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

CRLATR/79/2018

AI Insights

The case involves M/s. Vindhya Greenlands Pvt. Ltd. and its directors, who were convicted for willful evasion of tax under the Income Tax Act, 1961. The appellants challenged the conviction, arguing that they did not have the funds to pay the tax and that there was no willful evasion. The High Court found that the trial court did not adequately consider the appellants' financial constraints and the lack of specific roles attributed to each director in the company's day-to-day affairs. The court also noted that the prosecution did not sufficiently prove that the appellants had the funds and deliberately chose not to pay the tax.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 735812 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-06-2022
• Assessment Year: misc
• Other Referred Cases: Akkinapalli Sujatha (smt.) and others v. State of Telangana, Public Prosecutor, High Court of Telangana, Hyderabad and another, POOJA RAVINDER DEVIDASANI v. STATE OF MAHARASHTRA, National Small Industries Corporation v. Harmeet Singh Panital, Gunmala Sales Private Ltd. v. Anu Mehta, Pepsi Foods Ltd. v. Special Judicial Magistrate, Alka Khandu Avhad v. Amar Syamprasad Mishra and another
• Laws Referred To: Income Tax Act, 1961, Criminal Procedure Code
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B SARMA
• Assessee Lawyers: VINOD DESHPANDE; G RE DDY; V RAO
• Keywords: Criminal Proceedings; Economic offences; Income Tax Return; Penalty; Willful evasion of tax
• Section: 143(1); 221(1); 374(2); 276-C(2); 140-A; 278-8; 276-C(21)

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD FRIDAY,THE SEVENTEENTH DAYOF JUNE TWO THOUSAND AND TWENTYTWO PRESENT THE HONOURABLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL fiR) NOS: 60 AND 79 0F2018 Crl.A.(TRl No.60 of 2018 Crl.Appeal Under Section 374 (2) of Cr.p.C. against the Judgment dated 09_ o1-2o14 in c.c. No. 127 of 2o11 on the file of the court of the Special Judge for Economic Offences at Hyderabad Between: 1 . M/s. Vindhya _ Greenlands Pvt. Ltd., B-79, Madhura Nagar, Hyderabad_38, fep. bI its Managing Director, Shri K, Gopalakrishnam-Raju,'S/o. Shri K. Rama Raju, aged about 51 years. Z. !i...Co^p9tq!r1q!lg.T nqjy, Director of tWs. Vindhya Greentands pvt. Ltd., H..No.8-3-222lB17l35,36lD-92_ and 93, Flat No.304, Sri Ramana Enclave, Madhura Nagar, S.R. Nagar Post, Hyderabad. 3. NSLR- Prasad Raju, Director of M/s. Vindhya Greenlands prrt. Ltd., FIat No.202, H.No. B-55, Sai Vaishnavi Vihar, Vengala Rao Nagar, S_R. Nagar Post, Hyderabad-38 ... Appellants / Accused No. 1 ,3 & 4 AND Dy. Commissioner of lncome-tax,, Central Circle-9, Room No.B13, gh Floor, Aayakar Bhavan, Basheerbagh, Hyderabad-500004. ...RESPONDENT/ Complainant Counsel for the Appellants :SRl. VINOD KUMAR DESHPANOE SENIOR COUNSLE FOR SRI G. ASHOK REDDY Counsel for the Respondent: SRI B. NARASIMHA SARMA, SC for l.T. CRIMINAL APPEAL (TRl No. 79 of 2O18 Crl.Appeal Under Section 374 (2) of Cr.P.C. against the Judgment dated 09- o1-2o14 in c.c. No. 127 of 2011 on the filb of the court of the special Judge for Economic Offences at Hyderabad Between 1. P.Teia- Raj_t Director of M/s. Vindhya Greenlands pvt. Ltd., ptot No. 12549, Road No.63, Jubilee Hilts, Hyderabad-33. 2. K.V.V. Krishnam Raiu, Director of M/s. Vindhya Greenlands pvt. Ltd., R/o. Plot No. 392, HMT Hitts, tt Venture, Opp. .ttttU Coflege, Kukatpaity, Hydetabad'-72. . Appellants/ Accused 2 & 5 AND Dy. Commissionerof lncome{ax, Central Circle-9, Room No.g13, gth Floor, Aayakar Bhavan, Basheerbagh. Hyderabad-500004. ...RESPONDENT/ Complainant Counsel for the Appellants : SRt. VINOD KUMAR DESHPANDE SENIOR COUNSLE FOR SRI. V SURENDER RAO Counsel for the Respondent: SRt B. NARASIMHA SARMA., SC for l.T. The Court delivered the following: Judgment HONOURABLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL lTRl l{os.6o and 79 of 2018 COMMON JUDGMENT: Cr1.A.(TR).No.6O of 2Ol8 is filed by A1, A3 and A4 i.e., Company and its two Directors respectively, whereas Crl.A.(TR).No.79 of 2Ol8 is filed by A2 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. 127 ol 2O1l vide Judgment dated O9.01.2O14, wherein Accused Nos. I to 5 were found guilty of the offences punishable under Section 27 6-C(21 read with Section 278-8 of the Income Tax Act, 196 I (for short, \"the Act\") consequently accused No.1 was sentenced to pay fine of Rs. IO,OOO/ - and in default of payment of fine to initiate appropriate proceedings as required under Section 421 of Cr.P.C., whereas Accused Nos.2 to 5 were sentenced to undergo rigorous imprisonment for a period of one year each and to pay Iine of Rs.fO,OO0/- each and in default of payment of fine by accused Nos.2 to 5, to undergo sirnple imprisonment for a period of one month each. ) 2 Since the issues involved in these appeals are one and the same, both the appeals are being disposed of by this common judgment. 2. For convenience, the parties herein are referred to as they are arrayed before the trial Court. i.e., Appellant No.1 as Accused No.1/Company ancl Appellant Nos.2 to 5 as Accused Nos. 2 to 5 3. The genesis of the se case s, which lead the appellants_ accused to prefer these appeals. are narrated in brief as under: i) Accused No. l/Company - M/s. Vidhya Green Lands Private Limited, which u,as registered under the Companies Act with the Regist.rar of Companies at Hyderabad as Private Limited Compar-ry, rvas engaged in the business of acquisition and sale of lands. Appellant Nos. 2 to 5 herein are the Directors of Accused No. 1/Company. ii) Accused No.l/eompany has acquired lands to an extent of Ac.7.50 gunras in Sy.No.19g under the limits of Bachupally Mandal, Ranga Reddy District during the financial years 2OO2-2O03 and developed the said lands by J rncurring some arnounts during the financial years 2O02- O3 to 2OO7-08. 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 o[ apartments and bungalows and to sell the same to intending purchasers iii) For the assessment year 2OO8-O9, accused No.1/company has hled income tax returns on 30.09.2008 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 sa.le proceeds of the constructed area by showing gross taxable income as Rs.8,I1,O9,527 l-, out of which an amount of Rs.5,21,64,025/ - was shown as long term capital gain and Rs.2,98,69,444 l- was shown as short term capital gains. i,r) Accused No.1/Company ls 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 140-A of the Act. As per Section i43 (1) of the Act, the tax liability of Accused No.l )' 4 was arrived at Rs.2,16,58,942/- by the respondent/complainant and raised a demand under Section 156 read with Section 143 of the Act and issued an intimation to Accused No.1/Company under Ex.p2. Accused No.1/companv was required to pay the tax demanded within 3O days of service of notice, but it has committed default. v) Respondent/complainant has issued show-cause notice dated 17.11.2OO9 under Section 221 lll of the Act under Ex.PS, wherein the appellants were asked to show cause as to why penalty should not be levied for committing default in payment of tax. As there was no response from the appellants, the complainant has issued another show-cause notice dated 25.08.20 1O under Ex.p6 under Section 221(1) ol the Act. Finally, one more opportunity was also give n by the Department by giving arrotlrel slrow-cause notice dated 12.lO.,2OLO (Ex.p./l under Section 221 lll read w.ith Section 143-,{ of the Act- An opportunitv of being heard was also given by the respondent/complainant to Accused No. l/Company fixing 5 the date of hearing S 18.10.2010, but there was no response, on which a penalty of Rs.52,0O,OOO/- was imposed by way of order dated 25.10.2010 (Ex.P8) under Section 221 read with Section 14O-A(3) of the Act and the said proceedings were served on accused No.1 on 29.tO.20tO 4. Considering the willlul evasion of payment of tax, the respondent/complainant has decided to initiate prosecution and accordingly a notice was issued to accused No.l/company and other Directors under Section 27 6-C(21 of the Act, as to why prosecution shall not be initiated against them for willful evasion of the tax. A11 of them have given reply stating that there was no intention to evade payrnent of tax. Another notice was issued to accused No.l/Company and its directors under Exs.PlO and Pl I dated 11.01.20 l1 asking them as to why prosecution shall not be initiated under Section2T6-C(21 of the Act. Again replies were hled by accused No.l/compaly arrd its Directors/ accused Nos.2 to 5 under Exs . P i 2 and P 13 stating that there was no intention of willful evasion of tax. ) 6 5. As Accused No.1/Company and its Directors/ accused Nos.2 to 5 have not paid the tax in response to the demand notice issued under Section 1a3 (l) of the Act and also failed to pay the penalty, the respondent/ complainant after obtaining sanction order dated 16.03.2011 for launching of prosecution (rled a complaint before the Special Court for Economic Offences against accused No.1 and accused Nos.2 to 5, the other Directors, alleging that thev have committed olfence punishable under Section 276-C(21 read with Section 27g_B of the Act, as they have willfully evaded tax even though they were having sufficient resources. 6. The Special Court for Economic Offences took cognizance of the offences against Accused No.1/Company and its Directors i.e., Accused Nos. 1 to 5, under Section 27 6_C(21 read with Section 278-8 of the Act and charges were framed against them under Section 276 - C(2) read with Section 27g_B(ll of the Act and all thc accused l'rave pleaded not guilty of the charges arrd claimed to be tried. 7. In order to prove the charges leveled against the appellants, the respondent/com.plainant has examined pws. I to 7 3 and got marked Exs.Pl to P14. 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 ail of them have denied and reported that they did not choose to examine any witness on their behalf. However, they got marked Exs.D I to D3 on their behalf. 8. The substance of the evidence of PWI is that after receiving of returns of income tax filed by accused No. l/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.8,11,09,53O/- and tax liability as Rs.2,64,34,730/-. 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 2O07-O8 under Ex.P3 and bank account statements of accused No.l/Company with the AXIS Bank Limited under Ex.P4 and found that accused No.l/Company did not pay the tax returns in spite of having surplus and suflicient funds. PW3 is the Income Tax Officer, who has succeeded PW2. His evidence is that he has passed ) B penalty order under Ex.pB imposing penatty of Rs.52 lakhs and raised demand under Ex.p9 and the same was served on the accused. He also deposed that as there was no response from the accused, show cause notices under Section 276_C of the Act were issued against ali the accused through which accused were informed that the department is initiating criminal proceedings and consequently the department has filed the complaint. 9. After full fledged trial, on considering the entire material on record, the trial Court has found Accused No. l/Company and A2 to A5, the Directors of A 1 company, guilty of the offences punishable undcr Sections 276_C(21 and, 278_8 of the Act and were sentenced as stated supra. Aggrieved by the said judgment and conviction of Special Judge for Economical Offences at Hyderabad, the present appeals are filed originally before the Metropolitan Sessions Judge Court at Hyderabad. 10. The erstu,hile High Court for the States of Telangana and Andhra Pradesh has issued circular ROC.No34, Criminal Section/20 17, dated 28.OB.2O17, against any orders passed b1r the Offences, Hyderabad, in the Special Judge for Economic wherein it is clarified that State of Telangana and 9 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 from Metropolitan Sessions Judge Court, Hyderabad, to the High Court for the State of Telangana. 11. 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. l/company was not having funds to pay the tax on the due date as reflected in Ex.P4-bank statements and that accused No. I has not received any sale proceeds from M/s. Mytas Property Private Limited, thereby the respondent/complainant has not produced any evidence to sho'*, that accused No.l/Company has received sale proceeds from M/s. Mytas Property Private Limited. b) The trial court has misconstrued the presumption under Section 278-D of the Act and erred in holding that the burden of l0 proof is on the accused to prove that there was no willful evasion of payment of tax. c) The trial Court erred in holding that the accused failed to prove non-existence of culpable mental state in non-payment of taxes on the date of filing rclLrrns and as on the date of demand notice and that the trial Cor-r rL taited to appreciate that in spite of not having a',y cogent evidcnce to show that aII the accused have willfully evaded the ta-r. the trial court has concruded that accused have committed willlul evasion in payment of tax. d) The trial court faiied r o see that all the assets belong to accused No.1/company werc attached under Section 2gr-B of the Act and due to paral_vzing o[ financial activities of accused No. l, tax could not be paid rn time. e) The trial court failed to consider the admission of pW3 that the amount received by Accused No. I /Company is towards sharc applicatio, ruorrcy trt-res not attract tax riability and that the trial Court could not consider that accused No. t has not received Rs.8 crores I1 lakhs from M/s. Mytas property private Limired. 1t f) The Trial Court should not have concluded that accused Nos.2 to 5 are responsible for day to day affairs of accused No.l/company and should have taken into consideration the notices issued under Section 27 8-B of the Act proposing the prosecution did not refer accused Nos. 2 to 5 as principal ofltcers 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 tax department, considered the entire material on record, relevant provisions of the Act and the authorities cited. I3. Now, the points for determination in these appeals are 1) Whether the conviction judgment dated O9.Ol.2Ol4 in C.C.No.127 of 2Ol1 on the file ol Special Judge for Economic Offences at Hyderabad against the appellants can be set aside? 2l Whether the appellants committed willful evasion of tax? 3) To what relief.? accused have t2 14. It is submitted by the appellants in the grounds of appeal that the Respondent - Income Tax Department has not ptaced sufficient material to shos. that appellant No. 1 Company has committed willfur defaurt, ro fasten the liability under Section 276 C of the Income Tax Act The question of willful default comes, when appellant No.l Company is having sufhcient funds to its credit and deliberate 11, <:hooses not to pay the tax or diverts the funds for other purposcs. According to the appellants they were not having funds to i)a_ , the tax, thereby, contended that there was no willlut default committed by them. 15. PW3 in his cross examination admitted that appellant No.l Company was not having ftrnds as on the date of filing of the returns. It is also the r;ase oi the appellants that the Respondent - Income Tax Department has not placed any material to show that inspite of having suflicient funds, the appellant No.l company has deliberately cvaded in payment of tax, thereby the appcllants were rlot iraving any culpable mental state to evade the tax deliberately. 16. According to the prosecution, appellant No. 1 company has self assessed rhe tzrx liabilit-v as Rs.g, f l,O9,S3O/_, however, no d. F' f l3 tax arnount was paid along with IT retqtns. The trial Court in its order has observed that though appellant company was not having the Iiquid cash as on the date of filing of returns, 1t (company) was having reserves, which were diverted to other concerns without bothering the tax liability on capital gains. Thus, even the trial Court has concluded that the appellant No.l Company had no Iiquid funds to pay the tax as on the date of filing of returns. 17. It is also admitted fact that atl the assets of appellant No.1 Company were attached trnder Section 2BlB of the Income Tax Act and thereby there was no financial activity of the appellant No.1 Company. Thus, there was no occasion for appetlant No.1 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 behalf of the appellant No.l company. M/s Maytas Properties Limited also requested to raise the attachment of hve acres belonging to M/ s. Chitravathi Agro Farms Private Limited for disposal by Revenue Department to be adjusted ) l4 against the outstanding ta_x demand of all the 19 comp ir- ., i i-{' - anl including appellant No. I Company vide letter dated 11.03.20 11. 18. It is also mentioned in the grounds of appe4l that even though appellant No.1 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. 19. It is also not in dispute that M/s. Maytas properties Limited has requested the Respondent - Income Tax Department for adjustment of TDS refund of income tax ald adjustment of refund of income tax dues of Rs. 1 1.45 crores vide letters dated 22.O2.2O1O and 1 1.O3.201 i in favour of appellant No.1 company. The trial court in its judgrnent at page 19 para No.46 has observed that nothing has been placed on record to show that the department was in lact any due of any refunds to M/s. Maytas properties Private Limited and whether such refunds were fortified by passing appropriate refund orders. However, on perusal of the lettens dated ZZ{2.2O|O ar.rd I 1.O32Oft. addressed by the M/s. Maytas properties private Limited, the endeavour of appellalt No.l Company is very clear that in the most possible manner the tax liability was to be paid. This l5 Court is of the opinion that if really the intention of appellant No. 1 Company was not to pay the income tax and evade the sarne willfully, the letters dated 22.O2.2OIO and 11.03.2011 addressed by M/s. Maytas Properties Limited requesting the department to adjust TDS refund of the tax liability could not have been addressed. 20. Another contention raised in the grounds of appeal is that accused Nos.2 to 5 are not responsible for day to day affairs of appellant No.l Company and that there is no materia-l placed before the trial Court to establish that accused Nos.2 to 5 are responsible for day to day affairs of appellant No.1 company and that unless there is specific resolution authorizing one of the directors as principle officer, all the directors of the company are principle officers 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 a-ll the acts and thereby accused Nos.2 to 5 are principal ofhcer is erroneous. .) t6 2I. In Akkinapalli Sujatha (smt.) and others v. State of Telangana, Public Prosecutor, High Court of Telangana, Hyderabad and anotherr, wherein it was held as follows: \"10. In POOJA RAVINDER DEVIDASANI u. STATE OF MAHARASHTRA| tlrc Supreme Court made the follouing obseruations: \"... Time and again, it has been asserted. bg this Court that onlg those persons wha were in cLutrge of and responsible for the conduct of the business of the Company at the time of commtssion of an offence will be liabte for criminal action. A l)irector, who taas not in cLnrge of and, was not responsible Jor the conduct of the buslness of the Compang at the releuant time, u,till not be liable for an offence [Jnder Section 141 of the N.I. Act.\" In National Small Industries Corporation (supra) thLs Court obserued: Section 141 is a penal prouiston creating uicarious liabilitg, and which, as per settled latu, must be stictlg construed. It is therefore, not sufficient to make a bald cursory statement i.n a complairtt tltat th-e Direcl. . , 2t 24. Appellant No.I company has hled an application under Section 39 I of the Code of Criminal Procedure along with the appeal for receiving (1) Dossier Reports of the appellant company for the assessment year 2OO8-09, (2) Files pertaining to TRO Proceedings pertaining to the appellant company and (3) entire proceedings pertaining to the sanction order in the appeal' It is submitted by the learned counsel for the appellants that sanction was accorded for prosecution without assigning cogent reasons and in order to prove that the appellants have not willfully evaded the payment of taxes, the files pertaining to the said order and a-ll communications between the assessing officer and the sanctioning authority are crucial documents. 25. Appellant No.1 company has filed another application under Section 39 1 of the Code of Criminal Procedure along with the appeal for receiving cornmon Order, dated 22 'O5 '2015 passed by the Appellate Tribuna.l in ITA.No'1O12 of 2Ol4' It is submitted by the learned counsel for the appellants that in view of the common order dated 22.05.2015 passed by the Income Tax Appellate Tribunal, the Assessing Ofhcer has to re-compute the income of the assessee. TLrus, the question of tax liability as 22 per the fresh assessment u,ould come into question. Hence, the prosecution initiated by the Income Tax Department on the basis of order, which is not in existence is not maintainable. 26. Considering the same and on hearing both sides, this Court is of the opinion that rhese documents are very reievant to consider the grounds rajsed in the appeals these documents are received. on hand, thereby 27. In view of the above discussion and on perusal of the grounds of appear, it is evident that the appella,ts have raised certain substantia_l issues including that the appellant Company has not committed willful default, as admittedly there were no funds to the credit of appellants; the request of M/s. Maytas Properties Limited to raise the attachment of lands, so that sale proceeds can be paid duly tou,ards income tax on behalf of the appellants, but same was not considered; the appellant Nos.2 to 5 are not the principle officers arrd thereby they cannot be held to be responsitrle for the acts cornmitted by the company. Further, the appeilants have fired petitions under Section 391 of the Code of Criminal procedure to receive (1) Dossier Reports of the appellant companv for the assessment year 2OOg_O9, (21 / 23 Files pertaining to TRO Proceedings pertaining to the appellant company, (3) entire proceedings pertaining to the sanction order in the appeal and (a) common order, dated 22.05.2015 passed by the Appellate Tribunal in ITA.No.lO l2 of 2Ol4 and accordingly the said documents were received. 2A. Considering the above, this Court is of the considered opinion that the trial Court is required to be directed to re-consider all the issues that are raised by the appe[ant in this appeal and the documents filed under Section 39 I of the Code of Crimina,t Procedure and give finding afresh by giving opportunit5r to both sides. 29. Accordingly, both these criminal appeals are disposed of setting aside the conviction and sentence dated O}.OL.2OI4 recorded by Special Court for Economical Offences at Hyderabad and C.C.No.127 of 2OI1 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 any further evidence, if any. However, the trial Court shall not be influenced by the comments and observations, if any, made by this Court touching merits of the case while passing orders. 24 As a sequel, pending miscellaneous applications, if any, shall stand closed. Sd/. C.V. MALLIKARJUNA VARMA //TRUE COPY// JOINT REGISTRAR G To SECTION OFFICER 1. The Metropolitan Sessions Judge, Hyderabad.(with records, if any) 2. The Special Judge for Economic Offences at Hyderabad 3 The Dy. commissioner of rncome{ax,, centrar circre-g, Room No.g13, gth Floor, Aayakar Bhavan, Basheerbagh, Hyderabad_500004. 3. One CC to SRt. G. ASHOK REDDY, Advocate tOpUCI 4. One CC to Sri V. Surender Rao, Advocate (OPUC) 5. One CC to SRt. B. NARASTMHA SARMA, SC for t.T. tOpUCl 6. Two CD Copies { I. HIGH COURT DR DNRJ DATED:17l0612022 COMMON JT]DGMENT CRIMINAL APPEAL(TR) NOS: 60 AND 79 OF 2018 y t ( 'r 1 zull :; i4 |l :l :r \"n ..) L a B U I DISPOSING OF THE BOTH CRL.APPEAI-S b "