By TIOL News Service

NEW DELHI, NOV 09, 2018: THE ISSUE BEFORE THE BENCH IS - Whether only the managing director of a firm cannot be saddled with the responsibility of filling returns for the firm & in case of inability of the managing director, other directors must fulfil such responsibility. NO IS THE ANSWER.

The bench also held that assessment proceedings were independent from criminal prosecution & defence that certain evidence was not considered during assessment cannot be made grounds to vitiate the prosecution. It also observed that the AO has the discretion to or not to penalize an assessee & whether non-imposition of penalty cannot imply that default by assessee is not wilful. The bench also clarified that an officer holding the rank of CIT or above are authorized to direct commencement of proceedings u/s 279(1) for offences committed u/s 276CC.

Facts of the case

The assessee company did not file returns during the relevant AY, in compliance with notice issued u/s 142(1). Such non-filing of returns was in breach of the requirements u/s 139(1). Thereafter, an assessment order was passed determining the assessee's income at about Rs 30.15 crores. Penalty proceedings were also initiated u/s 271(1)(c) for furnishing inaccurate particulars of income. Thereafter, the Department issued SCN proposing to prosecute the assessee for wilful failure to furnish returns of income. Thereafter, the jurisdictional ACIT concerned sought permission to prosecute the assessee company and the same was granted by the jurisdictional CIT. Thereafter, the ACMM passed an order for alleged offences u/s 276CC r/w Section 278B of the Act. The ACMM also took cognizance & commenced proceedings against the directors in the assessee firm. Hence the present petitions were filed, seeking that the order passed by the ACMM be set aside.

On hearing the petition, the High Court held that,

++ as is clear from the proviso to Section 279 (1) of IT Act, the prosecution can be initiated at the instance of the authorities superior to the assessing authority, they including officer of the level of CIT or even those above in hierarchy who are permitted to issue instructions or directions for institution of proceedings under Section 279 (1) which provision also governs the process relating to offence under Section 276 CC. There was no impropriety on the part of CIT, in this view, in issuing the show cause notice on 16.07.2014 followed by the grant of sanction for prosecution on 14.01.2015 it resulting in the criminal complaint being filed on 20.01.2015;

++ the submission that the fact that assessment order in the meanwhile had been passed on 30.03.2014 has not been taken note of or, for that matter, the submission that the filing of the income-tax return (ITR) on 28.03.2013 has been omitted from particular mention in the complaint, do not aid or assist the assessees in evading the criminal prosecution. The accusations against them in the criminal complaint relate to the offence under Section 276 CC of IT Act which is an offence that deals with "failure to furnish returns of income". There is no denial at this stage that there was indeed a failure to furnish return of income within the time stipulated under Section 139 (1) or in response to the notice under Section 142 (1). Whether or not there was justification for such default is a matter of defence which may be agitated during the trial. The assessment proceedings are independent of this matter and they would not come in the way of criminal prosecution;

++ considering mandate of Section 278E, it is clear from bare reading of the provision that whether or not the penalty as envisaged in Section 271 F is to be imposed, is a matter to be determined by the Assessing Officer/authority (DCIT) within the meaning of the section. He may direct such penalty to be paid and conversely, it would be correct to say, he may choose not to so direct for such penalty to be paid. At any rate, the omission on the part of the assessing officer to impose such penalty by itself does not mean that, in his opinion, the default was not willful. To determine whether the default was willful or otherwise, the explanation offered, may be in response to the show cause notice, will have to be seen and construed;

++ it does appear, on first blush, that the prime responsibility of furnishing the return of income of the company is of the managing director of such company. But then, it is not correct to read the provision so as to conclude that it is always or invariably the responsibility of the managing director alone and of no other. In a situation where the managing director may not be in a position to verify or submit the return of income, this on account of numerous reasons which may be presented as "unavoidable" and in case of such difficulties for the managing director to abide by the requirements of law on behalf of the company, the responsibility of other directors - the provision noticeably uses the expression "any director thereof"-cannot be ignored;

++ in answer to the show cause notice, there was no explanation offered for failure on the part of the managing director to furnish income-tax return. Whether or not there was any difficulty on the part of managing director would be a matter of his defence at the trial. It cannot be assumed at this stage that such would be his defence, but if such defence were to be presented, it would be the responsibility of the directors to explain the default. Be that as it may, there is no escape from the conclusion that the directors are also equally responsible for furnishing of return on behalf of the company as is the case of the managing director.

(See 2018-TIOL-2357-HC-DEL-IT)