SHRI INDUKORI VENKATA KRISHNAM RAJU, V. Dy . Commissioner of Income-tax,

CRLATR/78/2018

AI Insights

The case involves M/s. Nagavalli Greenlands Pvt. Ltd. and its directors, who were convicted by the Special Judge for Economic Offences at Hyderabad for willful evasion of tax under the Income Tax Act, 1961. The convictions were based on an initial assessment order which was later found to be incorrect and was revised. The appellants challenged the conviction, arguing that the revised assessment should negate the basis for their prosecution. The High Court agreed, noting that the prosecution was initiated based on an incorrect assessment, and thus, the conviction could not be sustained.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 726595 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-06-2022
• Assessment Year: misc
• Other Referred Cases: V. Srinivas Reddy Vs. State of Andhra Pradesh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B SHARMA
• Assessee Lawyers: VINOD DESHPANDE; G ASHOK REDDY; V SURENDER RAO
• Keywords: Assessment Order; Criminal Appeal; Economic offences; Income Tax Return; Penalty; Prosecution; Willful evasion of tax
• Section: 143(1); 143; 221(1); 276-C(2); 278-8; 140-A(3); 37 4(2)

Judgement Text

"t 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 CRIMINAL APPEAL (TR) NOS: 26 AND 78 OF 2018 CRL.A.(TR) NO.26 OF 2018: _ Criminal Appeal under Section 37 4(2) of Cr.P.C against the Judgment dated 0910112014 in CC No.1 ot 2011 on the file of the Court of the Special Judge for Economic Offences at Hyderabad. Between: 't . M/s. Nagavalli Greenlands Pvt. Ltd., Flat No.1 02, Dhanunjayanest, Rajivnagar, Yousufguda, Hyderabad-500045, Rep. by Shri D.V.S. Subba Raju, S/o. Late D.K. Raju, aged about 45 years. 2. Shri D.V.S. Subba Raju, S/o.late D.K.Raju, aged about 45 years, Director of M/s. Nagavalli Greenlands Pvt. Ltd., Flat No. '102, Dhanunjayanest, Rajiv Nagar, Yousufguda, Hyderabad-500045. 3. Shri Namburi Rama Raju, S/o.Venkata Raju, aged about 49 years, Director of M/s. Nagavalli Greenlands P .t. Ltd., Flat No. '102, Dhanunjayanest, Rajiv Nagar' Yousufguda' Hvderabao-uoooou...orpELLANTS/ AccusED 1, 2 & s AND Dy. Commissioner of income-Tax, Central Circle-8, Aayakar Bhavan, Room No.B05, Bth floor, Basheerbagh, Hyderabad-500004. ...RESPONDENT/ COMPLAINANT For the Appellants : SRI VINOD KUMAR DESHPANDE, SENIOR COUNSEL FOR SRI G.ASHOK REDDY For the Respondent : SRI B.NARASTMHA SHARMA, SC FOR I.T.DEPARTMENT CRL,A.(TR) NO.78 OF 2018: Criminal Appeal under Section 37 4(2) ot Cr.P.C against the Judgment dated 0910112014 in CC No.1 ot 2O11 on the file of the Court of the Special Judge for Economic Offences at Hyderabad. Between: 1. Shri lndukori Venkata Krishnam Raju, S/o.late l.Bangaru Raju, aged about 51 years, Director of M/s. Nagavalli Greenlands Pvt. Ltd., Flat No.102, Dhanunjayanest, Rajivnagar, Yousufguda, Hyderabad-500045. I i 2. Smt Jhansi Ra ri, W/o.Sri B.Suryanarayana Raju, aged about 45 years, Director of M/s Nagavalli Greenlands Pvt. Ltd., Flat No.'1 Ojl, Dhanunjayanest, Rajivnagar, Yc rsufguda, Hyderabad-500045. ....Appellants/ Accused 3 & 4 And Dy. Commissioner of ncome-Tax, Central Circle-8, Aayakar Bhavan, Room No.B05, Bth floor, Basheerbal r, Hyderabad-500004. ...RESPONDENT/ COMPLAINANT For the Appellants : SRI VINOD KUMAR DESHPANDE, SENICIR COUNSEL FOR SRI V.SURENDER F AO For the Responden : SRI B.NARASIMHA SHARMA, SC F()tt I.T.DEPARTMENT i l I The Court delivered ' re following: COMMON JUDGMENT I I i THE HON'BLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL lTRl Nos.26 and 78 of 2O18 COMMON JUDGMETN: Cri.A.(TR).No.26 of 2O1B is filed by AI, A2 and A5 i.e., Company and its two Directors respectively, whereas Crl.A.(TR).No.7B of 2OlB is filed by A3 and A4, who are other Directors of A1/company, being aggrieved by the conviction and Offences at Hyderabad in C.C.No. 1 of 2O 1 1 vide Judgment dated O9.Ol.2Ol4, wherein Accused Nos. I to 5 were found guilty of the offences punishable under Section 276-C(21 read with Section 278-8 of the Income Tax Act, 1961 (for short, \"the Act\") consequently accused No.1 was sentenced to pay fine of Rs. I O,000/- and 1n default of payment of line to initiate appropriate proceedings AS required under Section 421 of Cr.P.C., whereas Accused Nos.2, 3 and 5 were sentenced to undergo rigorous imprisonment for a period of one year each and A4 was sentenced to undergo rigorous imprisonment for a period of six months and to pay fine of Rs. 10,000 l- each and in default of payment of Iine by accused Nos.2 to 5, to undergo simple imprisonment for a pei:iod of one month each. sentence imposed by the learned Special Judge lor Economic 2 Since tl e issues involved in these appeals are one and the same, both t re appea-ls are being disposed ol b-1, this common judgment. 2. For con,enience, the parties herein are reierred to as they are arrayed before the trial Court. i.e., Appr:l1ant No.1 as Accused No.. /Company and Appellant Nos.2 to 5 as Accused Nos. 2 to 5. 3. The ger esis of these cases, which leacl the appellants- accused to pr 'fer these appeals, are narrated in brief as under: i) Ac :used No.1/Company - M/s. Nagawali Greenlands Private I imited, u,hich was registered under the Companies Act witl the Registrar of Companies at Hyderabad S Private r ,imited Company, was engaged in tl:re business of acquisit, rn and sale of lands. Appellant Nos. 2 to 5 herein are the I ,irectors of Accused No.1/Compan1.. ii) Ac, used No.l/Company has acquired lands to an extent o1 Ac.6.60 guntas in Sy.Nos. 194(P) ar-rd 196(P) under the limi s of Bachupally Mandal, Ranga tteddy District during t re financial year 2002-2003 and rleveloped the 3 said lands by incurring some amounts during the linancial years 2002-03 to 2007-08. Accused No.1/Company along with other companies, who have lands contiguous to the lands of Accused No.l/Company, have agreed to develop the lands jointly with M/s. Mytas Property Private Limited. As per the said development agreement, the built up area agreed to be given to Accused No.1/company, .,as allowed to be sold to various buyers by M/s. Mytas Property Private Limited and pass on the sale proceeds to Accused No.1/Company. iii) For the assessment year 2008-09, accused No. 1 /company has liled income tax returns on 13.09.2008 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.7,2I,B9,45O l-, out of which an amount of Rs.4,59,04,343/ was shown as long term capital gain and Rs.2,62,85, 1 1 1/- was shou.n as short term capital gains. lt i.') A :cused No. 1/Company 1S expected to pay the income tax either by ,.vay of advance tax e.s required under Sectior 208 ol the Act or at leas'L nl,r-tg, u,ith liling of returns in terms of Scction i40-A of the Act. As per Sectior 1.13 (1) of the Act, the tax liabilitv of Accused No.1 respon lent/complainant and raised a rlemand under Sectior 156 read with Section .l 43 of the lict and issued arr intimal on to Accused No.1/Companl under Ex.P2. Accuse I No.l /company ras requrred to pay the tax deman led within 3O dar,s of servicr: of noticr:, but it has commi ted default. v) R :spondent/ complainant has issr-rr,:d show-cause notice lated 17.11.2OO9 under Section 221 (ll of the Act under lx.P6, wherein the appellants s,cre asked to.shou, cause as to why penalty should not be levied for commi ting default in payment of tax. ,{s there was no respolr;e from the appellants, the compla.inant has issued anothe shou,-cause notice dated 01.09.20 l0 under trx.P7 under lection 221 (1) read u.ith Section 1.13-,{ of the Act 'as arrived at Rs.2,14,72,881 l- by the 5 F'inally, one more opportunity was also given by the Department by giving another show-cause notice dated 16.09.2010 (Ex.P8) under Section 221 (11 read with Section I43-A of the Act. An opportunity of being heard was a-lso given by the respondent/complainant to Accused No.1/Company fixing the date of hearing as 21.09.2010, but there was no response, on which a penalty of Rs.35,00,000/- ,as imposed by way of order dated 22.O9.2010 (Ex.P9) under Section 221 read with Section 140-A(3) ol the Act and the said proceedings were served on accused No.1 on 23.O9.2O10. 4. Considering the willful evasion of payment of tax, the respondent/complainant has decided to initiate prosecution and accordingly a notice was issued to accused No. 1/company and other Directors under Section 276-C(21 of the Act, as to why prosecution shall not be initiated against them lor willful evasion of the tax. All of them have given reply stating that there ras no intention to evade payment of tax. Another notice was issued to accused No. 1/Company and its directors under Exs.P1 1 to P15 dated 27 .O9.20 I 1 asking them as to why prosecution shall not 6 be initiated rnder Section 276-C{21 of the A(r1.. Again replies were filed b.y accused No. 1/company and its I) irr:ctors/ accused Nos.2 to 5 r nder Exs.P16 to P2O stating that there was no intention of v illful evasior-r of tax. 5. As Acr used No.1/Company and its Directors/ accused Nos.2 to 5 l ave not paid the tax in response ro the demand notice issuec under Section 1a3 ( i ) ol the Act and ; so failed to pay the per rlty, the respondent/ complain:tnt aftt:r obtaining sanction ord :r dated 23.1I.2010 for launcl'ring of prosecution filed a compl rint before the Special Court ior [']ccnornic Offences against acct sed No.1 and accused Nos.2 t-o 5, the other Directors, al :ging that the-v have committed oflence punishable under Sectrc t 276-C(21 read witl.r Section 278-E of the Act, as they have u illlully evaded tax even though they were having sufficient res rurces. 6. The Sp:cial Court for Economic Offences rook cognizance of the olfenc :s against Accused No.1/Company and its Directors i.e., Accuser Nos. I to 5, under Section 27 6-C(21 read with Section 278-3 of the Act and charges were framed against thent under Sectir o 276 - C(2) read with Section 278-B(ll of the Act 7 and all the accused have pleaded not guilt]' of the charges and ciaimed to be tried. 7. [n order to prove the charges Ieveled against the appellants, the respondent/complainant has examined PWs. 1 to 3 and got marked Exs.P1 to P2 1. After closure of evidence of the complainant, the incriminating evidence elicited against the appellants was read over and explained to them under Section 313 of the Cr.P.C., for which all of them have denied and reported that they did not choose to examine any witness on their behalf. Hou,ever, the),got marked Exs.D1 to D1O on their behall. 8. The substance of the evidence of PW1 is that after receiving of returns of income tax filed by accused No. 1/company, the respondent/complainant has processed the same under Section 143(1) of the Act and issued intimation determining the total taxable income as Rs.7,21,89,450/- and tax liability as Rs.2,35,99,87O1-. The evidence of PW2/lncome Tax officer is to the extent that he has considered the annual report of accused No.l/company for the financial year 2OO7-OB under Ex.P4 and banlq.account statements of accused No.1/Company with the 8 AXIS Bank l-imited under Ex.P5 and for-irrcl t hat accused No.1/Compz n.1, did rlot pay the ta,x returns in spite of having surplus and sufficient funds. PW3 is the lnc:ome Ta-x Officer, who has su :ceeded PW2. His evidence is tlrirt he has passed penaltlt orde 'undcr E..:.P9 imposing penalty of l?s.ll5 lakhs and raised dema 1d under Ex. P 10 and the same ',l as sen,ed on the accused. H : also deposed that as there ivas rrr, re'sponse from the accused show cause notices under Sc,ctio n 1176-C of the Act were issued igainst alI the accused through whi<:h accuscd were informed th: t the department is initiatinli crinrinal proceedings and consequ:ntly the department has filed the r:omplaint. 9. After fr ll-fledged trial, on considering the r:ntirr: material on record, the rial Court has found Accused No. 1 / Company and A2 to A5, tl e Directors of A I company, gllilty of the offences punishable rnder Sections 276-C(2) and 278-B ol the Act and were senten( ed as stated supra. Aggrievecl by the szrid judgment and convict rn of Special Judge lor Econonrir::al Offences at Hyderabad, .he present appeals are filed orrginally before the Metropolitan Sessions Judge Court at Hyderabad 9 10. The erstwhile High Court for the States of Telangana and Andhra Pradesh has issued circular ROC.No.34, Criminal Section/2O17, dated 28.O8.2017, wherein it is clarified that against any orders passed by the Special Judge for Economic Offences, Hyderabad, in the State of Telangana and has the jurisdiction to entertain the appeals, not the Sessions Court. In view of the said circular, these appeals filed by the appellants have been transferred from Metropolitan Sessions Judge Court, Hyderabad, to the High Court ior the State of Telangana. 1 1. The summary of grounds of appeal as filed by the appellants in brief are as under: a) The trial Court has failed to see that accused No.1/company was not having funds to pay the tax on the due date as reflected in Ex. P5-bank statements and that accused No.l has not received any sale proceeds lrom M/s. Mytas Property Private Limlted, thereby the respondent/ complainant has not produced any evidence to show that accused Visakhapatnam in the State of Andhra Pradesh, the High Court io No.1/Compzu y has received sale proceecls frotn M/s. Mytas Property Privr te Limited. b) The trir I court has misconstrued the 1;re sum ption under Section 278- ', of the Act ancl erred in holding that the burden of proof is on tl- 3 accuscd to prove that there was nc, rvillful evasion of payment o tax c) The triz I Court erred in holding that tl.re ar:cused failed to prove non-ex stence of culpable mental st:rte in non pa-vment of taxes on thc late ol filing returns and as on tho :late ol demand notice ald th rt the trial Court failed to apprer:iaLe that in spite of not having . ny cogent evidence to show that rill the accused have u,illfull5 evaded the tax, the trial Court iras concluded that accused harrr committed willful evasion in oavrnent of tax. d) The tri d court failed to see that all thr: assets belong to accused No. /Company were attached under St:ction 281-B of the Act ancl due to paralyzing of financial activities of accused No.1, tax cor ld not be paid in time. e) The tri, l court lailed to consider the adrnission of PW3 that the amount received by Accused No. I / Com p:,rn1, i5 1s1i,a16\" tl share application money does not attract tax liability and that the tria.l Court could not consider that accused No.1 has not received Rs.3 crores 75 lakhs from M/s. Mytas Property Private Limited. l) The Trial Court should not have concluded that accused Nos.2 to 5 are responsible for da1, to day affairs of accused No. 1/company and should have taken into consideration the notices issued under Section 278-8 of the Act proposing the prosecution did not refer accused Nos. 2 to 5 as principal officers and thereby accused Nos.2 to 5 should have been acquitted. 12. Heard Sri Vinod Kumar Deshpande, learned Senior counsel for the appellants and Sri B. Narasimha Sharma, learned Standing counsel for the income teix department, considered the entire material on record, relevant provisions of the Act and the authorities cited. 13. Appellant No . 1 / company has filed an application under Section 39 1 Cr.P.C., along with the appeal for receiving of two documents i.e., (1) Common order passed by the Appellate Tribunai in ITA.No.IO22 ol 20 14, dated 22.05.2015 and (2) l2 consequentii I order, dated 21.03.20 16 passecl b'\"' the Assessing Officer, Assi.tant Commissioner of Income 'la-x, Central Circle- 3(2), H-t'dera rad, as additionai evidence. As per the common order of the Tribunal, dated 22.C5.2015 (dor:ur;rent lJo. I ), the assessment ,rder dated 02.l2.2OlO on whicl-r th,:r pr-osecution is initiated rvas directed to be modified. Basing on the orders o[ the Income Tax Appellate Tribunal, the assessrnl:nt olficer has modilied the enrlier orders dated 02.12.2O1O by r-e-assessing the ta-x liability, which the appellants were expect(:cl to pay for the assessment ,ear 2OO7 -2008 (document No.2) t]onsidering thc above, :rnd r n hearing both sides, this Courl isr of the opinion that thcse t wo documents are verv relevant Lo <:onsicler the appeals on h rnd, thereby these documents are received. 14. It is sL bmitted vehemently by the learn,:d Senior Counsel lor the appr flants that during the pendency o.\" the complaint before the 1 -ial Court, the accused have paid entire ta-x as demanded, ncluding the penalty and interesl. and that the appellants lave chailenged the assessment orders dated 02.12.2O 1O r rnder Ex.D9 before the learned CI'[(.A). On hearing both sidcs, l arned CIT(A) has found that thr:re rrre no merits ii-, t3 the contentions raised by the appellants, and dismissed the appeal upholding the orders passed by the Assessing Officer lor assessment year 2008-09. Aggrieved by the same, the appellants have preferred appeal before the lncome Tax Appellate Tribunal (in short, \"the Tribunal\"), and on hearing both sides, learned Tribunal has partiy a,llowed the appeal vide orders dated 22.O5.2O15 in ITA.No.943/Hydl2Ola and others finding that the Assessing Officer has committed error in calculating the tax to be paid by the appellants and directed the Assessing Officer to re-assess the tax by computing the income of the appellants from the transfer of lands held by accused No. i /company as capital assets by way of development agreement and subsequent to sale of flats and bungalows received as consideration for such transferred amounts to stock in trade on conversion. These orders are passed after passing conviction vide judgment dated 09.01.2014 in C.C.No. t of 201 1 by the learned Special Judge. It is also submitted by the learned Senior counsel that the Assessing Officer has re-assessed the tax as per the directions of the Tribunal and passed consequential order, dated 21.03.2016, wherein the tax liability was substantially reduced and found that the tax, which was already paid to the tune of 14 Rs.2,l4 .7 2 ,8 i0 / - was in excess of the revised tax thereby, the excess tax p; .id Rs.1 ,36,04,O91 /- and interest c,f Rs.40,4O,379/ the total of i.r,hich was Rs.1,76,44,47O l-, ,ras ordered to be refunded an' I the same was also adjusted against the demand for tire acc ,unting year 2009- 1O vide RO Nc,.303517 dated 2a.o3.2016 On co rsidering the submissions of the learned Senior counsel it is clear that the aopellants have not o nly parcl the tax demanded a cng with interest and penaltl', but also on account of re'assessr rent of tax, the tax already paid was in excess ol tax liability, arrd that the same was adjusted for fut ure tax liability arrcl hence, s )Lrght for allowing of the appeals 15. Learne I standing counsel representing tre lncome l'a-x Department ;tated that as on the due date, the accused have not paid the ta I having sufficient funds and committed willful evasion of p ryment of tax. It is also submitted that Accused No.l /comprr ry has filed annua-l returns (Ex.Pa), through its Chartered A( countant for the fiirancial year 2C)O1'-OB relevant lor the assessm nt year 2008-09, according to ',vhrch Accused No.1 made prolit r n sale of land to a tune of Rs.7,21,8,1,450/ and the 15 bank statements show that Accused No. i /Company has received part of sa-le consideration in respect of \"Mytas Hill County\" from time to time, but did not choose to pay the advance tax. It is further submitted that the balance sheet ol Accused No.l/Company also shows Rs.8,77,71,656 l- under the head reserves and surplus, so also Rs. 11,04,07,166/- under the head current assets by way of ioans and advances. It is further submitted that accused No.1/Company having enough liquid cash during the relevant accounting year, willfully evaded in payment of tax, thereby the accused have committed the oflence punishable under Section 276-C(21 read with Section 278-8 ol the Act and hence conviction recorded by the trial Court is proper. 16. Now, the points for determination in these appeals are: 1) Whether the conviction recorded based on the assessment order dated 02. 12 .2OlO can be sustained, since the said assessment order dated 02.12.2O 1O was subsequentiy revised? 2l Whether the accused have committed willful evasion of tax? 16 3) I r u'hat relieP Point No. 1: department/ complainant to file the complairrt against the appellants i, the assessment order dated 02. l'2.201.0, according to w,hich the appellants were asked tc, pay tax ol Rs.2,35,99.t 7Ol- for the taxable income olRs T',1,1 1,89,450/- and accordingl,r alr intimation was sent by the Ass,lssing officer to the appellar ts under Section 143 (1) of the Act. Admittedly as on the date of initiating the prosecution agains,. the appellants, demanded la-x of Rs.2,35,99,87O l- was nol- paid by the appellants. It is also an admitted fact that after initiating the prosccution the appellants have paid the entir(l trix demanded along with ;enalty, interest etc. Therefore, as on the date of pronouncen cnt of the judgment by the trial Cor-rrt, there was no ta-x liabilitl o be paid by the appeilants. I B. It is t , be noted that the Income Tax Appellant Tribunal having cons idered the appeals of the appeilants found that the assessment order, dated 02.l2.2OlO directinq tne appellants to pa.r, Rs.2,35 .99,87O1- was incorrect and the As:;essment Olficer 17. The cause ol action for thc respondent t7 was directed to assess the income tax afresh in terms ol the directions given by the Tribunal. Accordingly, the Assessment oflicer has re-assessed the income tax and passed modified orders, dated 21.03.2016 determining the tax liability, which is far less than what was assessed at the first place. The basis for respondent/complainant to initiate prosecution against the appellants is the assessment order, dated 02.12.2010, on the ground that the appellants have committed delault in payment of the tax as per the said assessment order. When assessment crrder dated 02.12.2O1O itself is re-assessed as per the directions of the Tribunal which held that the assessment of tax dated 02.12.2O1O is incorrect and the tax to be paid was substantially reduced, it cannot be alleged that the appellants have committed default in payment of tax and willfully evaded. When the assessment order dated 02.I2.2OlO itself was modifiecl holding that the Assessment Olficer has incorrectly assessed the tax, whatever the consequential proceedings that have been initiated, including the initiation of prosecution of the appellants by the respondent/complainant, conviction recorded by the trial Court, cannot sustain. Basing on the fresh assessment order, dated 2I.O3.2016, it is to be examined afresh that rvhether the 1B appellants hi ve committed any wiliful evasion of tax, as delined under Scctiot 276-C ol the Act. 19. Therefo'e, on considering the above discusr;ion, it is clear that the lind ng of the tria-l Court that the appellzrnts u,ere guiltv of the offenc s under Section 276-C(21 read wit.h Se ction 278-B of the Act is erroneous as the same is base,l on incorrect assessment order, dated 02.12.2O1O and hence, shall not sustain, and required to be set aside. Corrsi