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Court quashes proceedings for not meeting cost audit turnover threshold, rules prosecution non-compliant with rules. The Court quashed criminal proceedings under Section 148 of the Companies Act, 2013, as the company's turnover fell below the threshold requiring a Cost ...
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Court quashes proceedings for not meeting cost audit turnover threshold, rules prosecution non-compliant with rules.
The Court quashed criminal proceedings under Section 148 of the Companies Act, 2013, as the company's turnover fell below the threshold requiring a Cost Auditor. The Court found the prosecution was initiated without verifying the financial thresholds specified in the Companies (Cost Records and Audit) Amendment Rules, 2014. It held that the proceedings were not in compliance with the Rules and ordered the quashing of the case against the petitioners.
Issues: Quashing of criminal proceedings under Section 148 of the Companies Act, 2013 based on alleged non-appointment of Cost Auditor within prescribed limits.
Analysis: The petitioners sought to quash the proceedings in C.C.No.163 of 2018 under Section 148 of the Companies Act, alleging non-appointment of a Cost Auditor as per the proviso to Section 148. The petitioners argued that the company did not fall under the turnover threshold specified in the Companies (Cost Records and Audit) Amendment Rules, 2014, as per the Notification issued by the Ministry of Corporate Affairs. They contended that the manufacturing cost for the financial years 2014 to 2018 was below Rs.35 Crores, the threshold set in the amended Rule 4. The prosecution was launched without verifying this fact, prompting the petitioners to seek quashing of the proceedings.
The Central Government Standing Counsel did not dispute the amendment of the relevant Rule presented by the petitioners. The Court examined the materials on record, including Section 148 of the Companies Act, 2013, which empowers the Central Government to specify the audit of cost records for certain companies based on prescribed criteria. Sub-section (2) of Section 148 allows for the audit of cost records for companies meeting specific financial thresholds. The amended Companies (Cost Records and Audit) Rules, 2014, mandate cost audit for companies engaged in specified activities and meeting designated turnover criteria.
The amended Rule 4 specifies different turnover thresholds for cost audit applicability based on the category of companies. For companies falling under item (B) of Rule 3, the aggregate turnover for the individual products or services requiring cost records maintenance must be Rs.35 crore or more for cost audit obligation. The financial statements for the years 2014-2018, undisputed by the respondent, indicated turnover below Rs.35 crore. Consequently, the Court concluded that the initiation of prosecution was contrary to the amended Rules.
In light of the above analysis, the Court held that the criminal proceedings against the petitioners were not in accordance with the amended Rules and therefore ordered the quashing of the proceedings. The Court allowed the Criminal Original Petition and closed the connected Criminal Miscellaneous Petition.
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