Depreciation claimed on land was not sheer mistake. High Court upheld sentence u/s 276C/277 of the Income Tax Act, 1961
ABCAUS Case Law Citation:
ABCAUS 2137 (2017) (12) HC
The Petitioner company had filed a Criminal Revision petition u/s 397 of the Code of Criminal Procedure, 1973 (‘CrPC’) seeking quashing of the judgment and order of sentence passed by the Additional Chief Metropolitan Magistrate ( ‘ACMM’)holding the petitioner guilty under Section 276C/277 of the Income Tax Act, 1961 (the Act)
Brief Facts of the Case:
In the instant case, a complainant was filed by the Deputy Commissioner of Income Tax, (DCIT) against the petitioner alleging that it claimed a false depreciation on land in the company’s balance sheet shown along with the depreciation on building.
After the completion of the assessment by the Assessing Officer (AO), a penalty was imposed for concealment. The learned CIT(A) however deleted the penalty by considering the same as sheer mistake on part of the petitioner.
The department filed an appeal before ITAT, who reinstated the penalty which when challenged in the High Court, was dismissed.
Consequently, the DCIT filed a complaint before the ACMM wherein the company was found guilty for the offence punishable under Section 266C and 277 of the Act and was sentenced to pay fine.
Contention of the Petitioner:
The petitioner contended that the mistake committed in the accounts book was a sheer mistake made by the accounts clerk of the company and the same was not in the knowledge of the petitioner, director or its Chartered Accountants; that while assessment of the accounts of the company by the Chartered Accountants in the subsequent year, they came to know about the mistake that had occurred; that the same was brought to the knowledge of the Assessing Officer vide letter dated 08.12.2009 during assessment and much before the scrutiny.
It was submitted that the petitioner company came to know about the alleged mistake much before it could be detected by the Assessing Officer and the mistake in the balance sheet was suo moto rectified in the balance sheet of the subsequent year by the company’s Chartered Accountant.
It was also submitted that there was absence of mens rea in committing the said act; that the doctrine of vicarious liability is not applicable for prosecution and the impugned order was not a speaking order, therefore, liable to be set aside.
Observations made by the High Court:
The High Court noted that the record showed two order sheet entry dated 04.09.2009 and 23.11.2009 was made by the AO whereby the AO had asked the petitioner to explain the claim of depreciation on building. The said order sheet entries were proved during the cross examination.
In view of the above, the High Court held that the contention that the mistake in the balance sheet was suo moto rectified in the balance sheet of the subsequent year much before it was scrutinised by the Assessment Officers could not be accepted.
Regarding the contention that the alleged mistake was mere clerical in nature, not deliberate and no element of mens rea is present, the High Court opined that it also did not held any ground as rightly held by the ACMM that no sincere efforts were put in by the petitioner after detection of the alleged mistake by filing the revised return particularly when in cross examination it was stated that the said mistake was detected in or about August 2008.
Thus, the High Court observed that the mistake which was detected in the month of August by the company but only on 08.09.2009, the same was informed to the Assessment Officer. The petitioner had ample time to rectify its mistake by either bringing the same into the notice of the Assessing Officers soon after its detection or by filing a revised IT return to that effect. But, no action was taken by the petitioner until 08.12.2009, which casted a serious doubt on the story of the petitioner.
The High Court opined that as per manifest procedure, before filing of the Income Tax return the same is scrutinized, firstly, by the auditors of the company, secondly, by the directors of the company before endorsing their signatures on the final Balance Sheet. Therefore, it cannot be considered as a mere accounting mistake.
The order of the Additional Chief Metropolitan Magistrate was upheld.