2018 (3) TMI 1316 - HC - Income Tax

Sanction for prosecution issued u/s 279(1) - TDS not deposited in the government treasury within the prescribed statutory time - defaults were in respect of salary as well as non-salary TDS deductions - Refund paid towards TDS arrears - Held that - Merely recorded what has been stated by the counsel for the revenue and not given our pronouncement or judgment in view of the contentions raised in the writ petition or on merits of the criminal complaint which is pending trial. These issues will have to be examined in accordance with law in the criminal proceedings. In case the petitioners are able to make out that cognizance was not justified and as per law they can challenge and question the summoning order by way of petition u/s 397 r.w.s. 401 of the Code of Criminal Procedure, 1973 (Code) or if permissible, by way of a petition under Section 482 of the Code. Non-payment of refunds. There is difficulty in examining this allegation. Petitioners have not impleaded the jurisdictional AO and Commissioner as respondents/parties to the writ petition. The Sanctioning Authority is the first respondent and Directorate of Income Tax, Ministry of Finance is the second respondent. The second respondent is not an authority and does not have any legal existence. As per details ascertained by the counsel for the Revenue refunds for the AY 2005-06 stands paid. There is, however, short of credit on TDS amounting to ₹ 8,85,418/- which is under verification on account of old records and non-availability of TDS challans. Petitioners claim that they are entitled to refund of ₹ 49 Lakhs for the AY 2005-06. This fact is disputed. With regard to the AY 2009-10, refund of ₹ 37,75,750/- was issued on 1st February, 2014. For the balance amount of ₹ 14,56,140/-, the matter is under verification and thereafter refund would be issued. Petitioner accepts that refund of ₹ 3.05 Crores for the Assessment Year 2010-11 was issued on 27th November, 2012. As per the chart produced by the petitioners, during the period 30th June, 2012 till 31st March, 2013, ₹ 85.11 Lakhs was deposited towards TDS, leaving an outstanding balance of more than ₹ 2.68 Crores payable as TDS. Entire refund was not paid towards TDS arrears. We clarify that we have not expressed any opinion relating to refund on merits and have only noticed the facts and contentions raised by the respective sides. This order would not prejudice the rights of the petitioners, or as deciding contentions and defenses that the petitioners may raise during the course of criminal prosecution or if they challenge the order passed by the ACMM taking cognizance and issuing summons. Petitioners states that they would be moving an application seeking exemption from personal appearance. If any such application is filed, the same would be considered as per law.

Issues Involved
1. Validity of the Sanction Order dated 14.03.2017.
2. Failure to consider Section 278AA of the Income Tax Act.
3. Application of the Standard Operating Procedure and Press Note.
4. Allegations of non-payment of refunds.
5. Procedural aspects and rights of petitioners during criminal prosecution.

Detailed Analysis

Validity of the Sanction Order dated 14.03.2017
The impugned order, dated 14th March 2017, issued by the Commissioner of Income Tax (TDS) Delhi-1, sanctioned prosecution under Section 279(1) of the Income Tax Act, 1961. The order noted that the petitioner company failed to deposit ?3,52,99,059/- deducted as TDS within the statutory time frame during the financial year 2012-13. The sanction order detailed the defaults, the issuance of show cause notices, and the petitioners' failure to file a compounding application. The Commissioner concluded that the explanations provided by the petitioners were neither tenable nor satisfactory, citing various judicial precedents to support the decision to prosecute under Sections 276B and 278B of the Act.

Failure to Consider Section 278AA of the Income Tax Act
The petitioners argued that the Sanctioning Authority did not consider Section 278AA, which exempts individuals from punishment if they can prove reasonable cause for the failure to comply. The petitioners contended that their financial difficulties constituted a reasonable cause, as they were affected by a sudden drop in business orders and pending income tax refunds. The court noted that the onus to prove reasonable cause lies with the person being prosecuted and that such issues should be examined during the trial, not in a writ petition.

Application of the Standard Operating Procedure and Press Note
The petitioners claimed that the Sanctioning Authority failed to correctly apply the Press Note dated 6th August 2013 and the Standard Operating Procedure (SOP) issued by the Central Board of Direct Taxes (CBDT). They argued that the delay in depositing TDS did not exceed the prescribed period of twelve months and that they had paid interest on the late deposit before the issuance of the notice. The court held that these factual issues should be considered during the criminal proceedings and not at the stage of granting sanction.

Allegations of Non-Payment of Refunds
The petitioners alleged that undisputed income tax refunds, which could have alleviated their financial crunch, were not paid by the Income Tax Department. The court found it difficult to examine this allegation as the jurisdictional Assessing Officer and Commissioner were not made parties to the writ petition. The court noted that some refunds were issued, while others were under verification due to discrepancies in TDS credits. The court granted the petitioners liberty to file an appropriate writ petition if they believed refunds were wrongly withheld.

Procedural Aspects and Rights of Petitioners During Criminal Prosecution
The court emphasized that questions regarding the validity of the sanction order and the merits of the criminal complaint should be raised and decided during the trial. The court cited various judicial precedents to support the principle that the adequacy of material before the sanctioning authority cannot be questioned in a writ petition. The court also noted that the petitioners could challenge the summoning order by the Additional Chief Metropolitan Magistrate (ACMM) through appropriate legal channels. The court recorded that the petitioners intended to seek exemption from personal appearance in the trial and directed that any such application be considered as per law.

Conclusion
The writ petition was disposed of without any order as to costs, and the court clarified that it had not expressed any opinion on the merits of the refund claims or the criminal prosecution. The petitioners were given the liberty to file a separate writ petition regarding the refund issue and to challenge the summoning order if justified. The court's decision focused on procedural propriety and the appropriate forum for addressing the substantive issues raised by the petitioners.

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