TMI Blog2021 (4) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(35) the contention of accused that he cannot be proceeded with for the delayed payment of the tax amount by the company, is a well founded one. Whether accused was not personally responsible for the deposit / collection of the TDS with the complainant department? - From the evidence on record, it is clear that complainant has failed to prove that accused no 2 Sh. Pradeep Kumar Jain as Managing director for the relevant period, the service of notice and order under section 2 (35) Income Tax Act, 1961 on accused no 2 is not proved and the document Form 27A shows that it was Mr. Yoginder Singh who was responsible for the deduction and collection of TDS. In view of the aforesaid, accused no 2 Sh. Pradeep Kumar Jain is given benefit of doubt and acquitted for the offence u/s 276B r/w S. 278B of the Income Tax Act, 1961. Financial Difficulties - As the case of accused will be covered u/s 278 AA of the Income Tax Act, if he is able to prove the reasonable cause existed when the default was committed. There is initial onus on prosecution to establish the ingredients of offence alleged and prove absence of the reasonable cause on the part of the accused / assessee. The reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly the accused no 1 company is convicted for the offence u/s 276 B Income Tax Act, 1961 for delay in depositing the of the TDS amount. - Ct.Case No.528997/2016 - - - Dated:- 31-3-2021 - SH. ABHILASH MALHOTRA : ADDL CHIEF METROPOLITAN MAGISTRATE (Spl.Acts): CENTRAL TIS HAZARI COURTS, DELHI Brief facts and reasons for the decision: FACTS 1. The present complaint was filed u/s 276 B read with Section 278 B of the Income Tax Act, 1961 against accused no. 1 company and accused no. 2 Pradeep Kumar Jain being its Chairman and Managing Director. The complaint was filed by authorized representative Ms. Sudha Yadav, ACIT. 2. It is alleged that in the survey u/s 133 A of the Income Tax Act conducted on 06.12.0013 at the business premises of accused company, it was found that accused company has deducted the TDS of ₹ 10,59,08,557/ and has failed to deposit the TDS for the financial year 2013 2014. It is stated that in the survey Mr. Ashish Verma, G.M Taxation in his statement Ex. CW 1/5 admitted that the accused company has not deposited the TDS and he undertook that the TDS will be deposited by 28.02.2014. It is stated that only an amount of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging Director failed to deposit the TDS within the stipulated time and therefore are liable to be punished for the offence u/s 276B read with Section 278 B of the Income Tax Act. It is argued that the company failed to show any reasonable cause for non deposit of the TDS. It is submitted that the documents on record shows that accused no. 2 was actively involved in day to day affairs of the accused no. 1 company and therefore liable to be prosecuted. 7. On the other hand, Ld. Defence Counsel submits that the complete tax deducted at source is already deposited by the accused no. 1 company. However, the delay in deposit of TDS is not disputed. It is argued that neither the notice u/s 2(35) Ex. CW 1/7 of the Income Tax Act nor the order u/s 2(35) Ex CW 1/8 of the Income Tax Act is served upon the accused no. 2 and therefore, he can not be treated as the Principal Officer. It is further argued that accused no. 2 is not the Managing Director of accused no. 1 company and has been prosecuted under erroneous presumption. It is submitted that the Form 27A on record clearly shows that it was Mr. Yogender Singh who was responsible for deduction and deposit of the TDS but despite that acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 279(1) Ex CW1/9 and Ex CW1/10 did not followed the mandatory timelines as stipulated in the SOP issued by the Income Tax department vide circular dated 07.02.2013. It is argued that sanction order is silent regarding the fate of proceedings in respect of first show cause notice Ex CW1/9. 10. So far as the question regarding the time lines as stated in the SOP are concerned it is no doubt an earnest effort is required to be made to adhere to the deadlines and comply the directions. But it cannot be concluded that missing some deadlines can give any blanket protection to the accused/assessee from prosecution. Therefore, the argument does not go to the root of the matter and does not affect the merits of the case. 11. In respect of the second contention. CW1 Ms. Sudha Yadav, ADIT in her cross examination clarified that as the concerned CIT had transferred and a new officer had joined therefore in the interest of Justice a fresh show cause notice was issued. She also clarified that there is nothing on record to show that proceedings initiated vide 19.05.2014 Ex CW 1/9 were dropped. Therefore, the contention of accused in this regard is without any merit and hence rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Managing Director and the CEO of the accused no. 1 company. Therefore, the deposition that accused no. 2 is the Managing Director gets belied from the documents filed by the complainant itself. 15. CW1 Ms. Sudha Yadav, ADIT in her cross examination admitted that no document has been placed on record to show that it was accused no 2 who was concerned person responsible for handling the present matter. She stated that as her predecessor had passed order under section 2(35) therefore he may comment as to why accused no 2 has been treated as principal officer when there were other director and responsible officers were there in the company. She admitted that it is not a thumb rule to declare to declare the CMD as principal officer. The relevant portion her testimony is reproduced below: No such document or any other material has been filed with the complaint to show that the accused no. 1 was the concerned person responsible for handling the present matter. My Predecessor had passed the order u/s 2(35) of the Income Tax Act and therefore, he may comment as to why the accused no. 2 has been held as Principal Officer when there were other Directors and responsible off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TDS at source. CW 3 further stated that he can not say as to why the other Directors who were there in the company were not prosecuted by the department. The relevant portion of the testimony is reproduced below: Qns : Is it correct that Form 27 A exhibited as Ex. CW 3/DX/1 is a form for furnishing information with respect to statement of deduction / collection of tax deducted at Source (TDS)? Ans : Form 27 A is regarding furnishing of information with the statement of deduction / collection of tax at source (TDS). Qns : Is it correct that Form 27 A exhibited as Ex. CW 3/DX/1 suggests at point no. 3 marked as Mark A as name of the person responsible for deduction / collection of tax as Mr. Yogender Singh? Ans : It is correct that as per entry at serial no. 3 of the aforesaid form Mr. Yogender Singh was the person responsible for deduction / collection of tax deducted at source but he was not the person responsible for the deposit of TDS in the Income Tax Department. Vol. It is the Directors of the company who were responsible for the deposit of the TDS within the statutory prescribed period. Qns : Whether one Director or all Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was served upon accused no. 2 before treating him as 'Principal Officer'. It is argued that as the prosecution has failed to prove the service of aforesaid order and notice, therefore, the accused cannot be treated as Principal Officer and the prosecution against him do not lie. 21. Before proceedings further to appreciate the arguments, it will be prudent to sum up the legal position in respect of the liability of directors and compliance of provisions under section 2(35) to treat as director as principal officer. Section 2 (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; Duty of person deducting tax. 200. (1) Any person deducting any sum in accordance with the foregoing provisions of this Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no reference to a director or a managing director. Therefore, it follows that the managing director of a company, like the petitioner, cannot be held liable under s. 276B unless the ITO has served a notice on him under s. 2(35)(b) and informed him of his intention to treat him as the principal officer of the company. In the instant case, it is admitted by the Department that no such notice as contemplated under s. 2(35)(b) has been served on the petitioner. Hence, the petitioner's contention that he cannot be proceeded with for the delayed payment of the tax amount by the company, is a well founded one. 24. From the mandate given in Roshni Cold Storage (Supra) and M.R. Pratap (Supra) it is clear that a prosecution for delay in deposit/non deposit of TDS u/s 276B can be launched against a person who is treated as the Principal officers. The Principal officer in its ambit includes the secretary, treasurer, manager or agent of the authority in a company. In case director of the company is required to be treated a Principal officer service of notice of his intention of treating a director as the principal officer is pre requisite. 25. In other words, the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/8. In his testimony he stated that he does not remember that what was the mode of service of notice u/s 2(35) Ex. CW 1/7. He admitted that proof of service is not filed on Court record. In respect of order u/s 2(35) of the Income Tax Act Ex. CW 1/8 he admitted that the order was dispatched vide diary no. 2447. The Court while recording his testimony made an observation that the diary number is partially visible on Ex. CW 1/8. Despite that the complainant did not file the fresh document and corrected the lacunae. CW 2 stated that because diary number was mentioned on order Ex. CW 1/8 and therefore it was presumed to be served. The relevant portion of his testimony is reproduced below: At this stage, witness is shown Ex. CW 1/7 from the records and asked what was the mode of service of such notice on the accused persons to which witness states that he does not remember the mode of service of Ex CW1/7. It is correct that proof of service is not filed on record. It is correct that the said diary number is not visible on the Ex CW1/8. Court observation: Diary number is partially visible on the Ex. CW1/8. Qns : On what basis above, you have stated that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A is regarding furnishing of information with the statement of deduction/collection of TDS. He admitted that as per entry at serial no. 3 it was Mr. Yoginder Singh who was the person responsible for collection /deduction of tax collected at source. The said document is neither considered and appreciated u/s 2(35) of the Income Tax Act Ex. CW 1/8 nor in the sanction order u/s 279(1) of the Income Tax Act Ex. CW 1/2. It has remained unexplained as to why the role of Mr. Yoginder Singh was not considered. It has remained unexplained why the role of other Directors and Managing Directors were not considered when admittedly accused was not the Managing Director of the accused company at the relevant point of time. 33. From the evidence on record, it is clear that complainant has failed to prove that accused no 2 Sh. Pradeep Kumar Jain as Managing director for the relevant period, the service of notice and order under section 2 (35) Income Tax Act, 1961 on accused no 2 is not proved and the document Form 27A shows that it was Mr. Yoginder Singh who was responsible for the deduction and collection of TDS. In view of the aforesaid, accused no 2 Sh. Pradeep Kumar Jain is given benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Banwarilal Satyanarain v. State of Bihar, 1989 SCC OnLine Pat 137 Hon ble Patna High Court held that: 33. Now it has to be seen as to what is the effect of the amendment. Can it be said that after amendment, the question whether an accused had any reasonable cause or not for not deducting and paying tax within time is of academic importance and not relevant for a criminal court? My answer is emphatically in the negative. Section 278AA is nothing else but a proviso to section 276B of the Act, but a separate section has been inserted in the Act, as similar provisions have been made with respect to prosecution under sections 276A, 276AB, 276DD and 276E. Cumulative effect of the amendment, in my view, is that in case of prosecution under section 276B of the Act, two things have to be shown; firstly, that there was failure on the part of the assessee in deducting or paying the tax within time and, secondly, that the failure was without any reasonable cause. iii) In Sonali Autos Private Limited vs State of Bihar and Others, 2017 SCC OnLine Pat 3620 the Hon ble High Court of Patna held that: 26. The petitioners have stated in the petition that the aforesaid tax coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealization of money. TDS is deducted in advance by the assessed before making any payment for the scheduled items. The assessee acts as custodian of tax/TDS amount and needs to deposit the same within stipulated period as per Rule 30. Merely because the business suffered from recession and the working capital stifled, cannot be a termed as sufficient cause for non payment of TDS amount. A company cannot be permitted to use the TDS amount for channelizing and fulfilling its working capital deficit. DW1 Sh Ashish Verma in his cross examination admitted that the company was making payment of various loans to its directors and its associate companies during the relevant period. Therefore, when the company is able to discharge its other liabilities, the ground for recession cannot be cited as an excuse for non payment of the TDS amount. In the sanction order Ex CW1/2 the CIT (TDS) has also appreciated the financial exigencies cited by the company and has concluded that the payment of TDS has nothing to do with the liquidity of the deductor company. Though the audit reports DW1/3 to DW1/6 specifies the liabilities and the loans of the accused no 1 company, but it does not pinpoint the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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