M/S CENTURY REAL ESTATE HOLDINGS PVT LTD V. INCOME TAX DEPARTMENT

CRL.P/3321/2022

AI Insights

The case involves multiple criminal petitions filed by Century Real Estate Holdings Pvt Ltd, Canara Housing Development Company, and Geethanjali Effective Realty Solutions Pvt Ltd against the Income Tax Department. The petitions challenged the sanctions for prosecution and the cognizance taken by the Special Court for Economic Offences in Bengaluru for alleged delayed remittance of Tax Deducted at Source (TDS) amounts. The petitioners argued that the delays were within the extended periods allowed by amendments to the Income Tax Act, specifically citing 'reasonable cause' for the delays. The court found that the prosecution did not adequately consider these amendments and the petitioners' responses demonstrating reasonable cause, leading to the quashing of the sanctions and cognizance orders.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 694538 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 15-09-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: M V SHESHACHALA
• Keywords: Criminal Liability; Reasonable cause; Sanction for prosecution; TDS delay
• Section: 201; 139(1); 201(1); 194C; 194J; 201(1A); 194H; 194I; 193; 278B; 276B; 278AA

Judgement Text

" - 1 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF SEPTEMBER, 2022 BEFORE THE HON'BLE MR JUSTICE M.NAGAPRASANNA CRIMINAL PETITION NO. 3321 OF 2022 C/W. CRIMINAL PETITION Nos.3322 OF 2022, 3318 OF 2022 & 3361 OF 2022 IN CRL.P. No.3321/2022 BETWEEN: 1. M/S CENTURY REAL ESTATE HOLDINGS PVT LTD NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052 REP BY ITS MANAGING DIRECTOR SRI P RAVINDRA PAI. 2. SRI RAVINDRA PAI S/O SRI P DAYANANDA PAI AGED ABOUT 46 YEARS R/A NO.10/1, GROUND FLOOR LAKSHMINARAYAN COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052. (MANAGING DIRECTOR) Digitally signed by PADMAVATHI B K Location: HIGH COURT OF KARNATAKA - 2 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS CENTURY REAL ESTATE HOLDINGS PVT LTD. …PETITIONERS (BY SRI. M.V. SHESHACHALA, SENIOR ADVOCATE FOR SRI. ARAVIND V. CHAVAN, ADVOCATE) AND: INCOME TAX DEPARTMENT CIRCLE-1(1), HMT BHAVAN BENGALURU-560032 BELLARY ROAD BY ITS ASST. COMMISSIONER OF INCOME TAX(TDS). …RESPONDENT (BY SRI.E.I. SANMATHI, ADVOCATE) THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 CR.P.C PRAYING TO: A. QUASH THE COMPLAINT REGISTERED IN C.C.NO.94/2018 BEFORE THE SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE PRODUCED AS ANNEXURE-A. B. QUASH THE COGNIZANCE TAKEN AND ISSUE OF PROCESS DATED 06.04.2018 OF THE OFFENCE ALLEGED IN C.C.NO.94/2018 BY THE SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE ANNEXURE-F3 AND ETC. IN CRL.P.NO.3322/2022 BETWEEN 1 . M/S. CANARA HOUSING DEVELOPMENT COMPANY NO. 10/1, LAKSHMINARAYANA COMPLEX - 3 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS PALACE ROAD, VASANTH NAGAR BENGALURU-560 052 REP. BY ITS MANAGING PARTNER NOW SRI. RAVINDRA PAI. 2 . SRI. DAYANAND PAI S/O. P. NARASIMHA PAI AGED ABOUT 78 YEARS R/AT NO. 10/1 GROUND FLOOR LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560 052. (MANAGING PARTNER M/S CANARA HOUSING DEVELOPMENT COMPANY) ...PETITIONERS (BY SRI.M V SHESHACHAL, SENIOR ADVOCATE FOR SRI. ARAVIND V. CHAVAN, ADVOCATE) AND INCOME TAX DEPARTMENT TDS, CIRCLE-1(1), HMT BHAVAN BENGALURU-560 032 BY ITS DEPUTY DIRECTOR OF INCOME TAX DR. VIJAYAKUMAR M.D. …RESPONDENT (BY SRI.E.I.SANMATHI, ADVOCATE ) THIS CRIMINAL PETITION FILED UNDER SECTION 482 CR.P.C PRAYING TO A. QUASH THE PROCEEDINGS PURSUANT TO COMPLAINT REGISTERED IN C.C.NO.140/2019, BEFORE THE SPL. COURT - 4 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS FOR ECONOMIC OFFENCES, BANGALORE PRODUCED AS ANNEXURE-A. B. QUASH THE ISSUING OF PROCESS AFTER TAKING COGNIZANCE DATED 27.04.2019 OF THE OFFENCE ALLEGED IN C.C.NO.140/2019 BY THE SPL. COURT FOR ECONOMIC OFFENCES, BANGLAORE ANNEXURE-F2 AND ETC. IN CRL. P. No.3318/2022 BETWEEN 1 . M/S GEETHANJALI EFFECTIVE REALTY SOLUTIONS PVT LTD NO.10/1, GROUND FLOOR LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052 REP. BY ITS DIRECTOR SRI P RAVINDRA PAI. 2 . SRI RAVINDRA PAI S/O SRI P DAYANANDA PAI AGED ABOUT 46 YEARS R/A NO.10/1, GROUND FLOOR LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052 (DIRECTOR M/S GEETHANJALI EFFECTIVE REALTY SOLUTIONS PVT. LTD.) ...PETITIONERS (BY SRI.M.V.SHESHACHAL, SENIOR COUNSEL ALONG WITH SRI.ARAVIND V. CHAVAN, ADVOCATE) - 5 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS AND INCOME TAX DEPARTMENT WARD -1(3), HMT BHAVAN BENGALURU-560032 BY ITS INCOME TAX OFFICER-TDS …RESPONDENT (BY SRI.E.I.SANMATHI, ADVOCATE) THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 CR.P.C PRAYING TO: A. QUASH THE COMPLAINT REGISTERED IN C.C. NO. 115/2019, BEFORE THE SPECIAL COURT FOR ECONOMIC OFFENCES, BENGALURU, PRODUCED AS ANNEXURE-A. B. QUASH THE COGNIZANCE TAKEN AND ISSUE OF PROCESS DATED 2.4.2019 OF THE OFFENCE ALLEGED IN CC NO. 115/2019, BY THE SPECIAL COURT FOR ECONOMIC OFFENCES, BENGALURU ANNEXURE-F3 AND ETC. IN CRL. P. No.3361/2022 BETWEEN 1 . M/S CANARA HOUSING DEVELOPMENT COMPANY NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052 REP BY ITS MANAGING PARTNER SRI RAVINDRA PAI. 2 . SRI RAVINDRA PAI S/O SRI P DAYANAND PAI AGED 46 YEARS - 6 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD, VASANTH NAGAR BENGALURU-560052 (MANAGING PARTNER M/S CANARA HOUSING DEVELOPMENT COMPANY) ...PETITIONERS (BY SRI. M.V. SHESHACHAL, SENIOR COUNSEL ALONG WITH SRI.ARAVIND V. CHAVAN, ADVOCATE) AND INCOME TAX DEPARTMENT TDS CIRCLE-1(1), HMT BHAVAN BENGALURU-560032 BY ITS DEPUTY DIRECTOR OF INCOME TAX DR VIJAYAKUMAR M D. …RESPONDENT (BY SRI. E.I.SANMATHI, ADVOCATE ) THIS CRIMINAL PETITION IS FILED UNDER SECTIION 482 CR.P.C PRAYING TO: A. QUASH THE COMPLAINT REGISTERED IN C.C.NO.141/2019 BEFORE THE SPECIAL COURT FOR ECONOMIC OFFENCES, BENGALURU, PRODUCED AS ANNEXURE-A. B. QUASH THE COGNIZANCE TAKEN AND ISSUE OF PROCESS DATED 27.04.2019 OF THE OFFENCE ALLEGED IN C.C.NO.141/2019 BY THE SPECIAL COURT FOR ECONOMIC OFFENCES, BENGALURU ANNEXURE-F4. THESE PETITIONS, COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING: - 7 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS ORDER The petitioners in all these cases are assessed to income tax and bring about identical questions of law and call in question the proceedings instituted to prosecute the petitioners for offences punishable under Section 276B r/w. Section 278B of the Income Tax Act, 1961 (‘the Act’ for short). 2. Since the issue involved is common, these petitions are taken up together and considered by this common order. 3. Brief facts that lead the petitioners to this Court, as borne out from the pleadings of Crl.P.No.3321/2022, are as follows:- A complaint comes to be registered invoking Section 200 of the Cr.P.C. against the petitioners alleging that they have committed offences under Sections 276B r/w. 278B of the Act. The allegation was that the petitioners have remitted tax deduction at source in terms of Section 193 of the Act belatedly. The components that were alleged were the interest - 8 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS on securities, professional and consultancy charges, rent, payment to contractors and commission or brokerage. Under these heads invoking Sections 193, 194J, 194I, 194C & 194H of the Act, the total TDS that had to be paid which has been belatedly paid was Rs.5,12,41,318/-. It is the case of the complainant that there has been delay in the remittances made for the assessment year 2013-14, which would be the financial year between 01-04-2012 and 31-03-2013. 4. Prior to registration of the complaint based upon the aforesaid delay in paying TDS amount, a show cause notice comes to be issued against the petitioners on 23-03-2015, alleging that the tax deducted at source in a sum of Rs.1,39,57,179/- and Rs.90,99,039/- was not remitted to the Income Tax Department, which becomes an offence punishable under Section 276B of the Act. The petitioners replied to the said show cause notice denying the allegations. Notwithstanding the detailed reply given, the Commissioner of Income-Tax i.e., the competent authority accorded sanction for prosecuting these petitioners on 28-02-2018, prima facie - 9 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS holding that the petitioners had committed default by non- remitting of TDS amount to the Government account in a sum of Rs.5,12,41,318/-. What drove to grant of sanction for such prosecution was the delay that would range from 4 months to 10 months in remittance of TDS amount. It is, therefore, sanction was accorded to prosecute the petitioners under Sections 276B r/w 278B of the Act. Proceedings later go on and are at the stage of evidence. At that point in time, the petitioners have knocked the doors of this Court in the subject petitions calling in question grant of sanction and all proceedings pending before the concerned Court. 5. Heard Sri M.V.Sheshachala, learned senior counsel appearing for the petitioners and Sri E.I.Sanmathi, learned counsel representing the respondent/Department. 6. The learned senior counsel would contend that the order of sanction runs counter to the amended provisions of the Act. Cognizance and issuance of process is mechanically done without application of mind and the evidence of the Department - 10 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS itself clearly indicates that the petitioners had to deposit TDS amount in terms of the extended period as depicted in the amended provision as the words “reasonable cause” for delayed payment was introduced in the amendment. An opportunity to demonstrate reasonable cause ought to have been given by the Department / Authority, who sanctioned prosecution and the reasons for such delay ought to have been considered prior to grant of sanction for such prosecution. 7. On the other hand, the learned counsel appearing for the respondent would contend that the stage at which the petitioners have approached this Court is clearly erroneous as criminal liability of the petitioners would not get absolved even if there has been amendment to the provision and the remittance of TDS could have been done at a particular date. All these are a matter of evidence and, therefore, the petitioners have to come out clean in a full blown trial. He would submit that there is no warrant of interference at this stage of the proceedings. - 11 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS 8. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record. 9. The afore-narrated facts that lead to registration of crime for offences punishable under Section 276B r/w. 278B of the Act are not in dispute. The issue is, whether the crime could be registered against the petitioners. 10. To consider the said issue, it is germane to notice the provisions of the Act. What is alleged is, offence punishable under Sections 276B r/w. 278B of the Act, which read as follows: “276-B. Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.—If a person fails to pay to the credit of the Central Government,— (a) the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or (b) the tax payable by him, as required by or under,— (i) sub-section (2) of Section 115-O; or (ii) the second proviso to Section 194-B, - 12 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. … … …. 278-B. Offences by companies.—(1) Where an offence under this Act has been committed by a company, every person who, at the time the 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: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub- section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. (3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonmnet and - 13 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS fine then, without prejudice to the provisions contained in sub-section (1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-section (1) or the director, manager, secretary or other officer of the company referred to in sub-section (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act. Explanation.—For the purposes of this section— (a) “company” means a body corporate, and includes— (i) a firm; and (ii) an association of persons or a body of individuals whether incorporated or not; and (b) “director”, in relation to— (i) a firm, means a partner in the firm; (ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.” Sections 276B r/w. 278B of the Act would make belated payment of TDS amount an offence and such offenders would become liable for prosecution of such offence. On the ground that the petitioners have belatedly paid TDS amount for the assessment year 2013-14, which would comprise of the taxation year 01-04-2012 to 31-03-2013, a show cause notice comes to be issued on 23.03.2015, in terms of Section 279(1) - 14 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS of the Act, seeking the petitioners to show cause as to why prosecution should not be initiated. The petitioners submitted their reply. In the reply, the petitioners contend that all TDS amounts were paid within the extended time upto the date of filing of returns under Section 139(1) of the Act, in terms of Section 278AA of the Act. Section 278AA of the Act, reads as follows: “278-AA. Punishment not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of Section 276-A, Section 276-AB or Section 276-B no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.” Section 278AA of the Act came to be amended with effect from 01-04-2009, by inserting a phrase “reasonable cause” for delay. Therefore, on and from 01-04-2009, an assessee while making delayed payment of TDS amount is entitled to demonstrate ‘reasonable cause’ for such delay in payment of TDS amount. If reasonable cause becomes acceptable, it would not become an offence under Sections 276B r/w. 278B of the Act for the delayed payment. The effect would be that, prosecution can be launched and punishment could be imposed - 15 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS only if the assessee fails to demonstrate such reasonable cause. 11. With effect from 01-07-2012, the time to pay TDS was extended up to filing of return of income tax under Section 139 of the Act. The extension was in terms of the proviso to Section 201 of the Act. If filing of return was co-terminus with the TDS that could be paid under Section 139 of the Act, the period pursuant to which the TDS could be paid would get extended up to *31-10-2013 and 30.11.2014. It is an admitted fact that TDS is paid by the petitioners within *31-10-2013 and 30.11.2014, though not at particular quarter. It is germane to notice the evidence of the Assistant Commissioner of Income Tax in C.C.No.94 of 2018. In the examination-in-chief the witness would state that there has been delay. In the cross- examination the witness would depose as follows: “6. In Ex.P14 the demand of Rs.39,50,982/- is in respect of interest on TDS amount. It is true to suggest that Section 201(1) deals with dealing the Assessee as Assessee in default. Section 201(1A) deals with levy interest on delayed payment. It is false to suggest that in the survey report the amount is not tallying. Witness voluntarily deposed * Corrected vide Court Order dated 17/02/2023. - 16 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS that the TDS default fluctuates every month. If the Assessee does not pay the TDS in succeeding month the amount in default will be increased similarly if the TDS amount is paid by the Assessee in the succeeding month the amount in default will also decrease. It is true to suggest that the TDS default amount varies on the date of survey, on the date passing order under 201 and on the date of sanction order. On the date of sanction order I was already transferred to another section so I do not know about the sanction order. Accrual of account is identified by me. It is true to suggest that default is computed based on accrual. As on the date of survey we have identified the default of TDS made by the Assessee. As an officer of Income Tax my duty is to identify the default on the date of accrual and not to identify the actual future payments by the Assessee. It is true to suggest that on the last date of filing the returns the TDS amounts can be paid. Witness voluntarily deposed that the same will not absolve the criminal liability of the Assessee. It is true to suggest that there is provision to file a certificate issued by the Chartered Accountant about the tax payment of the deductee.” (Emphasis added) The witness would admit by this statement that it is true to suggest that on the last date of filing the returns, TDS can be paid and he voluntarily deposes that such payment will not absolve criminal liability of the assessee. He again accepts that it is true to suggest that there is a provision to file a certificate issued by the Chartered Accountant about tax payment of the - 17 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS deductee i.e., the petitioners herein. What would emerge from the evidence of the Assistant Commissioner of Income-Tax is that, the petitioners could have paid the TDS amount upto the end of financial year i.e., even on the last day of the financial year ending. It is in this light as also the amendment with regard to insertion of words ‘reasonable cause’ in Section 278AA of the Act, the order granting sanction for such prosecution will have to be considered. Though the order granting sanction for such prosecution does bear application of mind with regard to all the orders, but does not consider the amendment to Section 278AA of the Act. The Department does not take into account the reply submitted by the petitioners, which prima facie demonstrates reasonable cause for non- remittance of the TDS within the time stipulated under Section 201(1A) of the Act. 12. It is in this light, the order of sanction requires reconsideration at the hands of the competent authority and all further proceedings taken thereto pursuant to the sanction of such prosecution would be rendered unsustainable, as the petitioners in terms of the Act itself were entitled to remit TDS - 18 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS amount up to *31-10-2013 and 30-11-2014, as the case would be, as it is these two years that are now made as offences under Section 276B r/w. 278B of the Act. If the petitioners had a reasonable cause and the Act itself permitted them to remit TDS amount on the last date of the financial year, prima facie the Court is of the opinion that a crime could not have been registered against the petitioners. 13. For the aforesaid reasons, I pass the following: O R D E R (i) Criminal Petitions are allowed in part. (ii) The Orders of sanction dated 28-02-2018, 25.06.2018, 03.07.2018 and 10.10.2018 all issued by the Commissioner of Income-Tax (TDS), Bangalore as also the cognizance taken by the Special Court for Economic Offices, Bangalore in C.C.Nos.94/2018, 140/2019, 141/2019 and 115/2019, impugned in respective criminal petitions, stand quashed. (iii) Matters are remitted back to the hands of the competent authority i.e., the Commissioner of Income-Tax (TDS) to re-examine according of sanction for prosecuting the petitioners for offences * Corrected vide Court Order dated 17/02/2023. - 19 - CRL.P No. 3321 of 2022 AND CONNECTED MATTERS punishable under Sections 276B read with 278B of the Income Tax Act, bearing in mind the observations made in the course of the order and pass appropriate orders in accordance with law. Sd/- JUDGE NVJ List No.: 1 Sl No.: 0 "