Akansha Kapoor @ Akanksha Kapoor @ Akanksha Berry Vs ITO (Delhi High Court)
A Director Only on Paper—That Too, on the Department’s Paper: Delhi HC Quashes TDS Prosecution Founded on a Factually Wrong Premise
Summary: A prosecution cannot survive when the foundational fact on which the entire criminal complaint rests is demonstrably incorrect. The Delhi High Court quashed the prosecution of a woman accused of delayed deposit of TDS after the Income-tax Department itself admitted before the Court that she had never been a director of the defaulting company.
The Income-tax Department had instituted a criminal complaint against M/s Granite Gate Properties Pvt. Ltd. and others for offences punishable u/s 276B, read with sections 278B & 278E of the Income-tax Act, 1961. The allegation was that the company had failed to deposit the requisite tax deducted at source within the prescribed time for the financial year 2016-17.
On examining the material accompanying the complaint, the Trial Court concluded that a prima facie case existed and summoned the accused persons. The petitioner approached the Delhi High Court u/s 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, corresponding to section 482 of the Code of Criminal Procedure, seeking exercise of the Court’s inherent jurisdiction to quash the proceedings insofar as they related to her.
The Department’s entire case against the petitioner proceeded on one basic assumption: that she was a director of the accused company and could consequently be treated as its “principal officer”.
A show-cause notice had been issued to her u/s 2(35) specifically stating that she was a director of the company. Although she responded to the notice and sought time, the Assistant Commissioner of Income-tax eventually passed an order dated 23 January 2018, treating her as the company’s principal officer. The order was founded upon her supposed status as a director.
The same factual assumption travelled into every subsequent stage of the prosecution. The sanction granted u/s 279(1) described her as a director of the deductor company. The criminal complaint also projected her as a director and, on that basis, branded her as its principal officer. Thus, the show-cause notice, the order u/s 2(35), the sanction for prosecution and the complaint were all constructed around the same factual assertion.
However, when the matter reached the High Court, the learned Senior Standing Counsel appearing for the Income-tax Department fairly admitted that the petitioner was never a director of the accused company.
That admission pulled the foundation out from under the entire prosecution.
The High Court observed that all the material steps taken against the petitioner were based on the premise that she was a director. Once the Department itself accepted that this premise was wrong, her prosecution by treating her as a director and principal officer became fallacious and legally unsustainable.
Accordingly, the Court invoked its inherent powers and quashed the proceedings in Complaint Case No. 8835/2019, titled Income Tax Office v. M/s Granite Gate Properties Pvt. Ltd. and Others, only insofar as they concerned the petitioner.
Designation Cannot Be Manufactured Through Repetition
Section 276B provides for prosecution where a person fails to deposit to the credit of the Central Government the tax deducted at source. Where the default is attributed to a company, section 278B extends criminal liability to persons who, at the relevant time, were in charge of and responsible to the company for the conduct of its business.
The provision does not create automatic criminal liability merely because a person’s name finds its way into a departmental notice or complaint. The Department must first establish a legally sustainable connection between the accused and the affairs of the company.
Similarly, the power u/s 2(35) to treat a person connected with the management or administration of a company as its principal officer cannot validate an order resting upon a non-existent office or relationship. A wrong statement does not become correct merely because it is repeated in the show-cause notice, principal-officer order, sanction order and complaint.
The ruling is particularly important because prosecution u/s 276B is not merely a tax-recovery measure. It exposes the accused to criminal trial and possible imprisonment. Therefore, the Department must exercise proper care in identifying the person sought to be prosecuted and must verify the records of the company before describing anyone as its director or principal officer.
No General Precedent—But the Lesson Remains Clear
The High Court expressly clarified that its order was passed in the peculiar facts and circumstances of the case and should not be treated as a precedent. The Court also did not examine or cite earlier decisions governing the wider scope of sections 2(35), 276B or 278B. Its conclusion rested on the Department’s categorical admission that the petitioner had never been a director.
This caveat narrows the formal precedential value of the order. Nevertheless, its practical message is unmistakable: criminal prosecution cannot be sustained through a chain of official documents when every document originates from the same factual mistake.
Author’s Comments
The case is a useful reminder that the sanction u/s 279(1) is not an empty procedural formality. The sanctioning authority must independently verify whether the person proposed to be prosecuted actually occupied the position attributed to her and whether the statutory conditions for fastening vicarious criminal liability are satisfied.
Calling a person a director four times does not make her one. Where the MCA records, company documents or the Department’s own admission establish that the accused never held such office, compelling her to undergo a criminal trial would amount to using procedure itself as punishment. The High Court rightly brought such prosecution to an end at the threshold.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The present has been filed under Section 528 of Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023 (corresponding Section 482 Cr.P.C.) praying for invocation of inherent power of this Court and to quash the proceedings in Complaint Case No.8835/2019 titled Income Tax Office vs. M/s Granite Gate Properties Pvt. Ltd. and Ors. viz-a-viz the petitioner herein.
2. A complaint was filed for offences under Section 276B read with Sections 278B and 278E of Income Tax Act, 1961 for the financial year 2016-2017 alleging that the accused persons had not deposited the requisite TDS (Tax Deducted at Source) within the stipulated time.
3. The learned Trial Court, on the basis of the material placed before it, came to the conclusion that there is a prima facie case against the accused persons and have summoned them for abovesaid offences.
4. The petitioner herein was served Show Cause Notice under Section 2(35) of Income Tax Act a the specific averment that she was Director in the accused company. Show Cause Notice was though responded and the petitioner had sought some time, the concerned department, eventually, treated her as Principal Officer, being Director of the abovesaid company. It is clear from order dated 23.01.2018 passed under Section 2(35) of Income Tax Act by the concerned Assistant Commissioner of Income Tax. As per sanction order under Section 279(1) of Income Tax Act, she has been claimed to be Director of the accused company/Deductor company and in her such capacity only, she has been held as Principal Officer. To make things worse, when the complaint was filed, in complaint also, she, along with other accused, was projected as Director of the accused company and thereby branded as Principal Officer of the accused company.
5. Learned Senior Standing Counsel for the I.T. Department does admit that the applicant was never a Director of the accused company.
6. Show Cause Notice, order passed under Section 2(35) of Income Tax Act, sanction order under Section 279(1) of Income Tax Act and complaint, all are based on the premise that the petitioner herein was Director in the accused company and, therefore, she has been projected as Principal Officer.
7. Clearly, her prosecution, while being treating her as Director of the accused company, is fallacious and thus not sustainable.
8. Keeping in mind the peculiar facts and circumstances of the case, the present petition is allowed and the prosecution, so far as it relates to the petitioner herein, is hereby quashed.
9. Pending application also stands disposed of in aforesaid terms.
10. It is, however, made clear that the abovesaid order is in the backdrop of peculiar facts of the case and shall not be taken as precedent.
