Director's prosecution quashed due to failure to serve mandatory notice under IT Act section 2(35)(b)

The Bombay HC quashed criminal proceedings under sections 276-B and 278-B of the IT Act against a company director. The court held that prosecution of a person as principal officer under section 2(35)(b) requires mandatory service of notice by the Assessing Officer declaring intention to treat him as principal officer. The department failed to serve such notice on the petitioner, despite claiming notices were sent to the company and directors. The court found the magistrate failed to consider statutory requirements before issuing process, violating mandatory procedural safeguards essential for valid prosecution.

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Issues Involved:
The judgment involves a challenge to the Order dated 18 February 2014 and the Order dated 21 July 2022, regarding the issuance of process and fresh summons in Criminal Case No. 52/SW/2014 under sections 276-B read with 278-B of the Income Tax Act, 1961.

Comprehensive details of the judgment for each issue involved:

1. Challenge to Orders:
The petitioner sought to challenge the Orders dated 18 February 2014 and 21 July 2022, contending that the process was issued against him without proper application of mind by the learned Magistrate. The petitioner argued that the complaint lacked specific averments regarding his role in the alleged offence and that he was not served with a notice treating him as a principal officer as required by the I.T. Act.

2. Legal Considerations:
The Court examined the provisions of the I.T. Act, particularly sections 276-B and 278-B, which deal with the liability of individuals in cases of non-payment of tax deducted at source by a company. The Court also referred to the definition of 'Principal Officer' under section 2(35) of the I.T. Act, emphasizing the requirement of serving a notice to an individual connected with the management or administration of a company to be treated as a principal officer.

3. Analysis of Compliance:
The Court analyzed the actions of the Department in following the necessary procedures before initiating the prosecution. It was noted that the Department failed to serve the mandatory notice under section 2(35)(b) of the I.T. Act to the petitioner, who was a non-executive independent director of the company. The Court highlighted the importance of compliance with statutory requirements before initiating criminal proceedings.

4. Quashing of Criminal Case:
Based on the non-compliance with the mandatory notice provision and the lack of proper consideration by the Magistrate, the Court quashed Criminal Case No. 52/SW/2014 and the related Orders dated 18 February 2014 and 21 July 2022 specifically concerning the petitioner. The Court emphasized that the failure to serve the notice undermined the prosecution against the petitioner and warranted the quashing of the case.

5. Conclusion:
The Court allowed the petition challenging the Orders and the Criminal Case, highlighting the significance of adhering to procedural requirements and ensuring proper legal considerations before initiating criminal proceedings. The judgment focused on the specific issue of non-compliance with the notice provision under the I.T. Act, leading to the quashing of the case against the petitioner.

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