Telangana High CourtM/S. Yamuna Agrofarms Pvt. Ltd., vs Dy. Commissioner Of Incometax, on 17 June, 2022Author:D.NagarjunBench:D.NagarjunTHE HON'BLE DR. JUSTICE D.NAGARJUN\n\n       CRIMINAL APPEAL (TR) Nos.86 and 76 of 2018\n\nCOMMON JUDGMENT:Crl.A.(TR).No.76 of 2018 is filed by A1 and A5 i.e.,\n\nCompany and its Director respectively, whereas Crl.A.(TR).No.86\n\nof 2018 is filed by A2 to A4 and A6, who are other Directors of\n\nA1/company, being aggrieved by the conviction and sentence\n\nimposed by the learned Special Judge for Economic Offences at\n\nHyderabad   in   C.C.No.129   of   2011   vide   Judgment   dated\n\n09.01.2014, wherein Accused Nos. 1 to 6 were found guilty of\n\nthe offences punishable under Section 276-C(2) read withSection 278-Bof the Income Tax Act, 1961 (for short, "the Act")\n\nconsequently accused No.1 was sentenced to pay fine of\n\nRs.10,000/- and in default of payment of fine to initiate\n\nappropriate proceedings as required underSection 421of\n\nCr.P.C., whereas Accused Nos.2 to 6 were sentenced to undergo\n\nrigorous imprisonment for a period of one year each and to pay\n\nfine of Rs.10,000/- each and in default of payment of fine by\n\naccused Nos.2 to 6, to undergo simple imprisonment for a period\n\nof one month each.2Since the issues involved in these appeals are one and the\n\nsame, both the appeals are being disposed of by this common\n\njudgment.2.   For convenience, the parties herein are referred to as they\n\nare arrayed before the trial Court. i.e., Appellant No.1 as\n\nAccused No.1/Company and Appellant Nos.2 to 6 as Accused\n\nNos. 2 to 6.3.   The genesis of these cases, which lead the appellants-\n\naccused to prefer these appeals, are narrated in brief as under:i)     Accused No.1/Company - M/s. Yemuna Agro Farms\n\n     Private Limited, which was registered under theCompanies\n\n     Actwith the Registrar of Companies at Hyderabad as\n\n     Private Limited Company, was engaged in the business of\n\n     acquisition and sale of lands. Appellant Nos. 2 to 6 herein\n\n     are the Directors of Accused No.1/Company.ii)    Accused No.1/Company has acquired lands to an\n\n     extent of Ac.7.00 guntas in Sy.No.196P and 197 under the\n\n     limits of Bachupally Mandal, Ranga Reddy District during\n\n     the financial year 2002-2003 and developed the said lands3by incurring some amounts during the financial years\n\n2002-03 to 2007-08. Accused No.1/Company along with\n\nother companies, who have lands contiguous to the lands\n\nof Accused No.1/Company, have agreed to develop the\n\nlands jointly with M/s. Mytas Property Private Limited. As\n\nper the said development agreement, the built up area\n\nagreed to be given to Accused No.1/company, was allowed\n\nto be sold to various buyers by M/s. Mytas Property Private\n\nLimited and pass on the sale proceeds to Accused\n\nNo.1/Company.iii)   For   the   assessment   year   2008-09,   accused\n\nNo.1/company has filed income tax returns on 30.09.2008\n\nunder Ex.P1 by bifurcating the sale proceeds into long term\n\ncapital gains accrued from the sale proceeds of the lands\n\nand short term capital gains accrued from the sale\n\nproceeds of the constructed area by showing gross taxable\n\nincome as Rs.7,59,44,309/-, out of which an amount of\n\nRs.4,86,86,424/- was shown as long term capital gain and\n\nRs.2,78,78,148/- was shown as short term capital gains.4iv)   Accused No.1/Company is expected to pay the\n\nincome tax either by way of advance tax as required underSection 208of the Act or at least along with filing of\n\nreturns in terms ofSection 140-Aof the Act.          As perSection 143 (1)of the Act, the tax liability of Accused No.1\n\nwas     arrived      at     Rs.2,25,40,136/-      by      the\n\nrespondent/complainant and raised a demand underSection 156read withSection 143of the Act and issued an\n\nintimation   to   Accused   No.1/Company       under   Ex.P2.Accused No.1/company was required to pay the tax\n\ndemanded within 30 days of service of notice, but it has\n\ncommitted default.v)    Respondent/complainant      has   issued   show-cause\n\nnotice dated 17.11.2009 underSection 221 (1)of the Act\n\nunder Ex.P5, wherein the appellants were asked to show\n\ncause as to why penalty should not be levied for\n\ncommitting default in payment of tax. As there was no\n\nresponse from the appellants, the complainant has issued\n\nanother show-cause notice dated 25.08.2010 under Ex.P6\n\nunderSection 221 (1)read withSection 143-Aof the Act.5Finally, one more opportunity was also given by the\n\n     Department by giving another show-cause notice dated\n\n     11.10.2010 (Ex.P7) underSection 221 (1)read withSection\n\n     143-Aof the Act. An opportunity of being heard was also\n\n     given   by    the   respondent/complainant      to   Accused\n\n     No.1/Company fixing the date of hearing as 18.10.2010,\n\n     but there was no response, on which a penalty of\n\n     Rs.49,00,000/- was imposed by way of order dated\n\n     25.10.2010 (Ex.P8) underSection 221read withSection\n\n     140-A(3)of the Act and the said proceedings were served\n\n     on accused No.1 on 29.10.2010.4.   Considering the willful evasion of payment of tax, the\n\nrespondent/complainant has decided to initiate prosecution and\n\naccordingly a notice was issued to accused No.1/company and\n\nother Directors underSection 276-C(2)of the Act, as to why\n\nprosecution shall not be initiated against them for willful evasion\n\nof the tax. All of them have given reply stating that there was no\n\nintention to evade payment of tax. Another notice was issued to\n\naccused No.1/Company and its directors under Exs.P10 and\n\nP11 dated 11.01.2011 asking them as to why prosecution shall6not be initiated underSection 276-C(2)of the Act. Again replies\n\nwere filed by accused No.1/company and its Directors/accused\n\nNos.2 to 6 under Exs.P12 and P13 stating that there was no\n\nintention of willful evasion of tax.5.    As Accused No.1/Company and its Directors/accused\n\nNos.2 to 6 have not paid the tax in response to the demand\n\nnotice issued underSection 143 (1)of the Act and also failed to\n\npay the penalty, the respondent/complainant after obtaining\n\nsanction order dated 16.03.2011 for launching of prosecution\n\nfiled a complaint before the Special Court for Economic Offences\n\nagainst accused No.1 and accused Nos.2 to 6, the other\n\nDirectors, alleging that they have committed offence punishable\n\nunderSection 276-C(2)read withSection 278-Bof the Act, as\n\nthey have willfully evaded tax even though they were having\n\nsufficient resources.6.    The Special Court for Economic Offences took cognizance\n\nof the offences against Accused No.1/Company and its Directors\n\ni.e., Accused Nos. 1 to 6, underSection 276-C(2)read withSection 278-Bof the Act and charges were framed against them\n\nunderSection 276- C(2) read withSection 278-B(1)of the Act7and all the accused have pleaded not guilty of the charges and\n\nclaimed to be tried.7.   In   order    to    prove   the       charges    leveled    against     the\n\nappellants, the respondent/complainant has examined PWs.1 to\n\n3 and got marked Exs.P1 to P14. After closure of evidence of the\n\ncomplainant, the incriminating evidence elicited against the\n\nappellants was read over and explained to them underSection\n\n313of the Cr.P.C., for which all of them have denied and\n\nreported that they did not choose to examine any witness on\n\ntheir behalf. However, they got marked Exs.D1 to D3 on their\n\nbehalf.8.   The substance of the evidence of PW1 is that after receiving\n\nof returns of income tax filed by accused No.1/company, the\n\nrespondent/complainant has processed the same underSection\n\n143(1)of the Act and issued intimation determining the total\n\ntaxable   income    as    Rs.7,59,44,310/-           and   tax   liability   as\n\nRs.2,47,72,860/-. The evidence of PW2/Income Tax officer is to\n\nthe extent that he has considered the annual report of accused\n\nNo.1/company for the financial year 2007-08 under Ex.P3 and\n\nbank account statements of accused No.1/Company with the8AXIS Bank Limited under Ex.P4 and found that accused\n\nNo.1/Company did not pay the tax returns in spite of having\n\nsurplus and sufficient funds.    PW3 is the Income Tax Officer,\n\nwho has succeeded PW2.       His evidence is that he has passed\n\npenalty order under Ex.P8 imposing penalty of Rs.49 lakhs and\n\nraised demand under Ex.P9 and the same was served on the\n\naccused. He also deposed that as there was no response from\n\nthe accused, show cause notices underSection 276-Cof the Act\n\nwere issued against all the accused through which accused were\n\ninformed that the department is initiating criminal proceedings\n\nand consequently the department has filed the complaint.9.   After full-fledged trial, on considering the entire material on\n\nrecord, the trial Court has found Accused No.1/Company and\n\nA2 to A6, the Directors of A1 company, guilty of the offences\n\npunishable underSections 276-C(2)and278-Bof the Act and\n\nwere sentenced as stated supra. Aggrieved by the said judgment\n\nand conviction of Special Judge for Economical Offences at\n\nHyderabad, the present appeals are filed originally before the\n\nMetropolitan Sessions Judge Court at Hyderabad.910.   The erstwhile High Court for the States of Telangana and\n\nAndhra Pradesh has issued circular ROC.No.34, Criminal\n\nSection/2017, dated 28.08.2017, wherein it is clarified that\n\nagainst any orders passed by the Special Judge for Economic\n\nOffences,    Hyderabad,      in     the   State     of     Telangana   and\n\nVisakhapatnam in the State of Andhra Pradesh, the High Court\n\nhas the jurisdiction to entertain the appeals, not the Sessions\n\nCourt.   In view of the said circular, these appeals filed by the\n\nappellants have been transferred from Metropolitan Sessions\n\nJudge Court, Hyderabad, to the High Court for the State of\n\nTelangana.11.   The summary of grounds of appeal as filed by the\n\nappellants in brief are as under:a)    The    trial   Court    has    failed    to    see    that    accused\n\nNo.1/company was not having funds to pay the tax on the due\n\ndate as reflected in Ex.P4-bank statements and that accused\n\nNo.1 has not received any sale proceeds from M/s. Mytas\n\nProperty Private Limited, thereby the respondent/complainant\n\nhas   not    produced   any       evidence    to    show     that   accused10No.1/Company has received sale proceeds from M/s. Mytas\n\nProperty Private Limited.b)   The trial court has misconstrued the presumption underSection 278-Eof the Act and erred in holding that the burden of\n\nproof is on the accused to prove that there was no willful evasion\n\nof payment of tax.c)   The trial Court erred in holding that the accused failed to\n\nprove non-existence of culpable mental state in non-payment of\n\ntaxes on the date of filing returns and as on the date of demand\n\nnotice and that the trial Court failed to appreciate that in spite of\n\nnot having any cogent evidence to show that all the accused\n\nhave willfully evaded the tax, the trial Court has concluded that\n\naccused have committed willful evasion in payment of tax.d)   The trial court failed to see that all the assets belong to\n\naccused No.1/Company were attached underSection 281-Bof\n\nthe Act and due to paralyzing of financial activities of accused\n\nNo.1, tax could not be paid in time.e)   The trial court failed to consider the admission of PW3 that\n\nthe amount received by Accused No.1/Company is towards11share application money does not attract tax liability and that\n\nthe trial Court could not consider that accused No.1 has not\n\nreceived Rs.7 crores 59 lakhs from M/s. Mytas Property Private\n\nLimited.f)    The Trial Court should not have concluded that accused\n\nNos.2 to 6 are responsible for day to day affairs of accused\n\nNo.1/company and should have taken into consideration the\n\nnotices issued underSection 278-Bof the Act proposing the\n\nprosecution did not refer accused Nos. 2 to 6 as principal officers\n\nand thereby accused Nos.2 to 6 should have been acquitted.12.   Heard Sri Vinod Kumar Deshpande, learned Senior counsel\n\nfor the appellants and Sri B. Narasimha Sharma, learned\n\nStanding counsel for the income tax department, considered the\n\nentire material on record, relevant provisions of the Act and the\n\nauthorities cited.13.   Appellant No.1/company has filed an application underSection 391Cr.P.C., along with the appeal for receiving of two\n\ndocuments i.e., (1) Common order passed by the Appellate\n\nTribunal in ITA.No.1010 of 2014, dated 22.05.2015 and (2)12consequential order, dated 21.03.2016 passed by the Assessing\n\nOfficer, Assistant Commissioner of Income Tax, Central Circle-\n\n3(2), Hyderabad, as additional evidence.     As per the common\n\norder of the Tribunal, dated 22.05.2015 (document No.1), the\n\nassessment order dated 02.12.2010 on which the prosecution is\n\ninitiated was directed to be modified. Basing on the orders of the\n\nIncome Tax Appellate Tribunal, the assessment officer has\n\nmodified the earlier orders dated 02.12.2010 by re-assessing the\n\ntax liability, which the appellants were expected to pay for the\n\nassessment year 2007-2008 (document No.2). Considering the\n\nabove, and on hearing both sides, this Court is of the opinion\n\nthat these two documents are very relevant to consider the\n\nappeals on hand, thereby these documents are received.14.   It is submitted vehemently by the learned Senior Counsel\n\nfor the appellants that during the pendency of the complaint\n\nbefore the trial Court, the accused have paid entire tax as\n\ndemanded, including the penalty and interest and that the\n\nappellants   have   challenged   the   assessment   orders   dated\n\n02.12.2010 under Ex.D2 before the learned CIT(A). On hearing\n\nboth sides, learned CIT(A) has found that there are no merits in13the contentions raised by the appellants, and dismissed the\n\nappeal upholding the orders passed by the Assessing Officer for\n\nassessment year 2008-09.           Aggrieved by the same, the\n\nappellants have preferred appeal before the Income Tax Appellate\n\nTribunal (in short, "the Tribunal"), and on hearing both sides,\n\nlearned Tribunal has partly allowed the appeal vide orders dated\n\n22.05.2015 in ITA.No.943/Hyd/2014 and others finding that the\n\nAssessing Officer has committed error in calculating the tax to\n\nbe paid by the appellants and directed the Assessing Officer to\n\nre-assess the tax by computing the income of the appellants\n\nfrom the transfer of lands held by accused No.1/company as\n\ncapital assets by way of development agreement and subsequent\n\nto sale of flats and bungalows received as consideration for such\n\ntransferred amounts to stock in trade on conversion.            These\n\norders are passed after passing conviction vide judgment dated\n\n09.01.2014 in C.C.No.129 of 2011 by the learned Special Judge.\n\nIt is also submitted by the learned Senior counsel that the\n\nAssessing Officer has re-assessed the tax as per the directions of\n\nthe Tribunal and passed consequential order, dated 21.03.2016,\n\nwherein the tax liability was substantially reduced and found\n\nthat   the   tax,   which   was   already   paid   to   the   tune   of14Rs.2,25,40,136/- was in excess of the revised tax thereby, the\n\nexcess tax paid Rs.1,41,31,877/- and interest of Rs.50,03,756/-\n\nthe total of which was Rs.1,91,35,634/-, was ordered to be\n\nrefunded and the same was also adjusted against the demand\n\nfor the accounting year 2009-10 vide RO.No.303524 dated\n\n28.03.2016.On considering the submissions of the learned Senior\n\ncounsel it is clear that the appellants have not only paid the tax\n\ndemanded along with interest and penalty, but also on account\n\nof re-assessment of tax, the tax already paid was in excess of tax\n\nliability, and that the same was adjusted for future tax liability\n\nand hence, sought for allowing of the appeals.15.   Learned standing counsel representing the Income Tax\n\nDepartment stated that as on the due date, the accused have not\n\npaid the tax having sufficient funds and committed willful\n\nevasion of payment of tax.    It is also submitted that Accused\n\nNo.1/company has filed annual returns (Ex.P3), through its\n\nChartered Accountant for the financial year 2007-08 relevant for\n\nthe assessment year 2008-09, according to which Accused No.1\n\nmade profit on sale of land to a tune of Rs.7,77,97,174/- and the15bank statements show that Accused No.1/Company has received\n\npart of sale consideration in respect of "Mytas Hill County" from\n\ntime to time, but did not choose to pay the advance tax. It is\n\nfurther    submitted    that   the    balance   sheet   of   Accused\n\nNo.1/Company also shows Rs.9,40,02,642/- under the head\n\nreserves and surplus, so also Rs.11,99,99,737/- under the head\n\ncurrent assets by way of loans and advances. It is further\n\nsubmitted that accused No.1/Company having enough liquid\n\ncash during the relevant accounting year, willfully evaded in\n\npayment of tax, thereby the accused have committed the offence\n\npunishable underSection 276-C(2)read withSection 278-Bof\n\nthe Act and hence conviction recorded by the trial Court is\n\nproper.16.   Now, the points for determination in these appeals are:1)    Whether the conviction recorded based on\n      the assessment order dated 02.12.2010 can be\n      sustained, since the said assessment order dated\n      02.12.2010 was subsequently revised?2)    Whether the accused have committed willful\n      evasion of tax?163)      To what relief?\n\nPoint No.1:\n\n17.   The       cause     of      action      for     the     respondentdepartment/complainant to file the complaint against the\n\nappellants is the assessment order dated 02.12.2010, according\n\nto    which    the   appellants     were      asked   to    pay   tax   of\n\nRs.2,25,40,136/- for the taxable income of Rs.7,59,44,309/- and\n\naccordingly an intimation was sent by the Assessing officer to\n\nthe appellants underSection 143 (1)of the Act.            Admittedly as\n\non the date of initiating the prosecution against the appellants,\n\ndemanded tax of Rs.2,02,97,299/- was not paid by the\n\nappellants. It is also an admitted fact that after initiating the\n\nprosecution, the appellants have paid the entire tax demanded\n\nalong with penalty, interest etc.          Therefore, as on the date of\n\npronouncement of the judgment by the trial Court, there was no\n\ntax liability to be paid by the appellants.18.   It is to be noted that the Income Tax Appellant Tribunal\n\nhaving considered the appeals of the appellants found that the\n\nassessment order, dated 02.12.2010 directing the appellants to\n\npay Rs.2,25,40,136/- was incorrect and the Assessment Officer17was directed to assess the income tax afresh in terms of the\n\ndirections given by the Tribunal.   Accordingly, the Assessment\n\nofficer has re-assessed the income tax and passed modified\n\norders, dated 21.03.2016 determining the tax liability, which is\n\nfar less than what was assessed at the first place. The basis for\n\nrespondent/complainant to initiate prosecution against the\n\nappellants is the assessment order, dated 02.12.2010, on the\n\nground that the appellants have committed default in payment of\n\nthe tax as per the said assessment order. When assessment\n\norder dated 02.12.2010 itself is re-assessed as per the directions\n\nof the Tribunal which held that the assessment of tax dated\n\n02.12.2010 is incorrect and the tax to be paid was substantially\n\nreduced, it cannot be alleged that the appellants have committed\n\ndefault in payment of tax and willfully evaded.        When the\n\nassessment order dated 02.12.2010 itself was modified holding\n\nthat the Assessment Officer has incorrectly assessed the tax,\n\nwhatever the consequential proceedings that have been initiated,\n\nincluding the initiation of prosecution of the appellants by the\n\nrespondent/complainant, conviction recorded by the trial Court,\n\ncannot sustain.   Basing on the fresh assessment order, dated\n\n21.03.2016, it is to be examined afresh that whether the18appellants have committed any willful evasion of tax, as defined\n\nunderSection 276-Cof the Act.19.   Therefore, on considering the above discussion, it is clear\n\nthat the finding of the trial Court that the appellants were guilty\n\nof the offences underSection 276-C(2)read withSection 278-Bof the Act is erroneous as the same is based on incorrect\n\nassessment order, dated 02.12.2010 and hence, shall not\n\nsustain, and required to be set aside.Considering the same, point No.1 is decided in favour of\n\nthe appellants/accused.POINT No.2:-20.   The appellants have also raised other issues i.e., they have\n\nnot committed any willful evasion in payment of tax since, as on\n\nthe due date there were no liquid funds in their accounts and\n\nthe appellants - Accused Nos. 2 to 6, who are the Directors, are\n\nnot responsible for the day to day activities of accused\n\nNo.1/Company as on the date of the alleged default, the trial\n\nCourt has misconstrued the presumption underSection 278Eof\n\nthe Act, the trial Court failed to record admission of PW.3, that19the amount received towards share application does not attract\n\nthe tax etc.21.   This Court has already came to the conclusion while\n\ndiscussing point No.1 that the conviction and sentence recorded\n\nin favour of the appellants required to be set aside, on account of\n\nthe fact that the assessment order dated 02.12.2010 on which\n\nthe   conviction    was   recorded     was   modified   and    a    fresh\n\nassessment order came into force, hence, the issues raised by\n\nthe appellants, need not be answered.22.   Learned Senior Counsel for the appellants has placed\n\nreliance on the authority passed by the Hon'ble Supreme Court\n\nin the case ofV.Srinivas Reddy Vs. State of Andhra Pradesh1,\n\nwherein it was held as follows:"13. It was then urged by Mr. Arunachalam that if\n      the High Court felt that further evidence was necessary\n      for disposal of the case then it could have exercised its\n      power under Section 391 Cr. P.C. and ought not to have\n      set aside the order of acquittal and remanded the matter\n      for fresh disposal. This argument also did not impress us\n      because the High Court instead of recording the additional\n      evidence in terms of Section 391 Cr. P.C.; preferred to\n      remand the matter back to the trial court for disposal in\n      accordance with law. It also appears from the record that\n      some of the documents including FDRs, loan applications\n      etc., should also have been brought on record for effective\n\n1(1998) 9 SCC 33120disposal of the controversy raised in the case and to do\n      justice between the parties. It is needless to say that the\n      trial court will strictly adhere to the observations and\n      directions given by the High Court in its judgment."The rationale in the above authority of the Apex Court\n\nsquarely applicable to the facts of the case on hand.23.   Considering the facts and circumstances, this Court is of\n\nthe considered opinion that as the assessment orders dated\n\n02.12.2010 on which the prosecution was initiated itself does\n\nnot exist and that the same was modified and fresh assessment\n\norder dated 21.03.2016 came into force, the conviction and\n\nsentence recorded against the appellants basing on the incorrect\n\nassessment orders dated 02.12.2010 shall be set aside.24.   Accordingly, both these criminal appeals are disposed of\n\nsetting aside the conviction and sentence dated 09.01.2014\n\nrecorded by Special Court for Economical Offences at Hyderabad\n\nand C.C.No.129 of 2011 is remanded back to the trial Court with\n\na direction to consider the documents i.e., (1) Common order\n\npassed by the Appellate Tribunal in ITA.No.1010 of 2014, dated\n\n22.05.2015 and (2) consequential order, dated 21.03.2016\n\npassed by the Assessing Officer, Assistant Commissioner of21Income Tax, Central Circle-3(2), Hyderabad, filed by the\n\nappellants and decide the complaint afresh in accordance with\n\nlaw, after giving an opportunity to both sides to adduce any\n\nfurther evidence, if any.   However, the trial Court shall not be\n\ninfluenced by the comments and observations, if any, made by\n\nthis Court touching merits of the case while passing orders.As a sequel, pending miscellaneous applications, if any,\n\nshall stand closed._____________________\n                                            DR. D.NAGARJUN, J\nDate: 17.06.2022\nAS/ES