to the record. Another circumstance which goes to show non-application of mind on the part of the prosecution in lodging complaint is that the complaint alleges that none of the five accused have claimed himself "to be a sleeping partner of the firm", forgetting that the alleged default is not committed by the firm as an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression "failure without reasonable cause or excuse" was an essential ingredient of section 276B and this essential ingredient again came into existence by insertion of section 276B in section 278AA with effect from April 1, 1989, which provision was in force when the impugned sanction was granted. Therefore, if the provisions of section 276B read as on the date the offence was committed or read as on the date when the sanction was granted along with section 278AA, the absence of reasonable cause or excuse on the part of the assessee became an essential ingredient of the offence for which he could be punished. Notwithstanding the shift of burden of proof, if the material available on record about such sufficient and reasonable cause for the default is already on record as a part of the finding in proceedings under section 201, the same becomes an integral part of the record to be considered before sanction could have been issued. The existence of sufficient and reasonable cause for non-payment of tax deductible at source within the prescribed time is also an essential ingredient of levy of penalty under section 201 read with section 221 of the Income-tax Act as discussed above. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the assessee was quashed by the Supreme Court in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings. Relying on the said principle, it has been contended before the court that where proceedings were pending before the competent officer under the Act, it had a chance of success in favour of the assessee, the prosecution ought not be sanctioned. Repelling this contention, the court said: "It is true that, as observed by this court in Uttam Chand v. ITO [1982] 133 ITR 909, the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings but that decision is no authority for the proposition that no proceedings can be initiated at all under section 276C and section 277, as long as some proceedings under the Act in which there is a chance of success of the assessee is pending. A mere expectation of success in some proceeding in appeal or reference under the Act cannot come in the way of the institution of the criminal proceedings under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A similar view was expressed by the Delhi High Court in Sequoia Construction Co. P. Ltd. v. P.P. Suri, ITO [1986] 158 ITR 496 wherein the court held that where penalty imposed on the assessee under section 201(1) read with section 221 of the Income-tax Act, 1961, for failure to deposit tax deducted at source to the credit of the Central Government within the prescribed time is cancelled on the merits after acceptance of the case of the assessee that there was good and sufficient reason for not depositing that tax within time, the milder proof of "reasonable cause", contemplated by section 276B for an offence for the same default, should be taken to have been established and it would be a sheer exercise in futility and harassment of the accused assessee to allow criminal prosecution to proceed against him. It may be noticed that it was a case prior to the amendment in section 276B in 1986 and as noticed above, since the Direct Tax Laws (Amendment) Act came into force with effect from April 1, 1989, the requirement of absence of reasonable cause has continued to remain an ingredient of offence under section 276B. The principle fully governs the facts of the present case. The spe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
