Rakesh Bhailalbhai Gandhi Vs ITO (Bombay High Court)
The Bombay High Court quashed the criminal proceedings initiated under Sections 276CC and 278B of the Income Tax Act against a former director, holding that he had ceased to be a director before the alleged offence of non-filing of the company’s income tax return arose. The Court examined Form 32 and the Registrar of Companies’ master data, which established that the petitioner’s resignation had been accepted with effect from 30 December 2013. Since the alleged default related to the company’s failure to file its return for Assessment Year 2014-15 within the prescribed period ending on 30 September 2014, the petitioner was not responsible for the company during the relevant period. The Court held that prosecution could not continue against a person who was no longer a director when the cause of action arose. It also rejected the Revenue’s reliance on compounding guidelines, observing that such guidelines apply only where an offence has actually been committed. Proceedings against the remaining accused were allowed to continue.
Core Issue: The principal issue before the Bombay High Court was whether prosecution under sections 276CC read with 278B of the Income-tax Act for failure of a company to file its return of income could be sustained against a former director who had resigned and ceased to hold office before the period during which the default occurred. The Court also considered the scope of vicarious criminal liability under section 278B.
