Crlp/10092/2016 Of Kolla Ashok Kumar v. The Dy Commissioner Of Income Tax Circle

HIGH COURT FOR THE STATE TELANGANAAT HYDERABAD TUESDAY ,THE TWENTY NINTH DAY OF NOVEMBERTWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE CHILLAKUR SUMALATHA CRIMINAL PETITION NO: 10092 AND 10't10 OF 2016 CRL.P.No.10092 of 2016 :Between: Kolla Ashok Kumar, S/o. Ramanadam K, Aged about 54 years, Independent DirectorM/s. Mid. Field lndustries Limited, F.No. G1, PIot No. B4lA, Road No. 1I JubileeHills, Hyderabad ...PETITIONERiACCUSED No.5 AND The Dy Commissioner of lncome Tax, Circle No. 16 (2), 6th Floor, Room No. 6'11,Ayakar Bhavan, Basheerbagh. Hyderabad ...RESPONDENT/COMPLAINANT . Petition under Section 482 of Cr. P.C praying that in the circumstancesstated in the Memorandum of Grounds of Criminal Petition, the High Court maybe pleased to quash the C.C.No. 86 of 2015 on the file of the Special Judge forEconomic Offences-Cum-Vlll Metropolitan Sessions Judge at Hyderabad on theground of abuse of process of law, arbitrary and unreasonable, contrary toprinciples of natural justice. CRL.P.M.P. NO: 10909 OF 20'16 Petition under Section 482 of Cr. P.C praylng that in the circumstancesstated in the Memorandum of Grounds of Criminal Petition,the High Court may bepleased to stay all further proceedings including the apeparance of the petitioenrherein in CC.N o. 8612015 on the fie of the Special Judge for Economic Offencescum Vlll Metropolitan Sessions Judge at Hyderabad. CRL.P.No.101'10 of 2016 : Between:Kolla Ashok Kumar, S/o. Ramanadam K,Aged about 54 years, lndependent DirectorM/s. Mid. Field lndustries Limited, F.NoG1, Plot No. 84/A, Road No. 11 JubileeHills, Hyderabad. ...PETITIONERYACCUSED No.5AND The Dy Commissioner of lncome Tax, Circle No. 16 [(2), ]6th Floor, Room No. 611,AyakarBhavan'Basheerbagh'Hyderabad ...RESpoNDENT/coMpLAINANT Petition uncl rr Section 482 of Ct.P.C praying that in the [,:ircumstances]stated in the l\Iem, [,randum ]of Grounds of Criminal Petition, the l-ligh Court maybe pleased to qua: h the C.C.No. 87 of 2015 on the file of th3 [.lpecial ]Judge forEconomic Offencer -Cum-Vlll Metropolitan Sessions Judge a llyderabad on theground of abuse )f process of law, arbitrary and unreason,ab e, contrary toprinciples of natura justice. These Petil ons are coming on for hearing, ul)o r perusing theMemorandum of Gr runds of Criminal Petition and upon hearirg the arguments ofSri Dhulipalla V.A.t Ravi Prasad, Advocate for the Petitioner in both Crl.Ps. andSri B.Narasimha Sl :rma, Senior S.C for lncome Tax on behall c'the Respondentin both Crl.Ps The Court m de the following: COMMON ORDER THE HON,BLE DT. JUSTICE CHILLAKUR SUMALATHACRIMINAL PETITION Nos.1OO92 AND 1011O OF 20L6 COMMON ORDER: Since the parties, facts and circumstances and the question of 1ar'r' involved are one and the same, both thecriminal petitions are taken r-rp together for cliscussion anddisposal through this common order.criminal petitions are taken r-rp together for cliscussion anddisposal through this common order. 2. Heard Sri Dhulipalla \,'.A.S.ltavi Prasad, li:arr-red counselfor the petitioner as u ell as Sri B.Narasimha Sharma, learnedSenior Star-rdir-rg Counsel lor Income Ta-x Department,representing the respondent. 3. The party, by namc Kolla Asl-rol< Kumar, has filed both thecriminal petitions seeking the Court to quash the proceedingsthat are pending against him in C.C.No.86 ol 2015 andC.C.No.87 of 2015 before the Court ol Special Judge for Trial ofEconomic Offences, Hyderabad. The petitioner in both theCalendar Cases is arrayed as Accused No.5. Further, in boththe Calendar Cases, the same person is arrayed as an accusedbeing the independent Director of M/ s. Mid F'ield IndustriesLimited, Hyderabad. Different complaints were filed by the Deput',' Comn issioner of [ncome Tax agairtst ]vl 's.'\4id FieldIndustrie s Lin itecl and its Directors, hori ever on differentcauses of actio r 3. The party, by namc Kolla Asl-rol< Kumar, has filed both thecriminal petitions seeking the Court to quash the proceedingsthat are pending against him in C.C.No.86 ol 2015 andC.C.No.87 of 2015 before the Court ol Special Judge for Trial ofEconomic Offences, Hyderabad. The petitioner in both theCalendar Cases is arrayed as Accused No.5. Further, in boththe Calendar Cases, the same person is arrayed as an accusedbeing the independent Director of M/ s. Mid F'ield IndustriesLimited, Hyderabad. Different complaints were filed by the Deput',' Comn issioner of [ncome Tax agairtst ]vl 's.'\4id FieldIndustrie s Lin itecl and its Directors, hori ever on differentcauses of actio r 4. The aller ation in C.C.No.B7 of 2015 so frrr a,., AccusedNo.1-Compan\ rs concerned is lhat, lor ['he ]rt:,tr ended on31.03.20 I 1, vhich is relevant to the Assrrssrnent [year]2O1l-201.2, A :cused No. 1-Company filed its reirrrns; of incomeon 29.09.2Oi 1 rleclaring its income as 15,75.9.3 91(),t -. It hasshorl n tl're t ix liabilitr.ASRs.5,74,00,0U0/ . rr srultinglt1demand of Rr.6,00,09,94O1- due to non-paln1('r.t ol' advancetax and se ll as st ssment tax. 5. So far as the complaint in C.C.No.B(r ol 20 15 isconcerned, th: contents are that, for the year uhLch ended on31.O3.2O12, *,hich is relevant to the Asse,;srlent Year2O12-2O I 3, A :cused No. 1-Comparry filed its retr-rr ns of incomeon 30.09.20.1 2 cleclaring its income as Rs.2ll.6,5,O2,9OOl-,resulting in dr mand of Rs.8,84,48 ,l9O /- due to li6rn'payment ofadvance tax a. rcl self assessment tax. 6. In both the complaints, it is stated that irr ,;pi,e of beingaware ol its ti x liability, tax was not paid and tL [r: ][-e ]rt,ere hear.y l)r.(.11, .l .\ credits and balances in the Bank durir-rg the accounting periodand that the assessee faited to pa1'the taxes even after repeatedpersuasion. Hence, the accused persons are liable forpunishment for the offences punishablc under Section 27BBread with Section 276C of the lncome Tax Act, 196 1. 7. Makir-rg his submission, Icarneci counsel for the petitionercontended that the petitioncr is an independent Director andthe same is evident even as per the contents of the complaint.Learned counsel for the petitiorrcr lurtl-rcr submits that beforelodging the complaint therc is clcrr' liabilitl on the part of thecomplainant to examine, s'hethel thc violation has taken piacewith the knorvledge attributable to zr particul.rr person or not.Learned counsel submits that thc petitioner, beinganindependent Director, has r-t o role to plal, ir-, the day-to-dayaffairs of the Company. Learned counsel states that thepetitioner is neither a decision making authority nor rsresponsible for conduct of the busincss of the company.Learned counsel further states that the independent Directorswould be nominated without any po\ [/ers ]or control or sanctionto operate either Bank accounts or ttre financia.l transactions ofthe Company l)r.CSl,,.l B. Learned ['ounsel ]states that there is n(, pr-o(r' to :ho.'r'thatthe petitioner, al any time, had participated in an1'of ,l-re affairsand the busi ress of the Company. Le;Lrned [r)ou ]nsel alsosubmits that f' er:tion 276 of the Income Tax is lai: to runish anassessee, n,ho is guilty of evasion of tax and n( I tl-r(-' persons,who are not ar the helm of affairs and thurs; in itiation ofproceedings r g;rinst the petitioner, u'ho is an in,lcpendentDirector. is b:r i:n 1au,- 9. Orr tl-re other hand, the submissiorr of i,: [,u'ncd ]ScniorStanding Cor nsel for Income Tax Departrne:rr : 1lr.rt as thepetitioner is o [-re, ]of the Directors of the Accusecl \, r. I [.Company,]he is arrayed rs Accused No.5 10. The alle ;ation that is levelled against lhc pst iticner is thathe is liable [-or ]punishment under Section 2 7'iiB read rvithSection 276(( ) of the Income Tax Act, for willftLlll, er,ading thepayment of ti x. 1 1. Ttre mr Lnner of selection of independent I)irectors isprovided ur-rc: :r Section 150 of the Companies \,.:t, 2013. Thesaid provisior reads as under: 9. Orr tl-re other hand, the submissiorr of i,: [,u'ncd ]ScniorStanding Cor nsel for Income Tax Departrne:rr : 1lr.rt as thepetitioner is o [-re, ]of the Directors of the Accusecl \, r. I [.Company,]he is arrayed rs Accused No.5 10. The alle ;ation that is levelled against lhc pst iticner is thathe is liable [-or ]punishment under Section 2 7'iiB read rvithSection 276(( ) of the Income Tax Act, for willftLlll, er,ading thepayment of ti x. 1 1. Ttre mr Lnner of selection of independent I)irectors isprovided ur-rc: :r Section 150 of the Companies \,.:t, 2013. Thesaid provisior reads as under: 150. Manner of sclcction of independentDirectors and maintenance of databank ofindependent Directors - (1) Subject to thc provisions contained in Sub-Section (6) of Section 149, an indcpcnrlcnt director maybe selected lrom a data bank containing names,addresses and qualifications of persons who are eligibleand willing to act as independent directors, maintainedby any body, institute or association, as rnay be notiliedby the Central Government, having expert isc in creationand maintenance of such data bank and put on theirwebsitc for the use bv the coml).til\: marking theappointment of such clirectors: Provided that responsibilitv oi' excrcising cluediligence before selecting a person frorn thc clata bankreferred to above, as an indepen(lcnl clircctor shall licwith the company making such appoirltnlcrlt. (2) The appointment of indcpc'nckrnt dircclor shallbe approved b1, thc compitnv in general mect ing asprovided in Sub-Section (2) ol Scction 152 and theexplanatory statement anncxcd to lhe notir:e ol lhcbe approved b1, thc compitnv in general mect ing asprovided in Sub-Section (2) ol Scction 152 and theexplanatory statement anncxcd to lhe notir:e ol lhcgeneral meeting callcd to considcr thc said appointmentshall indicate the [justification ]for choosing the appointcefor appointment as independent dirr-'ctor.shall indicate the [justification ]for choosing the appointcefor appointment as independent dirr-'ctor. (3) The data bank relerred to in Sub-Section (1),shall create and maintain data of pcrsons willing to actas independent director in accordance rvith such rules asmay be prescribed. (a) The Central Governmen t may prescribe themanner and procedure of selectior-r of independentdirectors who fulfill the qualifications and requirementsspeci{ied under Section 149. 12. By the above said provision, it is clear that the CentralGovernment has got authority to pro"'idc thc manner andprocedure ol selection ol independent Directors. It is also clear r)r(51.. J (, that those itrr ependent Directors \ [Iould ]bc the y,et's;ons, '"r'hofulfill the qLr rlilications and requircmen ts sl). rilicd underSection 149 o; the Companies Act, 20i3. 13. The con, e ntion of the petitioner is th:rt he h acL no role toplay in perfor nance of the da1.-to-day affairs o1 :hr: Companyand he had no1, conducted the business. r'rt least, hisparticipation s not urhollv projected, excel)t a r.lc statementthat thc inclc rcn<lcnt Directors along rvith the )t n€,1 Dircctorsn,ere in-cl-rarg r arrd responsible for the day to cliLr, allairs ol tl-reCompanl ancl conduct of business 14. Section 27BB of the Income Tax Act, 196 1, [: Lr':; clou'r-i thatwhen an off'e rce under the Income Tax Act is t',: mnritted by acompany. ev'n/ person, who, at the time tlre olfence wascommitted, r'as in charge of and was resporisiirle to thecompan)' for the conduct of the business of tlLe company, aswell as the cr mpzrny, shal1 be deemed to be. gr-ul, y ol- the offenceand shall be iable for punishment. 15. Merelv nentionirrg that the petitioner r.ras irrvclved in theday-to-day a. lairs of the Company along with [,rt;rers, ]is notsufficienL. 1rs participation is to be specific.,tlli' [projected] - When vicarious liability is projectcd, it musl bc strictl_v revealedand estab li she d . 14. Section 27BB of the Income Tax Act, 196 1, [: Lr':; clou'r-i thatwhen an off'e rce under the Income Tax Act is t',: mnritted by acompany. ev'n/ person, who, at the time tlre olfence wascommitted, r'as in charge of and was resporisiirle to thecompan)' for the conduct of the business of tlLe company, aswell as the cr mpzrny, shal1 be deemed to be. gr-ul, y ol- the offenceand shall be iable for punishment. 15. Merelv nentionirrg that the petitioner r.ras irrvclved in theday-to-day a. lairs of the Company along with [,rt;rers, ]is notsufficienL. 1rs participation is to be specific.,tlli' [projected] - When vicarious liability is projectcd, it musl bc strictl_v revealedand estab li she d . 16. Admittedly, the complalnt lorms basis lor laying theprosecution and continuing the samc bcforc Lhc Court ol Law.Therefore, such liabilitv has to bc, at lcast, prinru facie projectedthrough the contents of the complaint. Hou'ever, the complaintlacks such material particulars. 17. In this regard, learned counscl lirr tl-rc pctitione r reliedupon a dccision ol the Hor-r'blc Apcx Corrrt in S.M,S,Pharmaceuticals Limited us. Neeta Bhatla and Othersl ,wherein the Hon'ble Apex Court, r.i'hilc dcaling s ith the ollencepunishable under Scction 138 read \\'iLh Secti<;r-r 141 of theNegotiablc Instruments Act, heid as undcr: 'Section 141 of the Act does not stry that aDirector of a Company shall automalically be vjcariouslyliable for commission of an offcncc on bchalf of theCompany. What is neccssary is that sufficienl avermcntsshould be made to show that ttrr: person u,ho is sought tobe proceeded against on thc prcmisc of his beingvicariously liable for commission of an offence by theCompany must be incharge and shall also be rcsponsibleto the Company for the conduct of its business." 18. Learned counsel also relied upon the dccision of thisCourt in Crl.R.C.No.3B9 o{ 2Ol7 whe reir.r this Court. whileI zoo; lry ncn lr 75 (sc) li dealing \r,itl"l si nrilar factual sccnario, at Para i 1 .rf the Order,held as follou,s I 1 . Lca rnecl Standing Counsel submits that il trial ispermitted o be proceeded w'ith, and if the petir or,r:rs arelound not guiltl', they u,ould be acquittcd an(l lh,lreforetheir disc rarge is noL desirable. The penal lrrrr'",isionswhich are rt:ferred in the complaint are in res.pr:c', ol thevicarious l ability which must be strictly constrLr, d. A baldstatenrcnt in thc complaint that accused 2 l<> 6 i.e.Managing I)irector/Whole time Director/ Dire.:tc,r s areinvolved ir tl-re day lo day affairs of the com;rzLrry a.rd werercsporrsib. ' lbr thc conduct of the business of t rt' clmpanyancl has fi :ci rcturns, is not sufficient. The avcrrn,'n -sr of theco:nplaint should be specific and clear :rs ap:ainst thcrolc plr,, ci bt' cach accLrsed as D,rc( l,l-l \c ctitionalDircctor or lhc M:tnagcr of thc cornprr \'. ['I'hcir]pirr-tirril>irLr rr in the conduct of the businoss :ih rLrld llcspcc:i1-i<'zr Il' slrou,rt. In casc] those avernl('nLs irre notslrtciiicerll lrirrr:ILcd, ]-et those avermen: s s,hr,r.rlci bcbrought o r : c<;ord through tlrc evidence of u,itncsr;cs u,hicht,oulcl he rr:cordccl belorc framing of charges i: it privatecomplerinl I Icncc, this Court is of the vie,.v tha Ls thc rolcplar,'ed b., I he pe t.itiorrers is norvhere rnenl io1r :d in thecon-rplair-rl and as the complaint being a priv;1r c cornplaintancl recor ling of cvidcnce of witnesses is desirzrbic and itu ers done s() bv thc trial Court before framing :l ar'5ies zrndas the evi lence of those witnesses i.e. PWs 1 & 1i also doesnot discl,: sr' t he role played by the petitioner:; so as tomake the rr responsible for the oflences that. a:e alleged tohave bee r committed by the respondent/ cornpla inrt nt, thisCourt is rf tl-re view that the learned .Tudge c,f the trialCourt oul ;ht to have exercised his power [judicrorrsly ]anclought to [-rave ]discharged the petitioners. Hou e', er, he didnot do so. ['] 19. ['l'trus, ]t 1e above decisions make it abunda.r.rtli clear thatto tag the l)€, itioner rvith the liability, there sir l.Llcl be specificaverment as o his participation in the affrirs cf lhc CompanyWithourr anr, ;uch avcrmcnt, the complaint cannol l,,c: proceeded - with before thc Court of Larv and tlrc nct re slllt \\,oLlld benothing but acquittal. The reforc, tl'ris Court is of the vic\\, thatthe request of the petitioner for quash of the proceedings isjustifiable. When no case is madc out b-t the contents of thecomplaint itself against thc pctitioncr. continuation ofproceedings would amount to abuse of thc process of the Court.Therefore, tl-ris Cor-rrt holds that both thc Crirnir-ral Petitiorrs areliable to be allou'ed. 20. Resultantl-v, both rhc [(lriminirl ]l)cLitions are allou'ecl. Theproceedings thal :trc perlding :rgainsl lhc petitior)erIltC.C.Nos.86 of 2Ol5 and 87 of iZOllj belbrc tl.re Court of SpecialJudge for Trial of licor-romic Offcnccs, Il-r'clcrabarcl, are herebyquashed. 21. As a sequel, pending Miscellancous Applications, il any,shall stand closed.shall stand closed. SD/- I. NAGA DEPUTY c,JI)SECTION //TRUE COPY// ,o,.,. ,n" Soeciar Judge for Economic offences-cum-V* triretropo'tan sessionsJudqe at [HYderabad]z blltcd'to s" [dhutipalta ][v ] [S Ravi Pra-sqd ]. [Advocate ][(ol-uc.)]5 6;; dc [i6 ][Sii ][a.N"i"li,ni ][Sn"'u, ][s ][c ][ror ][lncome ][rax ][(oPUC)]4. Two CD [CoPies]ks^,'\-Judqe at [HYderabad]z blltcd'to s" [dhutipalta ][v ] [S Ravi Pra-sqd ]. [Advocate ][(ol-uc.)]5 6;; dc [i6 ][Sii ][a.N"i"li,ni ][Sn"'u, ][s ][c ][ror ][lncome ][rax ][(oPUC)]4. Two CD [CoPies]ks^,'\- HIGH COUIiT CSL,J DATED:291' 112022 COMMON [( IFIDER]CRLP.ltJo.1rr092 AND 10110 of 2016 ALLOWIN( BOTH THE CRL.PS 1^)r'---' 1/v1z[\]v"\ >j=:.a,'-.'- t.bsrA r€./z/!rt!5aIr 0E[ ltr{\..,