B. Radha V. Dy. Commissioner of Income-tax,

CRLATR/13/2018

AI Insights

The case involves appeals by the directors of M/s. Goman Agro Farms Pvt. Ltd. and another director of M/s. Nagava Greenlands Pvt. Ltd. against their conviction under Sections 276-C(2) and 278-B of the Income Tax Act, 1961, for willful evasion of tax. The appellants were initially convicted based on an assessment order that was later found to be incorrect and was subsequently modified. The High Court found that the prosecution and conviction were based on this incorrect assessment and thus set aside the conviction, remanding the case for re-evaluation based on the correct assessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 692787 (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, Cr.P.C
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B SHARMA
• Assessee Lawyers: VINOD DESHPANDE; V RAO
• Keywords: Assessment Order; Criminal Appeal; Economic offences; Income Tax; Penalty; Prosecution; Willful evasion of tax
• Section: 143(1); 221(1); 278-B; 276-C(2); 140-A(3)

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD FRIDAY, THE SEVENTEENTH DAY OF JUNE TWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL (TR) NOS: 13 AND 74 OF 20'18 Criminal Appeal under Section 37 4(2) o'f Cr.P.C against the Judgment dated 0910112014 in CC No.l19 of 201 1 on the file of the Court of the Special Judge for Economic Offences, at Hyderabad. Between: 1. Smt B.Radha, W/o.B.Rama Raju, Director of M/s. Goman Agro Farms Pvt. Ltd., Plot No.392, HMT Hills, Opp: JNTU College, Kukatpally, Hyderabad- 500072. 2. Sri Manthena Hriprasada Raju, S/o.late M.Ranga Raju, aged about 54 years, Director of M/s. Goman Agro Famrs Pvt. Ltd., Plot No.392, H[vlT Hills, Opp: JNTU College, Kukatpally, Hyderabad-500072. ....Appellants/ Accused 3 & 5 AND Dv gt6 Commissioner of lncome Tax, Central Cirlce-8, Aayakar Bhavan, Room No.805, Floor, Basheerbagh,Hyderabad-500004. ....RespondenU Complainant For the Appellants : SRI VINOD KUMAR DESHPANDE, Sr. COUNSEL FOR SRI V.SURENDER RAO For the Respondent : SRI B.NARASIMHA SHARMA, SC FOR I.T.DEPARTMENT CRIMINAL APPEAL (TR) NO.74 OF 2018: Criminal Appeal under Section 37 4(2) of Cr.P.C against the Judgment dated 0910112014 in CC No.'t 19 of 2011 on the file of the Court of the Special Judge for Economic Offences, at Hyderabad. Between: 1. M/s. Goman Agro Farms P!,t. Ltd., Plot No.392, HMT Hills, Opp: JNTU College, Kukatpally, Hyderabad-S0OO72, rep. by SriM.Suryanarayana Raju, S/o.M.V.Ramakrishnam Raju, aged about 36 years 2. Sri tvl.V.Suryanarayana Raju, S/o.lt/.V.Ramakrishnam Raju, aged about 36 years, Director of M/s. Goman Agro Farms P!t. Ltd., Plot No.392, HMT Hills, Opp: JNTU College, Kukatpally, Hyderabad-500072 cRL.A. (TR) NO.13 0F 2018: 3. Shri Namburi F:rma Raju, S/o.Venkata Rajui, Aged about 49 years, Director of lv'l/s Nagava li Greenlands Pvt. Ltd., Flat No.102, Dharunjayanest, Rajivnagar, Yo rsufguda, Hyderabad-500045. ....Appellants/ Accused 1, 2 & 4 AND DV gt6 Commissioner of | 'come Tax, Central Cirlce-8, Aayakar Bhaviin, Room No.805, Floor, Basheerbag -r,Hyderabad-500004. ....Respc'ndenU Complainant For the Appellants r liRl VINOD KUMAR DESHPANDE, SEhllOR COUNSEL FOR SRI G.ASHOK REDDY For the Respondenr : SRI B.NARASIMHA SARMA, SC FOFI r.li.DE:PARTMENT The Court delivered I 'e following Common Judgment :- THE HON'BLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL (TR) Nos.13 and 74 of 2018 COMMON JUDGMENT: Cr1.A.(TR).No.74 of 2018 is filed by A1, A2 and ,{4 i.e., Company and its two Directors respectively, whereas Cr1.A.(TR).No.13 of 2018 is filed by A3 and A5, who are other Directors of A1/company, being aggrieved by the conviction and sentence imposed by the learned Special Judge for Economic Offences at Hyderabad in C.C.No.119 of 20 11 vide Judgment dated 09.01.2014, wherein Accused Nos. 1 to 5 were found guilty of the offences punishable under Section 276-Cl2l read with Section 278-8 of the Income Tax Act, 196 1 (for short, \"the Act\") consequently accused No. 1 was sentenced to pay fine of Rs.10,00O/- and in default of payment of fine to initiate appropriate proceedings AS required under Section 421 of Cr.P.C., whereas Accused Nos.2, 4 and 5 were sentenced to undergo rigorous imprisonment for a period of one year each and A3 was sentenced to undergo rigorous imprisonment for a period of six months and to pay fine of Rs.10,000 /- each. and in default of payment of line by accused Nos.2 to 5, to undergo simple imprisonment for a period of one month each. 2 Since thr issues involved in these appeals irre one and the same, both th appeals are being disposed of by this common judgment 2. For con,\" - nience, the parties herein are refr:rr:ed to as they are arrayed refore the tria-l Court. i.e., Appel.lant No.1 as Accused No.1 'Companv and Appellant Nos.2 to 5 :rs Accused Nos. 2 to 5. 3. The ger: ,,sis of these cases, which lead the appellants- accused to prr t-er these appea-ls, are narrated in trrref i1s under: i) Ac:used No.l/Company - M/s. GorrLan Agro Farms Private I mited, which was registered under the Compalies Act wit; r the Registrar of Companies zrt Hyderabad S Private .imited Company, was engaged in the business of acquisit on and sale of lands. Appelleint N,rs. 2 to 5 herein are the -rirectors of Accused No. 1/Company i0 Ac::used No.l/Company has acquired lands to an extent of Ac.7.00 in Sy.No.194 under tht: limits of Bachup :1ly Mandal, Ranga Reddy District during the financia I year 2002-2003 and developecl tl-rc said lands by 3 incurring some amounts during the linancial years 2OO2- 03 to 2007-08. Accused No.i/Company along with other companies, who have lands contiguous to the lands ol Accused No.1/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, was 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 filed income tax returns on 26.O8.2OO9 under Ex.P1 by bifurcating the sale proceeds into long term capital gains accrued from the sale proceeds ol the lands and short term capital gains accrued from the .sale proceeds of the constructed area by showing gross taxable income as Rs.7,65,64,5721-, out of which an amount of Rs.4,86,86,431/- was shown as long term capital gain and Rs.2,78,78,141/- was shown as short term capital gains. iu) Ac :used No.1/Company is expectt:i to pay the lllCO me i:-x either by way of advance tax asi reqllired under Section :208 of the Act or at least along with filing of returns n terms of Section 140-4 of the Ac:t. As per Section 143 (1) of the Act, the tax liabilitl o.: Ac:cused No. 1 4 was irrrived at Rs.2,27,74,267 1 - by the respond:nt/complainant and raisecl a demand under Section 156 read with Section 143 of the r ,:t and issued an intimati rn to Accused No.1/Compary under Ex.P2 Accusec No. 1/company i as required to p;ry the tax demanci ,:d within 30 days of service of rr,rt.ice. but it has commit r:d default r,) Rt spondent/ complainant has issued show-cause notice ( rrted 17.11.2009 under Section ?,:>.1. (11 of the Act under I ,x. P5, wherein the appellants r.r.err: asked to .show cause 'Ls to why penalty should r-rot be levied lor commrt ,ng default in payment of tax. l.s there was no respons :: from the appellants, the complananl has issued another show cause notice dated 01.09.2O I 0 under Ex.P6 under I .cLion 221 ( 1) read u,ith Secrion I 4 3-A of the Act c Finally, one more opportunity was also given by the Department by giving another show-cause notice dated 16.09.2010 (Ex.P7) under Section 221 (11 read with Section 143-A of the Act. An opportunity of being heard was also 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.40,00,000/- 1,4s imposed by way of order dated 22.O9.2O1O (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 23.09.2OIO. 4. Considering the rn illful 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(2) of the Act, as to why prosecution shall not be initiated against them for willlul evasion intention to evade payment of tax. Another notice was issued to accused No.1/Company and its directors under Exs.P10 to P14 dated 27 .O9.20 1 1 asking them as to why prosecution shall not of the tax. All of them have given reply stating that there was no 6 be initiated rnder Section 276-C(2 of the Act. Again replies were filed bl accused No.1/company and its Directors/ accused Nos.2 to 5 rnder Exs.Pi5 to P18 stating tl.r;rt there was no intention of r illiul evasion of tax 5. As Acx used No. 1/Company and its D irectors/ accused Nos.2 to 5 I ave not paid the tax in responsr: to the demand notice issuec under Section 143 (1) of the A<:t and also failed to pay the per' :Llty, the respondent/ complainanl. after obtaining sanctron ord:r dated 25.O2.2O I I for laur-rching of prosecution filed a compl rint before the Special Court for Eoc,nomic Offences against accr rsed No.1 and accused Nos.2 -o 5, the other Directors, al. :ging that they have committed offe,nce punishable under Sectir:t 276-C(21 read with Section 278-P.ol the Act, as they have u Lllfully evaded tax even thor,rgh they /e re having sufficient res r,urces. 6. The Sp rcia-l Court for Economic Offences took cognizance of the offenc, s against Accused No.1/Companv and its Directors i.e., Accuse< Nos. 1 to 5, under Section '2711-C(21 read with Section 278-3 of the Act and charges were franred against them under Sectic ^r 276 - C(2) read with Section 278 B(1) of the Act 7 and all the accused have pleaded not guilty of the charges and claimed to be tried. 7. In order to prove the charges leveled against the appellants, the respondent/complainant has examined PWs. I to 3 and got marked Exs.Pl to P19. After closure of evidence of the complainant, the incriminating evidence elicited against the appellants was read over and explained to them under Section 3 I 3 of the Cr. P.C., lor which all of them have denied and reported that they did not choose to examine any witness orr their behalf. However, they got marked Exs.Dl to D3 on their beha,lf. 8. The substance of the evidence of PWi is that after receiving respondent/complainant has processed the same under Section I a3( 1) of the Act and issued intimation determining the total taxable income as Rs.7,65,64,570/- and tax liability AS Rs.2,50,30,164 l-. The evidence of PW2/lncomeTax ofhcer is to the extent that he has considered the annual report of accused No. I /company for the financial year 2007-O8 under Ex. P3 and bank account statements of accused No. I / Company with the -./ of returns of income tax filed by accused No.1/company, the 8 AXIS Bank I-imited under Ex. P4 and lou;-r I Lh at accused No. 1 / Compa: Ly did not pay the tax returns in spit e of having surplus and suflicient funds. PW3 is thc lncrtnte Tax Officer, who has suc reeded PW2. His evidence is that he has passed penalty order under Ex.P8 imposing penalty ol Rs.4O lakhs and raised demar d under Ex.P9 and the same vre s served on the accused. He also deposed that as there u,as no response from the accused, --ihow cause notices under Ser:tiol 276-C of the Act were issued i gainst all the accused through rvhich accused rvere informed tha the department is initiating crirnirral proceedings and consequr ;rtly the department has hled the ccrnplaint 9, After fu l-fledged trial, on considering the entire material on record, the 1. 'ial Court has found Accused No. I ,/ Company and A2 to A5, tL:: Directors of A1 company, guiltl, of lhe offences punishable t nder Sections 276-C(2 and 278- Il of the Act and were sentenc rd as stated supra. Aggrieved b-v tlte said judgment and convict-i rn of Special Judge for Econornic,al Offences at Hyderabad, . lre present appeals are filed orig n all-v before the Metropoiitan Sessions Judge Court at Hyderabrtrl 9 10. The erstwhile High Court for the States of Telangana and Andhra Pradesh has issued circular ROC.No.34, Criminal Section/20 17, dated 28.08.2017, r.r,,herein it is clarified that against any orders passed by the Special Judge for Economic Offences, Hyderabad, in the State of Telangana and Visakhapatnam in the State of Andhra Pradesh, the High Court 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 lrom Metropolitan Sessions Judge Court, Hyderabad, to the High Court for the State of 1 1. The summary of grounds of appeal as filed by the appellants in briel are as under: a) The trial Court has failed to see that accused No. l/company was not having lunds to pay the tax on the due date as reflected in Ex. P4-bank statements and that accused No.1 has not received any sale proceeds from M/s. Mytas Property Private Limited, thereby the respondent/ complainant has not produced any evidence to show that accused Teiangana. 10 No. 1 / Co mpar Ly has received sale proceeds liom M / s. Mytas Property Priv, .te Limited. b) Thc trir . court has misconstrued the pre sumption under Section 278)) of the Act and erred in holding tl.at tl-re burden of proof rs on tL:r accused to prove that there was n() r.r,illlul evasion of payment o tax. c) 'lhe trii I Court erred in holding that the ,r<:cused failed to prove non-er stence of culpable menta-1 state in non-payment of taxes on the late of filing returns axd as on thc rlate of demand notice ar-rd tl .r.t the trial Court failed to appreciate that in spite of not having z r1y cogent evidence to show that rill the accused have willfullr evaded the tax, the trial Court has concluded that accused havr committed willful evasion in pavment of tax d) The tri 11 court fajled to see that all the assets belong to accused No. /Company were attached under Sr,:ction 281-B of the Act and pellant Tribunal having consr lered the appeals of the appellant s found that the assessment rrder, dated O2.l2.2OlO directing the appellants to pay Rs.2,27, i.4,267 l- was incorrect and the As;sessment Officer 16 17 was directed to assess the income tax afresh in terms of the directions given by the Tribunal. Accordingly, the Assessment offlcer has re-assessed the income tax and passed modified orders, dated 21.03.20 16 determining the tax liability, which is lar less than what was assessed at the first p1ace. The basrs lor respondent/ complainant to initiate prosecution against the appellants is the assessment order, dated 02.12.2O1O, on the ground that the appellants have committed delault in payment of the tax as per the said assessment order. When assessment order dated 02.l2.2OIO itself is re-assessed as per the directions of the Tribunal which held that the assessment of tax dated 02.l2.2OlO is incorrect and the tax to be paid rvas substantiallv reduced, it cannot be alleged that the appellants have committed assessment order dated 02.l2.2OlO itself was modified holding that the Assessment Officer 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 21.03.2O 16, it is to be examined afresh that u,hether the default in payment of tax and willfully evaded. When the 1B appellants ha ,: committed any willful evasron of t.ax, as defined under Sectiott'.276-C of the Act. I 9. Therefor :, on considering the above cliscur;sion, it is clear that the lindir g of the trial Court that the appellants rvere guilty of the olfencr: ; under Section 276-C(21 read u,ith Section 278-B of the Act ir erroneous as the same is bas,:cl on incorrect assessmcnt rrder, dated 02. 12.2OlO and hr:nce, shall not sustarn, and rlquipsd to be set aside. Considt ring the same, point No.1 is deci,led rn favour of the appellant ;/accused. POINT No.2: 20. 'lhe ap1 ,:llants have also raised other issues i.e., they have not committ(:l any willful evasion in payment or'tax since, as on the due datr: there were no liquid funds rn tl-rr:ir accounts and the appellal s; - Accused Nos. 2 to 5, who are the Directors, are not respon.. ible for the day to day act.ivities of accused No. 1/ Compa 'rJ/ as on the date of the alleged default, the trial Court has m sconstrued the presumption unde: Section 278D of the Act, the trial Court failed to record aclmissicn of PW.3, that l9 the amount received towards share application does not attract the tax etc. 2l . This Court has already came to the conclusion while discussing point No.1 that the conviction and sentence recorded in favour of the appeilants required to be set aside, on account of the fact that the assessment order dated O2.12.2O1O on which the conviction was recorded was modified and a fresh assessment order came into force, hence, the issues raised bv the appellants, need not be answered. 22. Learned Senior Counsel for the appellants has placed reliance on the authority passed by the Hon'ble Supreme Court in the case of V.Srinivas Reddy Vs. State of Andhra Pradeshl, wherein it was held as follows: *13. It was then urged by Mr. Arunachalam that if the Hiqh Court felt ttnt further euidence u)as necessanl for disposal of the case then it could haue exercised its pouer under Section 391 Cr. P,C. and ouqht not to houe set aside the order of acquittal and remanded the matter for fresh disposal. This arqument also did not impress us because the Hiqh Court instead of recordina the additional euidence in terms o.f Section 391 Cr. P.C.; preferred to remand tLLe matter back to the trial court for disposal in accordance uith law. It also appears from the record that some of the documents includinq FDRs, loan appltcations etc., should also haue been brought on record for effectiue ' (1998) 9 SCC 331 20 riisposal )f the controuersq raised in the cos<: attd to do frrstice br tuteen the parties. It is needless to salt that the tial coru t t.uill strictlu adhere to the obsert'ations and directiotu giuen bg the High Court in its judgm