Prosecution for late income-tax returns and directors' vicarious liability upheld despite belated filing and completed assessment.

Delhi HC held that prosecution for failure to furnish a return of income under the Income-tax Act is not barred because the return was filed belatedly, assessment proceedings were completed, or no penalty under section 271F was imposed. The offence under section 276CC arises when the return is not filed within the prescribed time, and questions about delay and defence remain matters for trial; the prosecution sanction was also upheld. The Court further held that section 278B can extend vicarious liability to company officers, and section 140(c) does not confer blanket immunity on managing directors or other directors from prosecution for the company's default.

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Issues: (i) Whether prosecution for failure to furnish return of income under the Income-tax Act could be quashed on the ground that the return was filed belatedly, assessment proceedings had been completed, and no penalty under section 271F had been imposed; (ii) Whether the managing director and other directors could avoid prosecution for the company's default on the basis of the verification provision for company returns.

Issue (i): Whether prosecution for failure to furnish return of income under the Income-tax Act could be quashed on the ground that the return was filed belatedly, assessment proceedings had been completed, and no penalty under section 271F had been imposed.

Analysis: The offence under section 276CC is attracted when the return is not furnished within the time prescribed under section 139(1) or in response to notice under section 142(1). The completion of scrutiny assessment under section 143(3), the later filing of the return, or the absence of penalty under section 271F does not negate the offence or bar prosecution. The decision whether to impose penalty under section 271F is discretionary, and non-imposition of penalty does not establish absence of wilful default. Questions relating to justification for the delay and the defence version are matters for trial. The sanction for prosecution by the Commissioner under section 279(1) was not improper.

Conclusion: The challenge to initiation and continuance of prosecution was rejected, and the issue was decided against the petitioners.

Issue (ii): Whether the managing director and other directors could avoid prosecution for the company's default on the basis of the verification provision for company returns.

Analysis: Section 278B creates vicarious liability where an offence under the Act is committed by a company and extends liability to persons in charge of and responsible for its business. Section 140(c) places the primary duty of verification on the managing director, but it does not exclude liability of other directors in all situations. The provision contemplates cases where the managing director is unable to verify or where there is no managing director, in which event any director may be responsible. The absence of an explanation from the managing director at the pre-trial stage did not warrant quashing.

Conclusion: The directors' plea for immunity from prosecution was rejected, and the issue was decided against the petitioners.

Final Conclusion: The petitions for quashing were found to be without merit, and the criminal proceedings were permitted to continue.

Ratio Decidendi: Prosecution for failure to furnish a return of income is independent of assessment proceedings and penalty proceedings, and company officers may face vicarious liability where they are responsible for the company's compliance.

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