B. Suryanarayana Raju, V. Dy. Commissioner of Income-tax,

CRLATR/51/2018

AI Insights

The case involves M/s. Himagiri Biotech Pvt. Ltd. and its directors, who were convicted for willful evasion of tax under various sections of the Income Tax Act, 1961. The appellants argued that they did not have sufficient funds to pay the tax on the due date and that there was no willful evasion. The prosecution contended that the company had sufficient funds but chose not to pay the taxes. The trial Court found the appellants guilty based on the evidence presented, which included the company's financial dealings and tax assessments. The High Court, after reviewing the submissions and evidence, decided to set aside the trial Court's judgment and remand the case for a fresh assessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 742662 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-06-2022
• Assessment Year: misc
• Other Referred Cases: SuJatha (Smt.) and others v. State of Telangana, Atrtdlapagi Telangana, public Hyderabad and another, OJA RAVINDER DEVIDASANI v. STATE OF MAHARASHTRA, National Small Industries Corporation (supra) v. this Court, Akhandu Avhad v. Amar Syamprasad Mishra and another
• Laws Referred To: Income Tax Act, 1961, Criminal Procedure Code
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: B NARASIMHA SARMA
• Assessee Lawyers: VINOD KUMAR DESHPANDE; G ASHOK REDDY; V SURENDER RAO
• Keywords: Economic offences; Income Tax Returns; Penalty; Prosecution; Willful evasion of tax
• Section: 143(1); 208; 221(1); 374(2); 278(E); 276-C(2); 140-A; 278-8; 276-C(21); 314(2); 226-C(21)

Judgement Text

"Cd.Appeal Under Section 314 (2) of Cr.p.C. against the judgment dated 09-01-20'14 in c.c. No. 123 of 2011 on the fite of the court of the Sleciat Judge for Economic Offences at Hyderabad Between: M/s. Himagiri Biotech.Pvt. Ltd., H.No. B-55, Flat No.202, Sai Vaishnavi Vihar, p..R, t!1Oa.r Post,.Hyderab-ad-500038, Rep. by. N.S.L.R. prasad Raju, 5/o. Venkat Raju, aged about 48 years. ll.S-L.R...Prq9qd!aju, Director of M/s. Himagiri Bio-Tech pvt. Ltd., H.No. B_ 55, Flat No.202, Sai Vaishnavi Vihar, S.R. Nagar post, Hyderabad-Sboo38. Appellants/ Accused 1 & 2 AND Qy. Commissioner.of lncome-tax, Central Circle-8, Aayakar Bhavan, Room No.g05, 8\"' Floor,Basheerbagh,Hyderabad-500004. ...ReSpOruOeruVComptainarit IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD FRIDAY ,THE SEVENTEENTH DAY OF JUNE TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE D.NAGARJUN CRllttINAL APPEAL (TR) Nos : 34 and 51 OF 2018 Crl.A. R) No.34 ol 2018 i Counsel for the Appellant : SRl. VINOD KUMAR DESHPANDE SENTOR COUNSEL FOR SRt G. ASHOK REDDY Counsel forthe Respondent: SRt B. NARASTMHA SARMA, SC FOR l.T. CRIMINAL APPEAL fiR) NO: 51 OF 2018 1 2 , Crl.Appeal Under Section 374 (2) of Cr.p.C. against the judgment dated 09-01-20't4 in C.C. No. 123 of 2011 on the fite of the Court of the Special Judge for Economid Offences at Hyderabad Between: B. 9uryanarayana Raju, M/s. Himagiri Bio{ech Pvt. Ltd., H.No. B-55, Ftat No. 202, Sai Vaishnavi Vihar, S.R. Nagar Post, Hyderabad-500038. ...Appellant i Accused No. 3 AND i t) I : i i i I I I I I I Dy. Comnrrssrotrer of ln,;ome-tax, Central Circle-8, Aayakar Bha rern, Floom No.B0S, B\"' Floor, B:sh,:erlr.-r qh H ydera bad-500004. ...RE:;FONDENT/ 3om[rlainant Counsel for the Ap )ellant : SRt. VTNOD KUMAR DESHPANI)E SE NIOR COUNSEL FOR SRI V. SUF EI{DI:R RAO Counsel for the Res; rondent: SRI B. NARASIMHA SARMA, S C FOR l.T. The Court delivererd he following Judgment / HONOURABLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL (TRI Nos.34 and 51 of2Ol8 COMMON JUDGMENT: its Directors respectively, whereas crl.A.(TR).No.5 r of 2ol8 is filed by A3, who is another Director of Al/company, being aggrieved by the conviction and sentence imposed by the learned Special Judge for Economic Olfences at Hyderabad in C.C.No.l23 of 2O1 I vide Judgmcnr dated O9.Ol.2Ol4, wherein Accused Nos. I to 3 were found guilty of the offences punishable under Secti on 226_C(21 read with Section 278-8 of the Income Tax Act, 1961 (for short, \"the Act,) Crl.A.(TR).No.34 of Company and one of consequently accused Rs. lO,OO0/- and in 2O18 is filed by Al and ,A2 i.e., No. 1 was sentenced to pay fine of default of payment of fine to initiate appropriate proceedings as required under Secti on 421 of Cr.P.C., whereas A2 and A3 were sentenced to undergo rigorous imprisonment for a period of one year and to pay Iine of Rs. IO,OOO/- each and in default of payment of fine by accused Nos.2 and 3, to undergo simple imprisonment for a period of one month each. tl-a---r- 2 Sincc t l.l .l tssues tnvolved in these appeals ilr 3 onc and Lhe same, both rl c appeals are being disposecl ol L1' th s common judgment 2 For cc n' ettience. the pal'ties herein ar e lefrrr -ed to as they arrave(l ltt:fore the trial Court. i'e , Appel lant No 1 as Accused No. 1 /()ompan-v and Appellant Nos 2 and 3 ils Accused are Nos. 2 err Ld .l 3, The gcr esrs of these cases, r'r'hich lead t['e appellants accused to pr :ferr these appeals, are narraterl il-r brief :rs under: i) , c:t-.,sr:d No.1/Company - M/s Hirnrrgin Bio-tech Privat,: l,imited, q'hich was registered trnder the Companies Act u il r the Rcgrstrar of Companit:s at l{yclerabad as Privat,:' ,irnited Company. was engaged in ttLe llusiness of acquisit otr and sale of lands' Appellant [rlos'. 2 and 3 hereir. are the Directors of Accused No.1/Ct'ntpany' ir) , c:t-Lsed No.1/Company has at:qttirt:d lands to an extenl c' r c.7.10 guntas in Sy.Nos' 192 anc 193 under the timits o Etachupally Mandal, Ranga Reddy l.)islrict during the firv rlqj erl years 2OO2-2OO3 and developerl the said 3 lands by incurring some amounts during the financial years 2OO2-03 to 2O07-Og. Accused No.l/Company and 13 other companies have entered into a common agreement with M/s. Mytas property private Limited on 30.12.2005 for construction of apartments and bungalows and to sell the same to intending purchasers. iii) For the assessment year 2OO}_O9, accused No.1/company has filed income tax returns on 30.09.200g under Ex.Pl by bifurcating the sale proceeds into long term capital gains accrued from the sale proceeds of the lands and short term capital gains accrued from the sale proceeds of the constructed area by showing gross taxable income as Rs.7,76,5g,3S0/_, out of which an amount of Rs.4,93,81\"944- was shown as long term capital gain and Rs.2,82,76,4O2 /- was shown as short term capital gains. iv) Accused No.1/Company is expected to pay the income tax either by way of advance tax as required under Section 208 of the Act or at least along with filing of returns in terms of Section I40-A of the Act. As per Section 143 (1) of the Act, the tax liability of Accused No. I !--!-ar- -+ :as rrn'ivcd at Rs-2,08,01,Cr99/ by the respon:lc rrt /t:or:rplainant and raised a ct:tnand under Secliorr l5{J r-ead rvith Sectton 143 of tLLe Aot zrnd tssued al intim:tr ic:r ro Accused No' 1/Comp;:'nv u nd':r Flx'P2 ' Accuse cl No.1/company /as required to pa''r the tax demandt d within 30 days of service of no1 i<.e, but it has commilt, d default. v) [it: ;pondent/ complainan t has issuecl show-cause noticc cl rtr:d 17.11 .2009 under Section l2:U I (1) of the Act under Fl x. P5, r.r'herein the appellants werr: a skr:d to shou' cause i s t.o wh)' penaltv should not l're Ievied for committ ng default in payment of tax' As' rhere was no respor)sr r liom thc appellants, the complannant has issued anoth,:r show cause notice dated O1'()9'20 [(' under Ex'P6 uncier -q:cti<>n 221 (1) read with Section 1't'3-A of the Act' Finally, one more opportunity was also given by the Departn rent by giving another sho$ -caul;e n'ltice dated 17.Og.2 )1O (trx.P7) under Section 221 (ll rt:aC v'ith Section 143-4 c I r-he Act. An opportunity of being trea:-d was also give n lt] the respondent/ compl€Linallr trr Accused 5 No.1/Company fixing the date of hearing as 21.09.2010, but there was no response, on which a penalty of Rs.40,0O,OO0/- was imposed by way of order dated 22.09.2O1O (Ex.P8) under Section 221 read with Section 140-A(3) of the Act and the said proceedings were served on accused No. 1 on 23.09 .2OlO. 4. Considering the willful evasion of payment of tax, the respondent/complainart has decided to initiate prosecution and accordingly a notice was issued to accused No.l/company and other Directors under Section 27 6_C(2) of the Act, as to why prosecution shall not be initiated against them for willful evasion of the tax. All of them have given reply stating that there was no intention to evade payment of tax. Another notice was issued to accused No.l/Company and its directors under Exs.plo to pl2 dated 04.10.2010 asking them as to why prosecution shall not be initiated under Section 226-C(21 of the Act. Again replies were filed by accused No. l /company and its Directors/accused Nos.2 and 3 under Exs.Pl3 to plS stating that there was no intention of willful evasion of tax. b 5. As Act:t sr:d No. i /Companv and its' l)'rer tor s/accused Nos.2 and li lrave r-rol paid the tax in resplnst' tr' tlre dt:mand notice issuecl rnder Section 143 (1) of the Act ard alr;o failed to pa) the perrz lt-v, the respondc nt/ complairLan t a:ter obtaining sanction orrle- dated 25.O2.2Ol l for launching c'[ prosecution hled a compla nt before thc special court for Flconomc offences agair-rst acctt: eellant No 1 cornl)crnv has deliberately evaded in paymr:n1 'l 1zr-x' thcreby the appcllants yeie not having any cuipable mt:nt:r' state to evadc thc Lax delit cratelY. 16. Acccrc ing to thc prosecution, appelllnl- Nt' I c:ompany has sclf assesse I the tax llability as Rs'2,08,t1 1 '09 9 / -' however' no ta- amoutlt was paid along with IT returns Tl-rc trial Court in its ordcr has; >bserved that though appelletnt c )I:lpztny q,as not having the liquid cash as on the date of filin;i c'f returns' it (company) vas having reserves, which rvere clivet ted to other concerns .vithout bothering the tax liabilit1' on c:apital gains' Thus,even.hetriatCourthasconcludedthatthr:a:pellantNo.l ''-, .!t, Tll-f:ilt yllk I t;r*- l3 company had no liquid funds to pay the tax as on the date of filing of returns. 17. It is also admitted fact that all the assets of appellant No. I Company were attached under Section 2glB of the Income Tax Act.and thereby there was no financial activity of the appellant No.l Company. Thus, there was no occasion for appellant No.l Company to have any funds to its credit. Further, M/s. Maytas properties Limited also requested for raising of the attachment of the properties in order to execute the sale deeds in favour of the purchasers so that the sale proceeds can be paid directly to the department on beha-lf of the appellant No. I company. M/s. Maytas properties Limited also requested to raise the attachment of five acres belonging to M/ s.Chitravathi Agro Farms private Limited for disposal by Revenue Department to be adjusted against the outstanding tax demand of all the 19 companies including appellant No. r company vide retter dated 1 l .03.20 1 1. 18. It is also mentioned in the grounds of appeal that even though appellant No. I company has allowed M/s.Maytas Properties Limited to sell the lands pertaining to Accused No.l Company, it did not receive the sale proceeds. -4 -.....-,-J t+ - i 1() It is ;r s-) not in dispute that M/ s. M:r tas; propcrties Limitcd lr:rs crlucstr:ci the Respondent - Inr:ome '[ lx Departrnerrl for adjr,rstnrc' rt of T[)S refund of income tirx arc[ acijustrnent of refr,rnd ol in< orne' tax dues of Rs. i 1.45 crores vice l,:tters dated 22.O2.2O1(t a .rd I 1.03.2011 in favour of ;acpr:llant No.1 corrpan . 'l'1 .e trial court in its judgment at Paper 19 para No.46 has obscrvr:c that notlting has been placed on r.ecr,rd to show that thc dcpi rlmcnt r.l zrs in fact any due ol anv rr,.funds to M/s. Mir-_i,tas ])ro[) ,rttcs Privatc Limited and whethr r. such relunds ,\"vcre fort ifit:r.l bv passing appropriate refund orders. Ilorvever, on pertrsal of .he letters dated 22.O2.2O1O anrl I 1.03.201 I addresse'd b_r lhc M/s. Maytas Properties privittr: L.imited, the endeavorrr of appellant No. 1 company is ven, cte ar that in the most possitrl( nlanner the tax liability was to be 1>aid. This court is of the ooir Lion that if really the intention of i:ppellant No.1 compan) $ar not to pay the income tax ald ,t!.ad{) the same willfutly, thrl 1311s15 dated22.O2.201O and 11.O3.2()11 addressed by M/ s. Mavt rs Properties Limited requesting th: ,lepartment to adjust TI)S, efund of the tax liabilify could n,)t have been addressed. /' -l ;;l _-----,.**i'!?!'*!rirF:*,\" lf-...,, t-aa- l5 Sujatha (smt.f and others v. State of Prosecutor, High Court of Telangana, 20. Another contention raised in the grounds of appeat is that accused Nos.2 ahd 3 are not responsible for day to day affairs of appellant No.l company and that there is no material placed before the trial Court to establish that accused Nos.2 and 3 are responsible for day to day affairs of appellant No.l company and that unless there is specific resolution authorizing one of the directors as principle officer, all the directors of the company are principle ofl-rcers of the company, thereby, the observation of trial Court that unless restricted by the provisions of the Companies Act, all the directors are authorized to do all the acts and thereby accused Nos.2 and 3 are principal officer is erroneous. 2L. In Atrtdlapagi Telangana, public Hyderabad and anotherr, wherein it was held as follows: \"10. In rcOJA RAVINDER DEVIDASANI u. STATE OF MAHARASHTRAI the Supreme Court made tLe follotuing obseruations: \"... Tim.e and again, it Lr;.is been asserted. bg this Court tlnt only ttase persons uho were in charge of and responsible for the cond.uct of the ' 202 t (2) ALT (crt-) 214 (S.8.) Itr :- { bt sir t:: s ,.tJ' IItt: Cornpang at tlte t trte of co,rnris si:ln o.f'rtn offence utill be Liabk'frtr r -, not suJ_'ficient to make a b akl ot,-sory stol€,r,te' irt. ct r:ontplaint that the Director. (arrtyed as an a:cused) is ut charge of and re.;pctn:ll.,Le to th.e corn,n.nq for the conduct of the busine_ss <;f tlrc cofttpcul 1 tutthottt anything more es tc, tlte role cf the Dtre:tor. But the complaint should spell o.,t Lt rts to hot,':,md 1 (2014) 16 SCC 1 6 in uhat nLa:nner Resportc ent 1 wcts in charge of or was resp<,1sibt.e to the t ccu.sed Company for the cortduct c,.f iis bu,srne:sr . 7'his ls in consonance uLith .:;tri,:t interprel ztion of penal statutes, especiallA, Ll,het.e such statutes create uicaious liability. A corry.ony maq hat e a number of Directors and t() male any or aLl tl ,,e Directors as accused in a corr pt air,,t merelg o t the basis of a statement that theu er.e in charge cf an-d responsible for the conduct ).l the I Kll\"\"*=..**--'rF irrli-4,--.'--,,-, w[qi' ri;-t..! 5' )', t7 busirzess of the company uithout angthing more is not a sufficient or adequate fulfillment of the requiremeits under Section 141. 27. Unfortunatelg, the High Court did not deal the issue in a proper perspectiue and committed error in dismissing ttte writ petitions by holding tlnt in tlrc Complaints filed bg the Respondent No. 2, speciftc auertnents were made against the Appellant. But on the contrary, taking tLLe complatnt as a whole, it can be infered that in the entire complaint, no specific role is attributed to the Appellant in th.e commission of offence. It is settled laut that to attract a case Under Section 141 of the N.I. Act a speciftc role must haue been played bg a Director of the Compang for fastening uicarious liabilitg. But in this case, tlrc Appellant utas neith-er a Director of tle accused Compang nor in charge of or inuolued in tle dag to dag affairs of tlrc Compang at the time of commission of th-e alleged offence. Tlere is not.euen a u.thisper or slwed of euidence on record to sLnu that there is ang act committed bg tte Appellant from uhich o reasonable inference can be drawn that the Appellant could be uicariouslg held liable for the offence uith which sle is charged.' 11. In POOJA RAVINDER DEVIDASANIs case (1 supra), the Supreme Court allowed the :' :kiel*- - (i t('sh petitiotl not onlrl on the gro.o1,1 tl, Lt there ts t'tt ) ;l eciflc role ct ribuled to the appelkLr, t b tt also on 'l.te qrottrtd thal lhr: appellant has rc,;iqrtecl os l-tirt'c/or mu.ch pior to issuance of the clt,.,que. The . l n mc ('ourt taAinq irtto l.6nsi6rrrtio .t:; ?arlit,r d:,c.srorrs irt 'ational Snnll Induslries ()c,rpt ratiot,r r/. t{ctnneet Si-rqh panitaL [(20j()) .3 S(.)C 330]; ()'tn mala Sales 7 priuate Ltd.. u. Anu fuleht t [(2{) 1S) I .< Cr) I O3l and pepsi Food.s [_td. t,. S,oecial ./t.cl :ial Maqistrate ft l gg ) 5 SCC 343.1, r,zite,rated th:' i aiio that a complaint, uLhere no speci.)tic yoLe is ati i tuted to the Director _ Accttsea . is liaitle to be qurt: hed.\" 22. In A ka Khandu Avhad v. Amar Syanrprariad Mishra and anotherz, it was held b-v the Honourable S.upr-eme Court as follorvs rF#! : -.-- g;lgrr:n,ir il *|* qpF'li( able to appec ing on \"U.i Section 141 of the NI Act is r,zlatir,g to the o- fc,nce bg companies and_ it cannot ltrt 77y5161s the indiuiduals. Lectrned. L:ounsel behalf of the or.iginal contp,tqillqnl has s tmitted. that ,,Compang \" merLns an.t1 bodg corF,ot.tte and includes, a fi,rm or other as;c)ciation o.l- i,tc i.uiduals and_ therefore in case oJ a j cint liabilit tr oJ two or more persons it uill fa,l u.tirhin , 2021 l2l At,'t lcl) ) sr.1 611 1p \" ' lr {: i:!r q ffi t9 \"other association of indiuiduals\" and- therefore u.)ith the aid of Section 141 of the NI Act, the appellant.who is jointly liable to pag the d.ebt, can be prosecuted. T'he aforesaid. cannot be accepted.. Two piuate indiuiduals cannot be said. to be \"other association of indiuiduals,. Therefore, there is no question of ilruoking Section 141 of the NI Act against the appellant, as the liabilitg is the indtuidual liabititg (mag be a joint liabilities), but cannot be said to be the offence committed. by a companA or by it corporate or firrn or other associalions of indiuiduals. Tlrc appetLant herein is neither a Director nor a partner in any firrn who has lssued the cheque. Tlrcrefore, euen the appeLlant cannot be conuicted with tLrc aid of Section 141 of the NI Act. Therefore, the High Court has committed a graue error in not quashing th_e complaint against tle appellant for the offence punislnble under Section l3g r/w Section 141 of th.e NI Act. Tte criminal complaint filed against the oppellant for the offence punislnbie und.er Section 138 r/ut Section 141 of the NI Act, tLerefore, can be said to be abuse of process of latu and. therefore the same is required to be quashed. and set aside.\" 23. On considering the ratio laid down by the Honourable Apex Court in the decisions reported above, it is clear that the ./ l) - plos( cLlrl()r) I rrisl spc(.ili(.alh mcntioit in the c:r,r_rl,laint as; to the roie pla cd lt , r hr: appellant in thc managernent ()l the cotnpany. Merel_r' sa,r.in6 theit thc appcllants are responsrbl: br Lhe da_ to_ dav allait.s of tlrc Acr:r.rsecl No. 1 Comp:Ln_r. ir; r_rot s rtficient. It is also expcctci to allege that the appellants zrre rr charge of a particular bra r<:h,,u,ing,/ unit of appellant i,,Jc. I Cc n.pany. Merely saf ir-rg th:rt al the directors are in-charge and resp,'rnsibre for the da1, 1o 6\", all rirs ol the appellant No. 1 cortpien.r ,vrl not serve the purpose 24. Appcllan No. I compan_v has filed an apf , ji :ation under Section 39I o Iht: Codc of Criminal procecuments filed under Secti'rn 3! I of the Code of I J %rq,EMBUtliFffi 23 Criminal Procedure and give finding afresh by giving opportunity to both sides. 29 . Accordingly, both these criminal appeals are disposed of setting aside the conviction and sentence dated Og.Ol .2014 recorded by Special Court for Economical Offences at Hyderabad and C.C.No.l23 of 2011 is remanded back to the trial Court with a direction to consider the complaint afresh in accordance with law, after giving an opportunity to both sides to adduce further evidence, if any. However, the trial Court shall not be influenced by the comments and observations, if aly, made by this Court touching merits of the case while passing orders. As a sequel, pending miscellaneous applications, if any, shall stand closed. Sd/. M. VIJAYA BHASKAR JOINT REGISTRAR //TRUE COPY// To sEcTtoN oFFtcER 1. Th6 Special Judge for Economic Offences at Hyderabad. 2. The Dy. Commissioner of lncome-tax,, Central Circle-8, Aayakar Bhavan, Ro6m No.805, 8th Floor, Basheerbagh, Hyderabad-500004.- 3. One CC to_ SRl. G. ASHOK REDDY, Advocate [OPUCI 4. One CC to Sri V. SURENDER RAO, Advocate (OPUC) 5. One CC to SRl. B. NARASIMHA SARMA, Advocate TOPUCJ 6. Two CD Copies .v- ll HIGH COURT Dr. DNRJ DATED:17106t2022 COMMON JU!)GMENT CRLA.TR.No.Ii4 AND 51 OF 2018 DISPOSING OF ]'HF B )I'H CRL.APPEAL TR. I : I ] ] 6 Jirli itlS I ( * q "