Viraj Exports P.ltd v. Income Tax Office (Ito) Tm. Narinder Juyal

^ Signed By:RAM DATTSigning Date:08.10.2024 15:56Certify that the digital and physical file havebeen compared and the digital data is as perthe physical file and no page is missing. $-24 - 26*IN THE HIGHCOURTOF DELHIAT NEW DELHI +CRL.REV.P.340/2018& CrI. M. (Bail ) No. 641/2018+CRL.REV.P.341/2018& CrI. M. (Bail) No. 642/2018+CRL.REV.P.342/2018& Crl. M. (Bail) No. 643/2018 VIRAJ EXPORTS P.LTD. Petitioner Through:Mr. Kapil Goei and Mr. Amit Gupta,Advocates. Versus INCOME TAX OFFICE (ITO) Tm. NARINDER JUYAL ' Respondent Through:Mr. Zoheb Hossain, Senior StandingCounsel for Respondent. CORAM:HON'BLE MR. JUSTICE NAJMI WAZIRI ORDER %15.10.2018 These petitions impugn an order holding the petitioner guilty undersection 276-B of the Income Tax Act 1961 (hereinafter to be referred as 'theAct').The petitioner deducted tax at source, which was payable into theGovernment Treasury.In other wordstill deposit, the petitionerheld(jovemment/public monies in trust.This money ought to have beendeposited in the lYcasury, as per the statutory procedure. It was not so done.There was a lapse of over 12 to 17 months. The petitioner retained andmisappropriatedthe moniesfor that period and illegallyenjoyedthe benefitstherefrom. The learned counsel for the petitioner submits that upon the petitionerrealising its mistake, on its own it paid all the monies into the Treasur>'.Therefore,the expression'reasonablecause' used in section278AA of theAct, should be so read as to accord benefit to the petitioner. He submitsthat H ^ there was no mem rea to deprivethe State or to withholdpublic monies forprivate good. He submits that the impugned order suffers from afundamental error, because it proceeds on the notion that that there is anelement of criminality in the petitioner's failure to deposit the entire TDSamount. He relies upon the decision of the Sequoia Construction Co. P.Ltd. vs. P.P.Suri, Ito, Central Circle XX, 1986158 ITR 496 Delhi that:- However, the question arises in cases where penaltieshave be quashed on the same facts and circumstances and thegravamen of the criminal charge is the same which was underpurview in penalty proceedings, an a finding given on thosevery factsby specialised bodies who have the technicalexpertise of the particular branch of law and a accustomed toadminister the same everyday should be entirely ignored ? It ismore in the context of the present cases, where the primaryconsiderationiswhetherthepetitionershadwithoutreasonable cause failed effect the deposits of tax deducted atsource with the Government. The corresponding provisionsunder section201(1) of theIncome-taxActarerathersomewhat stringent when they speak of "without good andsufficient reasons". Section 276B, however, speaks of "withoutreasonablecauseexcuse". A causemay appeartobe"reasonable", though still may not be good and sufficient".Sufficiency goes fartherthanmerereasonableness.Thedistinctionis ofcoursethin. The Legislaturehas rather, apartfrom sufficient cause, now enjoined that it should also be goodcause fornot depositingthe money where defaultshaveoccurred. The standard ofproof and explanation and the onusto be discharged by the assessed is much higher and heavy. Ina criminal case, however, the dictates of law just demand therequirement ofreasonable cause, i.e., what appears exfacie toreason, which is much more milder. Moreover, penalty proceedingsunder the income taxlaw are primarilyquasi-criminalin nature. During theircourse, the rigour of the criminal law that a prosecution case Moreover, penalty proceedingsunder the income taxlaw are primarilyquasi-criminalin nature. During theircourse, the rigour of the criminal law that a prosecution case must entirely stand on its own legs and not on the weakness ofthe defense version does not essentially operate with theinfallibility. However, the onus on the prosecution in criminalmatters far rigorous and must be proved beyond reasonabledoubt. The defense version to be satisfactory and plausible incriminal trial is much lighter and isjust weighed in the realmof preponderance of probability. In case therefore, in anypenalty proceedingsunder the income-tax law, an assessedhas been able to establish "good and sufficient reason" for thedefaultbefore theCommissioner, andthenbefore theTribunal, can it not be said that qua the criminal trial at leaston the same factsand circumstances,"reasonablecause"should be treated to exist ? I am making these observations inthe context of those provisions, where the provisions of lawboth under thepenalty provisions and prosecution are similar. The observations ofthe learned trial court in thepresentcase that there was no clear finding by the Commissioner ofIncome tax that there was sufficient and good cause with theassessed not to effect deposits is plainly not borne out. Rather,a perusal of that order brings out that he was satisfied thatthere existed sufficient and good cause with the assessed. Thetwo reasonswhich prevailedwith him were the financialstringency of the assessed and that the interest payments werenot in cash but merely national by way ofcredit entries in theiraccounts. From the side of the complainant in the present cases, ithas been urged that the balance-sheet of the company showedthat the current liabilities were reduced by about Rs. 3.6 lakhsas compared to the preceding year. From this circumstance, itwas urged that the company was not lacking infunds and if itcould eliminate part of those liabilities, it could have as wellpaid the dues of the Revenue. However, the reduction of thoseliabilities were at different stages in the year and do notessentially reflect the state of affairs at the time when depositswere to be effected with the Revenue. In any case, the entireconspectus of factsand circumstances were before the ' Commissionerand the AppellateTribunal and if they haveafter considerationcome to the view that good and sufficientreason existed with the assessed not to make deposits with theRevenue within time, that findingcannot be lightly ignoredand even though strictly may not be res judicata,is a valuablepiece of evidence and overwhelmingcircumstancesand aconsideration which must weigh with the criminal court whileassessing the reasonable cause prevailing with the assessed. " Mr. Zoheb Hossain, the learned Senior Standing Counsel for theIncome Tax Department refutes the aforesaid contentions. He submits thatwilful default of payment of TDS into government offices, is sufficientproofofcriminality;that there is no superveningor majorreasonpleadedtodeduce lack of mens rea; that in any case, the statutory stipulations are clear,unambiguous and require strict compliance; failing which the prescribedpenalties would be payable. In support of his contentions, he refers to thedecision of the Supreme Court in MadhumilanSyntex Ltd. & Anr. Vs.Union of India & Anr. AIR 2007 SC 1481,which, inter-alia, held asunder:- Mr. Zoheb Hossain, the learned Senior Standing Counsel for theIncome Tax Department refutes the aforesaid contentions. He submits thatwilful default of payment of TDS into government offices, is sufficientproofofcriminality;that there is no superveningor majorreasonpleadedtodeduce lack of mens rea; that in any case, the statutory stipulations are clear,unambiguous and require strict compliance; failing which the prescribedpenalties would be payable. In support of his contentions, he refers to thedecision of the Supreme Court in MadhumilanSyntex Ltd. & Anr. Vs.Union of India & Anr. AIR 2007 SC 1481,which, inter-alia, held asunder:- "47. The next contention that since TDS had alreadybeendeposited to the account ofthe Central Government, there wasno default and no prosecution can be ordered cannot beaccepted. Mr. Ranjit Kumar invitedour attention to a decisionofthe High Court ofCalcutta in Vinar& Co. & Anr. v. IncomeTax Officer iSc Ors., (1992) 193 ITR 300. Interpreting theprovisions ofSection 276B, a SingleJudge of the High Courtobservedthat"there is no provisionin the IncomeTaxAct imposing criminal liabilityfor delay in deduction or fornon-paymentin time. UnderSection276B, delay inpaymentofincome tax is not an offence".According to the learned Judge,such a provision is subject topenalty underSection201(1)ofthe Act. ® 48.We are unable to agree with the above view of the HighCourt. Once a statute requires to pay tax and stipulates periodwithin which such payment is to be made, the payment must bemade within that period. Ifthe payment is not made within thatperiod, there is default and an appropriate action can be takenunder the Act. Interpretation canvassed by the learned counselwould make theprovision relating toprosecution nugatory. " In view of the above dicta, the Court is not persuaded by thepetitioner's arguments, because the monies belong to the Government, andthe petitioner could not have held on it because it knew fully well of theimperative to deposit it as per statutory requirements. Instead, it misused thegovernmentmoniesfor its privatebenefits. Ifit haddiscoveredthatit hadtopay the monies after 6 months or 8 months or 12 months or 17 months orwhenever the "so-called"realization dawned upon it, it should haveexplained the same to the Income Tax Department, prior to the issuance ofthe show-cause notice. It is only upon the petitioner's taking such action, itsplea of bonafides may have been considered. There could be no bonafideswhen a petitioner is issued a show-cause notice after 4 or 5 years of suchdefault.The Court would note that the monies were due in the GovernmentTreasury in the year 2009, which was offered in the year 2011 or so. TheIncome Tax Department noticed the anomaly in the reftind of monies muchlater. If the petitioner raises the plea of financial inability as a constraint fornot paying the collected TDS earlier on account of bankruptcy of hisimporters, then the submission implies that it surely was aware of itsstatutory liability to deposit the TDS with the Income Tax Department. Theargument of absence of mens rea is untenable, in view of the conflictingpleas of inadvertent lapse and simultaneous financial hardship.Hence, ashow-cause notice was issued on 28.07.2014.It was open to the petitioner to have intimatedthe IncomeTax Authoritiesabouthis allegedlapseand thedifficultiesin recoveringsuch monies from his importers,who had becomebankrupt. Be that as it may, the bankruptcyof a foreigncompanyhas nothingtodo with the TDS in India. The impugned order has rightly reasonedasunder:- to have intimatedthe IncomeTax Authoritiesabouthis allegedlapseand thedifficultiesin recoveringsuch monies from his importers,who had becomebankrupt. Be that as it may, the bankruptcyof a foreigncompanyhas nothingtodo with the TDS in India. The impugned order has rightly reasonedasunder:- "21. It is further argued that the delay in deposit of taxdeducted at source by the company was caused due tofinancial crisesfaced tineand thisfact was being by companyalready explained to the complainant department throughreply dated 26.08.14 and the delay was neither intentional nordeliberate on the part of the company, and therefore, thecompany is not liable to be prosecuted for the said offence.Itwasfurther argued that the companyhas already deposited theTDS amount with the government treasury without any noticeor reminder from the department and therefore, accused Icompany is liable to be acquitted. The plea of reasonablecause in terms of 278 AA ofIncome Tax Act is also not madeout in thefacts and circumstances of this case as admittedlythe accused companyis hayinggood amount of turnover. Theadministrative and other expenses running into Rs. 10.50Crores for the year ending 31.03.2010, whereas the TDSamount is much less. It is not theplea ofthe accused companythat they were not aware about the requirement of deposit ofTDS amount in permitted time. The accused has filed theledger accounts showing the details of outstanding paymentfrom M/s Quella Gmbh, Germany. However, it is to be notedthat in the said ledger of the bills were initiated throughCanaraBank which time and again being discounted asreflected in the said ledger. The loss suffered by accusedcompany is therefore not reasonablecause unless the lossesare such that company become in-operational in itself. Whenthe company is having expenses running into crores of rupeesthey could have very well manage to deposit the TDS in time.Accordingly, the plea of reasonable cause U/s 278 AA is not applicable in the present case. " In view of the above, the Court finds no infirmity in the aforesaidreasoning. There is no merit in the petitions. Accordingly,the petitions,alongwith pending applications, stand dismissed. OCTOBER 15, 2018sb [I WAZIRI, J.