In this series of prosecution in tax cases, we will understand the impact of prosecution on company directors. The trend in prosecuting the directors of a company for offences committed by the company is similar to that seen in partnership firms.

Can Prosecution proceedings be quashed if reassessment proceedings are still pending?

Considering that prosecution proceedings flow from penalty proceedings, a possible plea for quashing prosecution can be that reassessment proceedings are still pending. However, this plea has been continuously rejected by the courts.

Can a Petition u/s 482 lie before the HC if a revision petition has failed before the Sessions Court?

Thus, unless there is a more compelling reason, an accused director or partner could be in better footing if a petition u/s482 is filed instead of a revision petition before the Sessions Court.

Is an offence u/s 278B of the Income tax Act a continuing offence?

The issue was dealt before Delhi High Court in a case related to non- remittance of TDS by a company. Directors who had joined company after the offence were committed were sought to be charged with the offence u/s 278B of the IT Act.

However, it must be noted that KC Palaniswamy was concerned with the question of liability of directors who joined subsequent to the offence being committed. It is arguable whether the rationale expressed therein would be applicable in cases where the accused person has stayed in office, since there is a plethora of judgments in tax jurisprudence that hold that non remission of TDS is a continuing offence.

Can a prosecution complaint be quashed in a 482 CrPC petition on the basis that there was very little likelihood of success?

The Calcutta High Court in the case of Jiyajeerao Cotton Mills vs. ACIT (197 ITR 639 (Cal.)) categorically held that at the stage of quashing petition u/s 482 of the CrPC, the only test the HC can apply is whether the complaint makes out a prima facie case against the accused. Even if the defense presented by the accused to the complaint was a complete answer to the charges, the same could not be considered by the HC in a quashing petition as it would be tantamount to adjudicating on the merits of the case.

The Final Word

Most cases where the individual liability of officers is to be determined in cases of offences committed by companies see a quashing petition being filed in the jurisdictional HC u/s 482 of the CrPC. While the principle of quashing only if a prima facie case is not made out has been applied consistently, the facts of the case may give rise to specific defences, ranging from not being an active member of the management, not having knowledge of the offence being committed or pointing out procedural flaws in the notice issued by the Revenue.

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