M/S SASKEN TECHNOLOGIES LIMITED V. PRINCIPAL COMMISSIONER OF INCOME TAX-6

WP/40408/2019

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The case involves Sasken Technologies Limited and its Managing Director, Sri. Rajiv Chandrakanth Mody, challenging the prosecution sanctions issued by the Principal Commissioner of Income Tax-6 and the Joint Commissioner of Income Tax Special Range-6. The sanctions were based on allegations of willfully giving false statements and claiming higher foreign tax credits to suppress tax liabilities. The petitioners argued that the sanctions were improperly issued and that they had complied with legal provisions and availed relevant tax dispute resolution schemes. The court's decision to quash the sanctions was based on procedural improprieties and the application of legal exemptions and credits as per the Income Tax Act and related judicial precedents.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 751296 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 21-09-2023
• Assessment Year: misc
• Other Referred Cases: Wipro Limited vs. DCIT (2016) 382 ITR 0179 (Kar)
• Laws Referred To: Income Tax Act, 1961, Code of Criminal Procedure, 1973, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: M V SESHACHALA; ARAVIND CHAVAN
• Keywords: Foreign Tax Credit; Income Tax; Prosecution; Tax arrear; Vivad Se Vishwas Scheme
• Section: 143(3); 143(2); 139(1); 271A; 226; 279(1); 276D; 482; 227; 277; 278B

Judgement Text

" - 1 - NC: 2023:KHC:34315 WP No. 40408 of 2019 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF SEPTEMBER, 2023 BEFORE THE HON'BLE MR JUSTICE R. NATARAJ WRIT PETITION NO. 40408 OF 2019 (GM-RES) BETWEEN: 1. M/S SASKEN TECHNOLOGIES LIMITED NO.139/25, RING ROAD, DOMLUR, BENGALURU-560 071 REP. BY ITS CFO AND WHOLETIME DIRECTOR, SMT.NEETA REVANKAR 2. SRI. RAJIV CHANDRAKANTH MODY S/O SRI. CHANDRAKANTH JAMIYATRAM MODY, AGED 61 YEARS, R/AT NO.2978, 5TH CROSS, 12TH MAIN, HAL II STAGE, BENGALURU-560 008. …PETITIONERS (BY SRI. M.V.SESHACHALA, SENIOR ADVOCATE FOR SRI. ARAVIND V CHAVAN, ADVOCATE) AND: 1. PRINCIPAL COMMISSIONER OF INCOME TAX-6 BMTC BUILDING, 5TH FLOOR, 6TH BLOCK, KORAMANGALA, BENGALURU-560 095. 2. JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE-6, BMTC BUILDING, KORAMANGALA, BENGALURU-560 095. …RESPONDENTS (BY SRI. E.I.SANMATHI, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF THE CODE OF CRIMINAL PROCEDURE, 1973 PRAYING TO QUASH THE ORDER PASSED BY THE FIRST RESPONDENT EVENLY DATED Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA - 2 - NC: 2023:KHC:34315 WP No. 40408 of 2019 24.06.2019 PRODUCED AS ANNEXURES-AE, BEARING NO.F.NO.PROSECUTION U/S.276D/Pr.CIT-6/2019-20 AND AG, BEARING NO.F.NO.PROSECUTION U/S.277/Pr.CIT-6/2019-20 U/S. 279(1) OF THE IT ACT. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioners have challenged an order dated 24.06.2019 passed by the respondent No.1 granting sanction to prosecute the petitioner No.2 for the offence punishable under Sections 276D and 277 of the Income Tax Act, 1961 (henceforth referred to as 'I.T. Act'). 2. The petitioner No.1 was an assessee, which was subject to assessment of income tax. In respect of the assessment year 2016-17, the assessee filed a return of income on 29.11.2016 under Section 139(1) of the I.T. Act declaring a total income of Rs.301,30,37,460/- and paid income tax of Rs.65,52,76,594/-. The Assessing Officer namely, respondent No.2 issued a notice under Section 143(2) of the I.T. Act to the petitioner No.1 to produce details in support of the returns of income. Thereafter, the petitioner No.1 filed a revised return on 26.03.2018 - 3 - NC: 2023:KHC:34315 WP No. 40408 of 2019 declaring a total income of Rs.300,67,70,960/. Following this, a notice dated 09.08.2018 was issued under Section 143(2) of the I.T. Act by the respondent No.2 to furnish evidence in respect of the return. Following this, a notice under Section 129 read with Section 142(1) of the I.T. Act and a questionnaire dated 31.08.2018 was issued by the respondent No.2 calling for details. During the course of assessment, certain revenue expenditure claimed by the assessee/petitioner No.1 was disallowed, while certain income declared as capital gains were assessed as business income by the respondent No.2. Further, the foreign tax credit claim was partly denied. With these and other adjustments, the respondent No.2 passed an assessment order on 01.11.2018 under Section 143(3) of the I.T. Act determining a total income of Rs.342,00,34,996/-. 3. The petitioner No.1 being aggrieved by the assessment order, preferred a statutory appeal before the Commissioner of Income Tax (Appeals). After the - 4 - NC: 2023:KHC:34315 WP No. 40408 of 2019 conclusion of the regular assessment under Section 143(3) of the I.T. Act, by the respondent No.2, the respondent No.1 in terms of a notice dated 05.03.2019 proposed to impose penalty on petitioner No.1 under Section 274 read with Section 271A of the I.T. Act for not providing certain details called for. Though the petitioner No.1 objected to the same on 20.03.2019, the Joint Commissioner proceeded to pass an order dated 27.03.2019 rejecting the reasons assigned by the petitioner No.1 and proceeded to levy penalty under Section 271A of the I.T. Act. The petitioner being aggrieved by the said order, preferred an appeal before the Commissioner of Income Tax (Appeals). Later the appeals filed against the order of assessment and the order imposing penalty under Section 271A of the I.T. Act were disposed off by the Commissioner confirming the orders of assessment passed by the respondent No.2 in terms of the order dated 27.11.2019. 4. Later, the respondent No.1 proceeded to issue show-cause notice to the petitioner No.1 calling upon it to - 5 - NC: 2023:KHC:34315 WP No. 40408 of 2019 show cause as to why the prosecution under Section 277 of the I.T. Act should not be launched for willfully giving a false statement in verification when filing income tax returns and artificially claiming higher foreign tax credit so as to suppress its tax liability. The petitioner No.1 submitted its reply and claimed that it had furnished a return and claimed foreign tax credit based on the law declared by this Court in Wipro Limited vs. DCIT (2016) 382 ITR 0179 (Kar). This was followed by a sequel of notices issued by the respondent No.1 following which, the respondent No.1 passed two sanction orders dated 24.06.2019 under Section 279(1) of the I.T. Act, to prosecute the Managing Director of the assessee for violation of Sections 276D and 277 of the I.T. Act on the ground that (i) Petitioner No.1 is defaulter as provided under Section 276D; (ii) The petitioner No.1 had willfully given a false statement while filing its return of income and claiming Foreign Tax Credit of Rs.4,22,48,126/- as exempted income. - 6 - NC: 2023:KHC:34315 WP No. 40408 of 2019 5. Being aggrieved by the same, the present petition is filed. 6. Learned Senior counsel for the petitioners contended that in respect of the offence punishable under Section 277 of the I.T. Act, the petitioners had already availed 'Vivad se Vishwas Scheme' ('Scheme' for brevity) and therefore, the prosecution against the petitioners cannot continue. He also contended that in respect of violation of Section 277 of the I.T. Act, the addition made by the order dated 27.11.2019 of the Commissioner of Income Taxes (A), Bengaluru-10 was challenged by the assessee in ITA No.2546/Bang/2019 before the Income Tax Appellate Tribunal \"A\" Bench, Bangalore (for short, 'the ITAT') and the ITAT disallowed the addition made by respondent No.2 in view of the judgment of a Division Bench of this Court in the case of Wipro (supra). He, therefore, submits that when once the ITAT has already allowed the exemption, the question of prosecuting the petitioners under Section 277 of the I.T. Act does not - 7 - NC: 2023:KHC:34315 WP No. 40408 of 2019 arise. He further contends that the impugned sanction orders are also liable to be set aside as the sanction to prosecute the assessee is not granted but what is granted is a sanction to prosecute the Managing Director of the assessee. He invited the attention of the Court to Section 278B of the I.T. Act and contends that when an offence under the I.T. Act is committed by a Company / assessee, 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 assessee as well as the assessee shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. He submits that the impugned sanction orders do not bear any reference to the assessee and therefore, the sanction orders are liable to be set aside on this ground alone. 7. Per contra, the learned counsel for the revenue submitted that immunity from prosecution is only in respect of tax arrear as provided under Section 6 of the - 8 - NC: 2023:KHC:34315 WP No. 40408 of 2019 Direct Tax Vivad se Vishwas Act, 2020 (for short, 'the Act of 2020') and contends that the word ‘tax arrear’ is defined under Section 2(o) of the Act of 2020. He also invited the attention of this Court to sub-section (d) of Section 9 of the Act of 2020 and contends that the provisions of Section 9 of the Act shall not apply to any person in respect of whom prosecution has been initiated by an Income-tax authority for any offence punishable under the provisions of the Indian Penal Code, 1860 or for the purpose of enforcement of any civil liability under any law for the time being in force, on or before the filing of the declaration or such person has been convicted of any such offence consequent to the prosecution initiated by an Income-tax authority. Further, he contends that the assessee has filed a declaration after the initiation of sanction proceedings and therefore, the provisions of the Act of 2020 are inapplicable and the petitioners are not entitled to the benefit of the immunity under Section 6 of the Act of 2020. - 9 - NC: 2023:KHC:34315 WP No. 40408 of 2019 8. I have considered the submissions made by the learned Senior counsel for the petitioners as well as the learned counsel for the respondents. 9. Dealing with the contentions urged by the learned senior counsel representing the petitioners, the impugned sanction orders are clearly violative of Section 278B of the I.T. Act inasmuch as the sanction orders are issued only against the Managing Director of petitioner No.1, namely petitioner No.2, who is only a servant of the Company. As rightly contended by the learned senior counsel for the petitioners, there is no concept of vicarious liability in respect of any offence committed under Section 278B of the I.T. Act, which reads as follows: \"278B. (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 - 10 - NC: 2023:KHC:34315 WP No. 40408 of 2019 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 imprisonment and 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.\" - 11 - NC: 2023:KHC:34315 WP No. 40408 of 2019 10. It is therefore clear that whenever an assessee is sought to be prosecuted for any offence under the I.T. Act, it is not only the assessee but also the person in- charge and responsible for the conduct of the business of the assessee who shall be proceeded against and prosecuted. Therefore, the impugned sanction orders are liable to be set aside only on this ground. 11. In so far as the other contention raised by the learned senior counsel for the petitioners that the alleged offence committed by the petitioner No.1 under Section 276D of the I.T. Act, the petitioner No.1 has already availed the Scheme and has paid the penalty imposed which is construed as a ‘tax arrear’ under Section 2(o) of the Act of 2020 and therefore, the petitioners are immune from prosecution, as, in the event the sanction orders are set aside, it can be construed that there is no prosecution initiated against the petitioner No.1 for an offence punishable under Section 276D of the I.T. Act. - 12 - NC: 2023:KHC:34315 WP No. 40408 of 2019 12. In so far as the offence punishable under Section 277 of the I.T. Act is concerned, as rightly contended by the learned senior counsel for the petitioners, the ITAT has allowed the exemption to the petitioner by relying upon the judgment of a Division Bench of this Court in the case of Wipro (supra) and consequently, no prosecution can be launched against the petitioners as long as the order of the ITAT remains. The claim of the learned counsel for the respondents that the department/revenue has proposed to challenge the order passed by the ITAT dated 16.03.2022, is of no consequence and cannot save the sanction orders from being quashed. If the department/revenue proposes to challenge the order of the ITAT, they may do so in accordance with law and only after the appeal that may be filed by the department/revenue is allowed and exemption granted to the petitioner No.1 is disallowed, could a prosecution be launched against the petitioners. - 13 - NC: 2023:KHC:34315 WP No. 40408 of 2019 13. In that view of the matter, this petition is allowed and the impugned sanction orders of even date i.e., 24.06.2019 (Annexures 'AE' and 'AG') passed by the respondent No.1 to prosecute the petitioner No.2 for the offence/s punishable under Section 276D and Section 277 respectively of the Income Tax Act, 1961 are quashed. It is open for the revenue to challenge the order dated 16.03.2022 passed by the Income Tax Appellate Tribunal \"A\" Bench, Bangalore, in ITA No.2546/Bang/2019. If the department/revenue is successful in upsetting the said order of the ITAT, it may consider taking out the proceedings to prosecute the petitioners in accordance with law as far as offence punishable under Section 277 of the Income Tax Act, 1961 is concerned. Sd/- JUDGE PMR - para Nos.1 to 4 SMA - para No.5 till the end List No.: 1 Sl No.: 20 "