Criminal Appeal No. 67 of 2023 · The High Court · 2025

Judgment

This Criminal Appeal is filed by Accused No.2 challenging the same judgment dated 12.01.2023 passed by Special Judge for Economic Offences, Hyderabad (for short 'trial Court') in C.C. No.246 of 2016

2. Heard Mr. R. N. Hemendranath Reddy, leamed Senior Counsel representing Mr. G.V.L. Murthy, leamed counsel for the appellant - accused No.2 and Mrs. J. Sunitha, leamed Senior Standing Counsel fbr Income Tax appearing on behalf of respondent No.2.

3. Vide the aforesaid judgment, the trial Court found the appellant herein - accused No.2 guilty of the offence punishable under Section - 276CC read with 2788 of the Income Tax Act, 1961 (for short 'Act, 1961') and accordingly sentenced him to undergo rigorous imprisonmenl for one (01) year and to pay a fine of Rs.3,000/- (Rupees Three Thousand Onty), in default, to undergo simple imprisonment for fifteen (15) days fbr the said offence

4. The case of the prosecution against the appellant herein and other accused is as under: i) Accused No.l - lWs. Ilios India Private Limited is a Company incorporated under the Companies Act, 1956, while accused Nos.2 to 4 2 KIJ Crl.A. No.fr of2023 including the appellant herein are its Directors and they are responsible for day-to-day affairs ofthe said Company ii) Accused No.1 Company has not filed its retum of income for the Assessment Year 2013-74 within the due time allowed as per Section 139 (1) of the Act, 1961, though it had receipts from TechnicaVProfessional Services during the relevant Financial Year of Rs.28,09,000/- and it had turnover of chargeable services in its service tax retum amounting to Rs.33,75,000/- and it had made payments against credit card bills to the tune of Rs.5,45,000/-. iiD A show-cause notice was issued to accused No.l on

06.06.2016 and show-cause notices were issued to accused Nos.2 to 4 on

28.06.2016 proposing for launching of prosecution under Section - 27 6CC for not filing its retum of Income for Assessment Year 2013-14 within due time allowed as per Section - 139 (1) of the Ac! 1961 iv) Accused No.3 attended personally on 13.07.2016 and admitted that the Company did not file its retum of income for Assessment Year 2013-14 and requested some time till 15.07.2016 to fumish the audited

accounts of accused No.l for the said year. The appellant herein has fumished a letter dated 12.07 .2016 seeking more time which was allowed till 18.07.2016, but there was no response thereafter. There was no respqse from accused No.4. Thus, it is clear that they have no 3 KTJ Crl.A. No.67 of2023 explanation to offer against proposal to launch prosecution under Section 276CC rcad with 278E} of the Act, 1961 .

5. Section 27 6CC clearly says that if a person willfully fails to fumish the retum of income in due time, he is liable to be prosecuted as per that provision. The accused failed to submit their return of income within the due date stipulated in the Act, 1916. Therefore, they have committed the aloresaid o lfence.

6. The trial Court framed charges under Section - 27 6CC and 27 6CC read with 2788 of the Act, 1961. On examinalion, the Accused denied the said charges and prayed for trial and accordingly thc trial Court conducted trial.

7. During trial, the prosecution examined one witness as PW.l and got marked Exs.Pl to P9. The appellant herein - accused No.2 was examined as DW.l and got marked Exs.Dl to D4 to disprovc the prosecution case.

8. On completion of trial, and on consideration of evidence, both oral and documentary, the trial Court found the accused guilty of the aforesaid charges and accordingly convicted them vide the impugned judgment and imposed sentence on them in the manner stated above. t- .li):r i. llr :;,i .,L 4 KLJ Crl.A. No.67 of 2023

9. Feeling aggrieved by the said judgment, accused No.2 preferred the present appeal.

10. The leamed Senior Counsel for the appellant _ accused No.2 contended as follows: i) The trial Court failed to consider the assessment for the assessment year 2Ol3-14, Ex.Dl order dated 25.11.2019, where_under the Income Tax Ofhcer, Ward - 2 (3), Hyderabad accepted the returns and held that no taxable income to accused No.l Company during the said Assessment Year 2013-14. Therefore, Section - 276CC read with 27gB of the Act, 1961 would not attract to accused Nos.l and 2. iD There was no loss of tax to the Income Tax Department. Despite the same, the trial Court erred in finding the appellant guilty of the aforesaid offences. iii) Neither accused No,I Company evaded the payment of income tax for the subject assessment year, nor gained any income. iv) There was no willful negligence on the part of the appellant in not filing the returns within time on account of intemal disputes and loss sustained by accused No.1 Company. v) Delayed payment of tax and not filing of retums in time did not amountlo evasive of tax. In support of the same, he relied upon the ) KI,J Crl.A. No.67 of 2023 decision in Vyalikaval House Building Co-operative Society Ltd., v. Dy. CITI. vi) The appellant - accused No.2 submitted an application before the Principal Commissioner of Income Tax seeking compounding of the offence. The same was rejected vide order ' dated 20.12.2018. Challenging the said order, all the accused filed a writ petition vide W.P. No.277 of 2019. While entertaining the said writ petition, a Division Bench of this Court granted stay of all further proceedings in the aforesaid C.C. No.246 of 2016 on 05.03.2019. The said interim ordet ha-s been continuing. During pendency of the said writ petition and subsistence of the said interim order, the trial Court proceeded with the trial of the said C.C. and vide imptgned judgment dated 12.01.2023, convicted the accused in the manner stated above. vii) On consideration of the said facts, vide order dated

19.06.2025, the Division Bench of this Court disposed of the said writ petition resen ing the right of the petitioners to adjudicate the matter in the present criminal appeal. Liberty was also granted. to raise all the grounds and contentions as raised in the said \rTit petition and also can move appropriate application, if so, for compounding of the offences, in accordance with law. r. (2020) 315 CTR (Kamaraka) 1 ) 6 KLJ Crl.A- No-67 of2023 t ..,.. viiD He has also placed reliance on the decisions in The Chairman, Central Board of Direct Taxes, North Block, Central Secretariat, New Delhi v. Umayal Ramanathan2, Fazalullah Khan v. M. Akbar Contractor3, Narayan v. Union of Indiaa, Rakapalli Raja Rama Gopala Rao v. Naragani Govinda Sehararaos, Vinubhai Mohanlal Dobaria v. Chief Commissioner of Income Tax6 and Income Tax Officer v. AutofillT and also Guidelines for compounding of offences undcr direct Tax Laws, 2014, dated 23 .12.2014. ix) Referring to Sections - 276CC and 278B of the Act, 1961 and the aforesaid judgments, learned senior counsel for the appellant would contend that without considering the said aspects, the trial Court enoneously convicted the appellant herein. Vide Ex.Dl - Assessment Order for the year 2013-14, dated 25.11.2019, the Income Tax Officer, Ward-2 (3), I{yderabad, held that the loss retumed is Rs.21,43,604/- and the tolal loss assessed is also Rs.21,43,6041- and the tax thereon is shown as 'NIL'. The said fact was also admitted by pW. 1 . There is no consideration of the same by the trial Court. With the said submissions, leamed senior counsel sought to acquit the appellant herein. 2009 Supreme (Mad.) 1013 (202 r ) 18 scc 761 lq94 (0) MPI_J E5E re89 ATR r$5 2025 INSC 155 1990 SCC Onl.ine AP 388 7 KL"] Crl A. No.67 of2023 l1 Whereas, Mrs. J. Sunith4 leamed Senior Standing Counsel appearing for the lncome Tax, would contend that accused No' 1 Company failed to fite the rehrrns within the time' Therefore' on consideration of the said facts and the evidence, both oral and documentary, the trial Court rightly convicted the aibused There is no error in it. Proviso to Section - 27 6CC ofthe Act, 1961 is not applicable to the facts of the present case. The appiication submitted by the appellant herein - accused No.2 seeking compounding of the offence was rej ected by the Principal Chief Commissioner of Income Tax, and the same is the subject matter of the aforesaid writ petition. The Division Bench of this Court granted liberty to the appellant herein and other accused to file an apptication before this Court seeking compounding of offence. Therefore, the appellant herein - accused No 2 has to file an application seeking compounding of offence either belore this cout or before the Principat chief commissioner of Income Tax. With the said submissions, she sought to dismiss the present appeal.

12. In the light of the aforesaid rival submissions, Sections - 276CC and 2788 and 279 (2) ofthe Act, 1961 are relevant and the same are extracted hereunder: *276CC. Failure to furnish rcturns of income.-If a person willfully fails to fumish in due time the retum of fringe benefits ',:' .t 8 KLJ Crl.A. No.67 of2023 which he is required to fumish under sub-section (1) of section I l5WD or by notice given under sub-section (2) of the said section or section I l5WH or the return of income which he is required to fumish under sub-section (l) of Section 139 or by notice given under clause (i) of sub-section (1) of section 14j oi section l4g or section 153A, he shall be punishable,- (i) In a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which sha[[ not be less than six months but which may extend to seven years and with fine; (ii) In any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine; Provided that a person shall not be proceeded against under this section for lailure to fumish in due time the retum offringe benefits under sub-section (l) of Section I l5WD or retum of income under sub-section (l ) ofsection 139- (i) for any assessment year commencing prior to the lst day of April, 1975; or (ii) lor any assessment year commencing on or after the l.tday of April, 1975, if- (a) the retum is furnished by him before the expiry of the assessment year; or (b) the tax payabte by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees.,, "2788. Offencis by Companies.{l) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was \ responsible to, the company for the conduct of the business of the I l I 9 KL.J Crl.A. No.67 of 2023 company as well as the company shatl be deemed to be guilty ofthe offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anlhing contained in sub-section (1)' where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other oflicer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly' (3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine. then. without prejudice to lhe provisions contained in sub-section ( t) or sub-section (2), such company shall be punished with fine and every person, referrcd to in sub-section (1), or the director, manager, secretary or other officer of the company refened to in subsection (2), shalt be liable to be proceeded against and punished in accordance with the provisions ofthis Act. Explanation.-For the purposes of this section,- (a) "company" means a body corporate, and includes (i) a frrm; and (ii) an association of persons or a body of individuals whether incorporated or not; and (b) "director", in relation to- ('i) a hrm, means a partner in the firm; i:" {.ii, I -;i l0 KI,J Crl.A. No.57 of2023 (ii) any association ofpersons or a body of individuals, means any member controlling the affairs thereof." "279. Prosecution to be at instance of the principal Chief Commissioner or Chief Commissioner or principal Commissioner or Commissioner.-{l) A person shall not be proceeded against for an offence under section 275A, section}7lB, section 276, section 2764, section 2768, section 27688, section 276C, section 276CC,section 276D, section 277 , section 2l7A or scction 278 except with the previous sanction of the principat Commissioner or Commissioner] or Commissioner (Appeals) or the appropriate authority: Provided that the Principal Chief Commissioner or Chief Commissioner or, as the case may be, Principal Director General or Director General may issue such instructions or directions to the aforesaid income-tax authorities as he may deem frt for institution of proceedings under this sub-section. Explanation.-For the purposes of this section, ,,appropriate authority" shall have the same meaning as in clause (c) of section z69UA. (lA) A person shall not be proceeded against for an offence under section 276C or section 277 n relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him under section 2704 or clause (iii) of sub-section (l) of section 271 has been reduced or waived by an order under section 273A. (2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by the principal Chief Commissioner or Chief Commissioner or a principal Director General or Director General." 1 \ l1 KI-J Crl.A. No.67 of 2023

13. It is also relevant to note that Section - 139 of the Act' 1961 deals with 'return of income' and it is also relevant to extract below: "139. Return of incorne. (l) Every person, (a) being a company or a firm; or (b) being a person other than a company or a fir'm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, fumish a retum of his income or the income of such other person during the previous year' in the prescribe form and verified in the prcscribed manncr and setting forth such other particulars as may bc prescribed: Provided that a person referred to in clause (b), who is not required to fumish a retum under this sub-section and residing in such area as may be specified by the Board in this behalfby notification in the Ofhcial Gazette, and who during the previous year incurs an expenditure of fifty thousand rupces or more towards consumption of electricity or at any time during the previous year lulfils any one of the following conditions, namely:- (D is in occupation of an immovable property exceeding a specified floor area, whether by way of ownership, tenancy or otherwise, as may be specified by the Board in this behalf; or is the owner or the lessee of a motor vehicle other than a two-wheeled motor vehicle, whether having any detachable side car having extra wheel attached to such two-wheeled (ii) motor vehicle or not; or (iii) omifted t2 KLJ Crl.A. No.67 of2023 (iv) has incurred expenditure for himself or any other person on travel to anY lorcign country; or (v) is the holder of a credit card, not being an "add-on" card, issued by any bank or institution; or (vi) is a member ofa club where entrance fee charged is twenty- Itve thousand ruPees or mote' shall fumish a retum, of his income during any previous year ending before the lst day of April, 2005, on or before the due date in the prescribed form and verihed in the prescribed manner and setting forth such other particulars as may be prescribed: Provided further that the Central Government may, by notification in the Otficial Gazctte, specify the class or classes of persons to whom the provisions of the first proviso shall not apply: Provided also that every company or a firm shall fumish on or before the due date the retum in resp€ct of its income or loss in every previous Year: Provided also that a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6, who is not required to fumish a retum under this sub- section and who during the previous year has BT asset (including any financial interest in any entiry) located outside India or signing authority in any account located outside lndia, shall fumish, on or before the due date, a return in respect of his income or ltrss for the previous year in such form and verified in such manner and sefting forth such other particulars as may be prescribed: Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial jurisdical person, if his total income or the total income ofany other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of section 10A or l3 KLJ Crl.A. No.67 of2023 section l0B or section I0BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, fumish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other padiculars as may be prescribed."

14. To attract an offence under Section - 27 6CC of the Act, 1961, there should be willful failure to file retum within the specified time. In Prakash Nath Khanna v. CIT8, the Apex Court considered the scope and ambit of expressions "willfully fails" and "in due time" mentioned in Section - 276CC of the Act, 1961 and also time period rcferred to in Sections - 139 (1) and 139 (2) of the Act, 1961. The Apex Court held that the Legislative intent behind Section - 276CC of the Act, 1961, undoubtedly, was to restrict the meaning of the expression "in due time" used in the said proviso to the time period referred to in Section - 139 (1) of the Act, 196 1 and not to the time period refened to in Section - 139 (4) of the Act, 1961. Explaining the meaning of the expression 'witlfut failure', the Court observed that the same has to be adjudicated factually by the trial Court dealing with the prosecution of the case. It was furlher held that by virture of Section - 278E of the Act, 1961, the trial Court has to presume the existence of culpable mental state and it would be open to the accused to plead the absence ofthe same in his defence. '. (2004) 9 scc 686 i l4 KLJ Crl.A. No.67 of2023

15. The Apex Court also considered the presumption as to culpable mental state in terms of Section - 278E of the Act, 1961. The same is relevant, it is extracted below: "278E. Presumption as to culpable mental state. (l) In any prosecution for any offence under this Act which requires a culpable mental state on the part ofthe accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation. - ln this sub-section, "culpable mental state" includes intention, motive or knowledge ofa fact, or belief in, or reason to believe, a fact. (2) For the purposes of this section, a fact is said to be proved only when the Court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance oI ProbabilitY."

16. The Apex Court held that there is a statutory presumption prescribed in Section - 278E of tho Act, 1961. The Court has to presume the existence of culpable mental sLate, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the prosecution. The accused has to plead the absence of culpable mental state before the trial Court and the trial Court has to consider the same when the matter is taken up for trial. l5 KIJ Crl.A. No.67 of202i

17. Relying on the said principle and the aforesaid provisions of the Act, 1961, the Apex Court in Vinubhai Mohanlal Dobaria6 held that an offence under Section - 276CC could be said to have been committed as soon as there is a failure on the part of the assessee in fumishing the return of income within the due time as prescribed -under Section - 139 (1) of the Act. 1961. Subsequent furnishing of the return of income by the assessee within the time limit prescribed under Section - 139(4) of the Act, 1961 or before prosecution is initiated does not have any bearing upon the fact that an offence under Section - 276CC of the Act. 196l has been committed on the day immediately following the due date for furnishing retum of income. The point in time when the offence under Section - 276CC could be said to be committed is the day immediarely following the due date prescribed for filing of retum of income under Section - 139 (1) of the Act, 1961, and the acrual darc of filing of thc return of income at a belated stage would not aflect in any manner the determination of the date on which the offence under Section - 276CC ol the Act was committed.

18. The Apex Court also referred to Section - 139 (8) of the Act, l96l , the same is as lollows: "(8) (a) Where the retum under sub-section (l) or sub-section (2) or sub-section (4) for an assessment year is furnishcd after the specified date, or is not fumished, then rvhether or not the I I I I I t ! I i i i i

1..'' t6 KIJ Crl-A. No.67 of2023 Assessing Officer has extended the date for fumishing the retum under sub-section (l) or sub-section (2), the assessee shall be liable to pay simple interest at fifteen per cent per annum, reckoned lrom the day immediately following the specified date to the date of the lumishing ofthe retum or, where no rehrm has been fumished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, ifany, paid, and any tax deducted at source: Provided that the Assessing OIficer may, in such cases and under such circumstances as may be prescribed, reduce or waivc the interest payable by any assessee under this sub-section. Explanation l.-For the purposes of this sub-section, "specified date", in relation to a retum lbr an assessment year, means,- (a) in the case ofevery assessee whose total income, or the tocal income of any person in respect of which he is assessable under this Act, includes any income from business or profession, the date of the expiry of four months from the end of the. previous year or where there is more than one previous year, from the end of the previous year which expired last before thc commencement of the assessment year or the 30th day of June of the assessm€nt year, whichever is later; (b) in the case of every other assessee, the 30th day of June of the assessment year. Explanation 2.-Where, in relation to an assessment year, an assessment is rnade for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes ofthis sub-section. (b) Where as a result ofan order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 17 KI,J Crl.A. No.67 of2023 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount oftax on which interest was payable under this sub- section has been increased or reduced, as the case may be, the interest shall be increased or reduc€d accordingly, and- in a case where the interest is increased, the Assessing Officer shall serve on the assessee, a notice of demand in the prescribed form speciffing the sum payablc, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; in a case where the interest is reduced, the excess interest paid, ilany, shall be refundcd. (c) The provisions of this sub-section shall apply in respect of the assessment for the assessment year commencing on the lst day of April, 1988, or any earlier assessment year, and references therein to the other provisions of this Act shall be construed as references to the said provisions as they were applicable to the relevant assessment year."

19. The Apex Court held that a perusal of the aforesaid provision makes it very clear that irrespective of whether the refurn of income is filed by an assessee after the specified date or is not fumished at all, the assessee shall be liable to pay simple interest at the rate of, 150% reckoned from the day immediately following the specified date notwithstanding the fact that Assessing Ofhcer has extended the date for fumishing of retum. :, ,t' : :' 7- t l8 Kt,J Crl.A. No.67 of 2023

20. The Apex Court also considered Section - 279 of the Act, 1961, which deals with 'compounding of offences, and also guidelines on the same. The Apex Court held that the guidelines are not a matter of right, but must consider the conduct of the applicant and the nature of offence. The Court emphasized that the competent authorify must exercise the discretion based on unique facts of each case. In the said case, accused committed the offence for the first time an<I it is first offencc. Even then, Competent Authority rejected the application filed by the accused for compounding the offence. Therefore, the Apex Court found fault with the said rejection order.

21. In Umayal Ramanathan (supra), a Division Bench of the Madras High Court held that an offence under Section - 27 6CC of the Act, 1961 can be compounded post conviction.

22. In the light of the aforesaid principle, it is relevant to note that in the present case, the allegation against the appellant herein and other accused is that they have not hled income tax retums for the Assessment Year 2013-14 within the due time in terms of Section _ 139 (1) of the Act, 1961. Therefore, a show-cause notice dated 2g.06.2016 was issued to the appellant herein - accused No.2 and accused Nos.3 and 4 and show-cause notice dated 06.06.2016 to accused No.l Company, proposing to launch prosecution under Section - 276CC of the Act. 1961. l9 KLJ C.l.A. No.67 of2023 However, the accused did not pay the retums. Therefore, the present prosecution was launched against the accused.

23. Itis relevant to note that during pendency of the said C.C., the lncome Tax Officer, Ward - 2 (3), Hyderabad, has passed Ex.D 1 - Assessment Order dated 25.11.2019 under Section - 143 (3) read with 147 of the Act, t96l for the Assessment Year 2013-14. In the said Assessment Order, he has stated the tax as 'NIL'.

24. In the said order, it is specifically stated that assessee Company i.e., accused No.l has claimed finance charges of Rs.2,63,1921- only lor the AY 2012-13 on the total loan of Rs.4,70,42,720l-, whereas for the AY 2013-14, the assessee claimed finance charges of Rs.62,10,0771- without substantial difference in loans and thereby claimed a loss of Rs.2l ,43,604/- in the return of income for the AY 20 I 3-

14. In view of the same, the income chargeable to the tax escaped assessment, the assessment was reopened by issuing notices. Ultimatcly, on consideration of response submitted by the accused No.1 - assessee. the Income Tax Officer held that the assessment in case of assessee is completed by accepting the loss retumed and as the retum is filed after due date, the loss of current year is not allowable for carry forward Thus, he has held that the tax as 'NIL'. I i I i I I I I i i I ii:tt:,.i li$ffi. tr$f I'li, i 20 KI,J Crl.A. No.67 of 2023

25. Ex.D2 is the income tax retum for the assessment year 2011-

12. Ex.D3 is the income tax return for the assessment year 2012-13.

26. During cross-examination, PW.l categoiically admitted that he has to verifiz whether there are any exceptions under Section - 27 6CC for prosecuting any person. He is not aware assessment being made for accused No.l Company because after that he was transferred to INCA (lnvestigation and Criminal Investigation). The accused has filed rehrm of income declaring loss for the assessment year 2013-14 and the Income Tax Officer has passed the assessment order under Section - 143 (3) read with 147 on 25.11.2019 accepting the loss retum. Thesame is Ex.D6

27. It is also relevant to note that the appellant herein - accused No.2 examined himself as DW.2 and he has categorically deposed that accused No.1 Company suffered losses in FY 2012-13 corresponding to AY 2013-14. There were also intemal differences in the management with respect to operations of company on account of whibh the retum of income could not be filed on time. Accused No.l filed its retum of income for Ay 2013-14 in response to notice issued under Section - 148 of the Act, 1961 on 20.09.2019, declaring loss of Rs.21,43,6041-. The comqlainant scrutinized such reasons and passed assessment order on

25.11.2019 accepting the loss declared. The assessment order is Ex.Dl. 2l KL,J Crl.A No.67 of2023 Thus, there is no willful intention not to hle retum of income within the due date prescribed. There is no loss of tax to the Govemment due to the unintentional mistake committed by the accused as the complainant had accepted the loss as submitted by the accused. Nothing contra was elicited from him during cross-examination.

28. It is also relevant to note that accused No.l Company has filed an application before the competent authority to compound the said i offence. It was rejected. Challenging the said order, accused filed a writ petition vide W.P. No.277 of 2019. A Division Bench of rhis Court granted stay of all further proceedings in C.C.No.246 of 2016 (subject C.C.) on 05.0:1.2019. During pendency of the said writ petition and subsistence of interim order, the trial Court proceeded with the trial and vide impugned,judgment convicted the appellant herein. Considering the said aspects, vide order dated 19.06.2025, a Division Bench of this Court disposed of the said writ petition granting liberty to the appellant to raise all the grounds and contentions as raised in the said writ petition before this Court.

29. It is relevant to note that the competent authority rej ected the application filed by accused seeking compounding of offence on the ground that the accused has taken contradictory grounds i.e., financial loss and intemal disputes among the Directors. The said application was ']\, l KLJ CII.A. No,67 of2023 t-.. not rejected on merits and on consideration of the grounds mentioned by the accused under Section - 279 of the Act, 1961.

30. There is no consideration of mental culpability of the accused in terms of Section - 2784 of the Act, 1961. As per the said proviso, the Court shall presume the existence of mental state despite taking the said defence by the accused during trial. The said presumption is a fact is said to be proved only then the Court believes it to exist beyond reasonable doubt and not mcrely when its existence is established by a preponderance of probabitity

31. As discussed supra, despite taking the said defence, leamed trial Court did not consider the same.

32. There is no consideration of proviso (ii) (b) of Section - 27 6CC of the Act, 1961 by the trial Court. The trial Court recorded conviction against the accused holding that the accused did not submit retums despite issuance of show-cause notice and that Ex.D I assessment order for the AY 2013-14 was on 25.11.2019. There is no finding with regard to presumption in terms of Section - 278E of the Act, 1961 and that there is willful failure on the part of the appellant in submitting the retum in the impugned judgment. Learned trial Court held that it is for the accused to rebut such presumption by leading the 23 KI,J Crl.A, No.67 of2023 evidence with the standard ofproof, like that of beyond reasonable doubt. The said finding of the trial Court is contrary to the evidence, more particularly the defence taken by the accused. By taking the aforesaid defence i.e., accused No.l Company was facing financial problem and that there were disputes among its Directors, therefore, the accused have discharged their burden. According to them, there is no willful failure on their part in filing returns for the AY 2013-14. Thus, this Court is of the considered view that the accused have discharged their burden by taking the aforesaid defence. Without considering the said defence, more particularly Ex.D1, the trial Court recorded conviction against the appellant herein.

33. It is also relevant to note that as per prosecution, it is the hrst offence committed by the accused. Despite $anting stay of all further proceedings by a Division Bench, the trial Court proceeded with the trial and recorded conviction against the accused vide impu,gnedjudgment.

34. In the light of the above said discussion, the present Criminal Appeal is accordingly allowed setting aside the conviction recorded against the appellant herein - accused No.2 and the sentence of imprisonment imposed on him vlde judgment dated 12.01 .2023 passed by Ieamed Special Judge for Economic Offences, Hyderabad in C.C. No.246 of 2016. Accused No.2 is acquitted of the aforesaid charge framed |';: :!'l I i 1 I I I i i i l i l i 24 KLJ Crl.A. No;67 ot2023 against him. Bail bonds furnished by him stand cancelled. Fine amount, if any, paid by him is also ordered to be retumed to the appellant herein _ accused No.2 after expiry of appeal time. As a sequel thereto, miscellaneous applications, if any, pending in the Criminal Appeal shall stand closed. SdI T. KRISHNA KUMAR JOINT REGISTRAR //TRUE COPY// SECTION OFFICER To, 1 2 e The Special Judge for Economic Offences at Hyd One CC to Sri G V L Murhty, Advocate [OPUC] One CC to Mrs.i.Sunitha, Senior Standing Counsel for lncome Tax' Advocate loPUCl

4. Two CD CoPies srr. Hr HIGH COURT DATED:0710712025 I L I JUDGMENT CRLA.No.67 of 2023 er:) o L) 7- c;. 02 AUE 2m 1'- . . -.', i: '') ';'i ,>i ,a, ,li ALLOWING THE CRIMINAL APPEAL .4.-L (9\ c ^4