2023 (6) TMI 1203 - DSC - Income Tax

Court quashes order against Non-Executive Directors in company case

Girish Vasudev Gokhale, Dinesh Nitin Joshi, Chaitanya Sureshchandra Joshi, Versus Income Tax Department, Through Shri N. Ashok Babu, The State of Maharashtra

The court allowed the revision application, quashed and set aside the impugned order dated 09.01.2017, and dismissed the complaint against the applicants, ... Offence punishable u/s 276­B r/w section 278­B - Criminal liability of Directors of the Company - Failure to deposit TDS within prescribed time - Person in charge of the business of the firm when the offence was committed - HELD THAT:- As complaint does not disclose the necessary particulars as to how and in what manner the present applicants /original accused No. 2 to 4 were in-charge of and responsible to the accused No. 1 company for the conduct of day ­to­ day business of the company including the deduction of TDS and depositing the same to the credit the Central Government, so as to initiate criminal prosecution for the commission of offence under section 276­B r/w section 278­B of the Income Tax Act. Hence, the impugned order which does not disclose the application of mind while issuing process against the applicants /original accused No. 2 to 4, cannot be said to be legal, correct and proper so as to sustain it. Ultimately, I would agree with the submissions advanced by Advocate Poonam Ankleshwaria appearing for the present applicants /original accused No. 2 to 4 to quash and set aside the impugned order. Issues Involved:1. Legality and correctness of the impugned order dated 09.01.2017.2. Whether the impugned order is liable to be set aside, modified, or affirmed.3. Appropriate order to be passed.Summary:Issue 1: Legality and Correctness of the Impugned OrderThe applicants, who were Independent and Non-Executive Directors of Unity Infraprojects Ltd., challenged the order dated 09.01.2017, which directed the issuance of process against them for an offence punishable under section 276-B r/w section 278-B of the Income Tax Act, 1961. They contended that they were not in charge of and responsible for the day-to-day activities of the company. The learned Additional Chief Metropolitan Magistrate failed to appreciate that the allegations in the complaint did not make out a prima facie case against them. The court noted that the applicants being Independent and Non-Executive Directors were never involved in the day-to-day business of the company, and the prosecution of the applicants was bad in law.Issue 2: Whether the Impugned Order is Liable to be Set Aside, Modified, or AffirmedThe court considered various judgments, including those from the Hon'ble Supreme Court and the Hon'ble Bombay High Court, which supported the applicants' contention that merely being a director does not make one responsible for the day-to-day affairs of the company. The court found that the complaint did not disclose the necessary particulars as to how the applicants were in charge of and responsible for the conduct of the business of the company. Hence, the impugned order was deemed illegal, incorrect, and improper and was liable to be set aside.Issue 3: Appropriate Order to be PassedThe court allowed the revision application, quashed and set aside the impugned order dated 09.01.2017, and dismissed the complaint against the applicants. An authenticated copy of the judgment was ordered to be sent to the learned Trial Court for information, and the record of the proceeding was to be consigned to the record department as per the rules.Order:1. Criminal Revision Application No. 163 of 2023 is allowed.2. The impugned order dated 09.01.2017 is quashed and set aside.3. The complaint is dismissed against the applicants.4. An authenticated copy of this judgment and order be sent to the learned Trial Court.5. The record of this proceeding be consigned to the record department as per the rules.