1998 (7) TMI 13 - HC - Income Tax

Court affirms acquittal for lack of notice under Income-tax Act, finds no proof for Section 420 charges, justifies tax delay

Income-Tax Officer Versus Roshni Cold Storage (P.) Ltd. And Others

The High Court upheld the trial court's decision to acquit the accused due to the non-issuance of a statutory notice under section 2(35) of the Income-tax ... Offences And Prosecution, Burden Of Proof, Appeal, Company Issues Involved:1. Non-issuance of statutory notice u/s 2(35) of the Income-tax Act, 1961.2. Applicability of Section 420 of the Indian Penal Code.3. Reasonable cause or excuse for delayed remittance of tax deducted at source.Summary:Issue 1: Non-issuance of statutory notice u/s 2(35) of the Income-tax Act, 1961The trial court acquitted the accused on the ground that the Department did not issue the statutory notice to respondents/accused Nos. 2 to 5 as required under section 2(35) of the Income-tax Act, 1961, treating them as the principal officers before launching a prosecution for the offence under section 276B of the Income-tax Act, 1961, which requirement is mandatory. The court relied on the ruling in M. R. Pratap v. V. M. Muthuramalingam ITO [1984] 149 ITR 798, which held that the managing director of a company cannot be held liable under section 276B unless the Income-tax Officer has served a notice on him under section 2(35)(b) and informed him of his intention to treat him as the principal officer of the company. The introduction of section 278B into the statute book with effect from October 1, 1975, does not alter or take away this mandatory requirement.Issue 2: Applicability of Section 420 of the Indian Penal CodeThe trial court found that the ingredients of section 420 of the Indian Penal Code were not attracted and the prosecution did not provide any evidence to support this charge. The prosecution's charge under section 420 was based on mere surmises and not on any evidence. The trial court observed that the creditor company, New India Maritime Agencies Pvt. Ltd., had been paying its advance tax in huge amounts very promptly, disproving the charges under section 420. The trial court's finding in dismissing the charge under section 420 of the Indian Penal Code was well-founded.Issue 3: Reasonable cause or excuse for delayed remittance of tax deducted at sourceThe trial court found that accused No. 1-company had been incurring heavy losses from the date of its incorporation and, therefore, had reasonable cause or excuse for the delayed remittance of tax deducted at source. The prosecution failed to establish that accused No. 1-company acted without any reasonable cause or excuse. The court relied on exhibits P5, P9, and P12, which demonstrated the company's financial difficulties. The trial court also relied on decisions in PNB Finance and Industries Ltd. v. Miss Gita Kripalani, ITO [1986] 157 ITR 385 (Delhi), ITO v. Taurus Equipment (P.) Ltd. [1979] 118 ITR 982 (Patna), and Sequoia Construction Co. P. Ltd. v. P. P. Suri, ITO [1986] 158 ITR 496 (Delhi), which supported the view that financial stringency is a reasonable cause for delayed remittance of tax deducted at source.Conclusion:The High Court found no reason to interfere with the trial court's judgment, which was based on sound principles of law and supported by various judicial rulings. The appeals were dismissed, and the trial court's judgment acquitting the accused was confirmed.