Prosecution u/s 276B of directors as Principal Officer upheld as they failed to disclose who was managing the affairs of the company
ABCAUS Case Law Citation:
ABCAUS 2282 (2018) (04) TC 
The instant judgment was made in a revision petition filed by the defaulting company and its principal officers (collectively “the petitioners”) before the learned Special Judge, against the order passed by the Additional Chief Metropolitan Magistrate (ACMM) in complaint case whereby a charge under section 276-B read with section 278-B of The Income Tax Act, 1961 (‘the Act’) was ordered to be framed against all the petitioners.
The Assistant Commissioner of Income Tax, TDS had filed a complaint before the trial court. In that complaint, the petitioners namely the company, two directors and one DGM (Finance & Accounts) were shown as the accused persons.
The allegation was with respect to non deposit of tax deducted at source (TDS). It was alleged that during the survey conducted under section 133-A of the Act, it was found that TDS amounting to Rs. 8,51,54,265/- under sections 192-B, 194-A, 194-C and 194-J of the Act was deducted on behalf of the company but the same was not deposited in the government account within the stipulated time after the deduction. During the survey, statement of DGM (Finance & Accounts) was recorded. The ledger balance of TDS account as on the date of survey was also showing the TDS payable.
Separate show cause notices under section 2(35) of the Act were issued to the directors and the DGM by the Assessing Officer (AO) disclosing his intention to treat them as “principal officers” of the company. As no reply was received to these notices, fresh show cause notices u/s 2 (35) of the Act were
issued to that effect. However again no reply was received. Thereafter the AO passed the orders declaring the directors and the said DGM as the principal officers of the defaulting company.
A proposal for initiation of prosecution under section 276-B of the Act against the petitioners was forwarded by the AO to the CIT(TDS) who issued a show cause notice to the petitioners and this time a reply was received on behalf of the petitioners which was considered but the same was not found satisfactory.
The Trial court (ACCM) took cognizance of the complaint of the alleged offence and the petitioners were directed to be summoned.
In support of the complaint, the Income Tax Department led pre-charge evidence and examined three Income Tax Officers. However the petitioners did not avail the opportunity to cross examine these witnesses but they reserved their right under section 246(4) of CrPC to cross examine these witnesses and other witnesses during post charge evidence.
After hearing, the trial court passed the impugned order. Aggrieved, the petitioners had filed the said revision petition in the court of the learned Special Judge.
The learned Special Judge observed that till date the amount of TDS allegedly deducted by the petitioners had not been deposited in the government account.
The petitioners raised the following submissions in support of this petition:-
(a) That the Trial court failed to take note of section 278-B of the Act. There was no averment in the complaint to show that petitioners were incharge and responsible to the company for the conduct of business of company. Hence no charge could have been framed against these petitioners. Also that one of the director had resigned from the company.
(b) That the DGM (F&A) was never employed with the company or had ever drawn any salary from the company. His statement recorded under section 133-A of the did not fasten any liability on him.
The learned Special Judge observed that Section 278-B of the Act provides that where an offence under the Act has been committed by a company, every person who, at the time of offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
It was also observed that in the complaint, there was no allegation to the effect that the directors or the DGM were incharge of and were responsible to the company for conduct of the business of the company. However, there was a specific allegation in the petition that those were the principal officers of the company.
The learned Special Judge observed that as per the decision of the Hon’ble Delhi High Court, the words of the statute need not be repeated but there must be some averment to that effect in the complaint. He opined that in the complaint, there was prima facie an averment that the petitioners were the principal officers of the defaulting company and in that sense they were incharge of and responsible to the company.
It was also noted that before the complaint was filed, various notices under section 2(35) of the Act were issued by the AO to the petitioners proposing them to treat them as the “principal officers” of the company and asking them to show cause as to why proceedings under section 276-B of Act be not initiated against them. As per section 2(35) of the Act which defines the “principal officer” inter alia include any person connected with the management or administration of the company upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof.
It was also observed that no response was received on behalf of the petitioners to these show cause notices and thereafter the AO passed orders whereby these petitioners were held to be the principal officers within the meaning of section 2(35) of the Act. Also, before the prosecution was launched, notices were issued to the petitioners under section 279(1) of the Act to which replies were received through the Chartered Accountant of the petitioners but no such contention was raised in these replies that they were not the principal officers of the company.
It was also observed that during the survey conducted, statement of the DGM (F&A) was recorded in which he clearly stated on solemn affirmation that he was DGM (Finance & Accounts) of specific Group of Companies which included the defaulting company. There was no assertion in that statement that this petitioner was not responsible for the affairs of the company. Statement made before an authority under the Income Tax Act u/s 133-A is not hit by sections 161 and 162 of CrPC which deals with examination of witnesses by police and statements given to police.
It was noted that the amount deducted but not deposited with the government was very substantial. The alleged principal officers were directors of the company but they did not respond to the show cause notices. They did not cross examine the witnesses at pre charge evidence. In their replies or even in this revision petition they had not disclosed as to who was managing the affairs of the company if they were not doing so. A company is a juristic person which is run by its directors and other persons. Being directors and officers, they would have some knowledge about the affairs of the company; at least to the extent as to who was running that company.
The learned Special Judge opined that on view of totality of the facts and circumstances, the trial court had considered that there was sufficient material before it that raised grave suspicion that the petitioners were guilty of offences alleged against them.
The learned Special Judge opined that no case was made out for interference with the impugned order in exercise of revisional jurisdiction. It would be open for the petitioners to prove that the alleged offence was committed without their knowledge or that they had exercised all due diligence to prevent the commission of offence, if need so arises, under proviso to section 278-B (1) of the Act during trial.
Accordingly, the revision petition was dismissed.
