Delhi HC upholds Conviction u/s 276 C(2) of Income Tax Act citing, Nonpayment of Income Tax Returns was wilful act of accused [Read Order]

The Criminal Revision Petition under Section 401 of the Code of Criminal Procedure, 1973 ("Cr.P.C. ") has been filed by the Petitioner, Mr. Harish Chadha against the Order of theMAdditional Sessions Judge (ASJ) dated 09.08.2012 upholding the Conviction vide Judgment.

The Petitioner was engaged in the businss of export of plastic items to Dubai, New York, US through State Trading Corporation, which he carried on for a period of three years from 01.04.1993 to 31.03.1996. He exhausted his pending Export Orders and no further orders were received nor did he continue his business.

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During the period between 1993 to 1995 he advanced a sum of Rs.4,53,50,000/- by Account Payee Cheques in the name of Sh. Subhash Chand Kathuria (hereinafter referred to as "SCK"), his elder brother-in-law and in the name of his business Units namely:

(i) M/S Anita International (named after the SCK's wife) (ii) M/S Yasha Overseas (named after SCK's daughter)

(iii) Sh. Subhash Chander Kathuria (SCK) individual)

Form this amount, SCK paid Rs.2,90,48,005/- to various parties on behalf the Petitioner and net advance remaining with SCK and his businesses was Rs.4,24,45, 195/-. The Petitioner submitted that he was unable to pay his tax liability in year 1994-95. The Assessing Officer (AO) Circle 17 (I) recovered the demand of Rs.5,33,738/- for the Assessment Year 1994-95 from the bank account of SCK and his businesses, which in fact belonged to the Petitioner but were lying in the accounts of SCK.

The Petitioner submitted his Tax Audit Report for the Accounting Years ending on 31.03.1996, before the Income Tax Officer wherein the advances made to SCK and his businesses, were clearly reflected. In order to recover the tax payable by the Petitioner, the Deputy Commissioner (Income Tax), Circle 17(1) issued summons dated 13.01.1999 directing SCK and M/S. Anita International to produce Account Books for the three Assessment Years from 1994 to 1997; Bank Statements for the relevant period; proof of filing Income Tax Returns and details of transactions with the Petitioner during this period. It was also stated in the Notice that in default, SCK would be liable to pay the penalty.

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A Notice was also served under Section 226(3) of the Income Tax Act to them by the Department. SCK, however, failed to respond to the Notices. M/S Anita International responded after more than two years by its Letter dated 27.02.2001 along with the certificate of Chartered Accountant denying any liability whatsoever. M/S Yasha Overseas also responded to the Department, even though it was not served with any such Notice.

The Income Tax Department filed a Complaint before the Metropolitan Magistrate for defaulting in making payment of Income tax for the Assessment Year (AY) 1995-96. The Petitioner was summoned as an accused on 31.03.2004, the matter was tried as Warrant Trial under Chapter 19 Cr.P.C. Pre-charge evidence of the Income Tax Authority was recorded wherein three witnesses were examined including the Complainant, Income Tax Officer. The Charges were thereafter, framed on 27.01.2010 under Section 276C(2) read with Section 278E ofthe Income Tax Act.

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The Post-Charge Evidence was led which was followed by the statement ofthe Petitioner under Section 313 Cr.P.C. which was recorded on28.04.2010, wherein he conceded that he was assessed by Income tax Authority for the year 1995-96 for which he filed Returns on 20.02.2001. He did not deny the service of Notice under Section 143(2) and Section 141(1) Income Tax Act apart from the service of summons of Survey under Section 13 1 of the Income Tax Act. 1--1e also accepted that the Assessment Order dated

07.03.2001 was passed against him for the year 1995-96.

The ll Chief Metropolitan Magistrate (ACMM) while considering the evidence as led by both the parties, convicted the Assessee/Petitioner under Section 276C(2) of the Income Tax Act and sentenced him accordingly. The impugned Order has been assailed on the ground that the facts have not been appreciated correctly in the circumstances of the case. It was not been considered that out of the total tax liability of Rs. for the relevant period, the actual tax component amounted to only Rs. 10,75,636/-, while the remaining amount comprised of the interest accrued over the years. During this time, the Petitioner had been pursuing recovery of the entire liability from SCK under Section 226(3) of the Income Tax Act, as was done in the previous Assessment year 1994-95.

It is submitted that mere inability to pay the tax does not amount to wilful default so as to attract imposition of imprisonment and fine. It has not been considered that the Petitioner had made several representations before the Assessing Officer, Additional Commissioner of Income and the Commission of Income Tax with the request to recover the demands of the Assessment year 1995-96 out of the funds of the Petitioner lying with SCK.

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The Court had granted exemption to the Petitioner from paying the interest which was much more than the principal amount while granting him Bail, at which time as well he had pleaded his financial hardships. Again, the Petitioner cannot be permitted to seek extension of remaining principal amount of tax recoverable from him, as no Appeal was filed by him against the demand raised by the Revenue.

On merits, all the contentions made in the Revision Petition have been denied. It is submitted that from a bare perusal of the documents it is evident that a concocted and a false story has been projected by the Petitioner to avoid his liability to pay tax. No action, admittedly, has been taken by the Petitioner against SCK till date to settle the inter se dispute. It is very easy to avoid liability by merely saying that his assets have been taken away by X or Y and it cannot be expected that the Authority would chase X or Y person, while sparing the person who is actually liable to pay the tax.

It has been rightly observed by the ASJ in the impugned Order that the Petitioner himself was not sure of the nature of the financial transaction between him and SCK, his co-brother. At times, he stated that his co-brother was holding his money as if he has given him a loan, but at many of places, he has asserted that he has been cheated by SCK. As per the communications sent by the Petitioner to the Income-Tax Authority, he had shown that his co-brother was supposed to supply him the goods qua the crores of Rupees given by him, but no such supply was made.

A single bench of Justice Neena Bansal Krishna concluded that there are contradictory claims being made by the Petitioner, which do not explain the exact nature of transactions and therefore, it was a case of disputed business transactions, which needed evidence to be established and proved. Such like transactions cannot be covered under the words "any person who holds the money as referred to under Section 226 ofthe Income Tax Act. '

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The Audit Reports and the documents reflected that he had earned a profit of Rs.4,05,81,265 during the year 1995-1996 and that he had also shown profits from licensing and interest from the FDRs. His own Statement reflected that he had the money in the year 1995-1996 and there was no reason for him to have not filed his Income-Tax Returns. He may have stopped his business in the year 1996 after doing the export business for three years, but that alone does not support any inference of financial indigency.

It was observed that “Merely claiming financial inability, without providing any further explanation or evidence, holds no weight and is clearly untenable.”

Considering the business turn-over for the relevant period, it is established beyond reasonable doubt that the nonpayment of Income Tax Returns for the AY- 1995-1996, was wilful and not on account of financial inability, as asserted by the Petitioner. The court upheld the conviction and the Sentence of the Petitioner under Section 276C (2) of the Income Tax Act.

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