2017 (8) TMI 196 - HC - Income Tax

Cognizance of the offence u/s 276B - after lapse of about three years from the date of deposit of due tax and interest - Held that - Petitioner immediately deposited the amount of tax along with interest in the year 2010 itself. Section 278AA specifically says that no person shall be punished for any failure referred to under the said provisions if the assessee proves that there was reasonable cause for such failure. Reasonable cause would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bonafides. Oversight on the part of the Accountant, who was appointed to deal with Accounts and Income Tax matters, can be presumed to be a reasonable cause for not depositing the tax within time. The petitioner immediately after noticing the aforesaid defects by the Statutory Auditors of the petitioner-company deposited the amount of ₹ 1,43,029/- along with interest amounting to ₹ 23,595/- as required under Section 201(1A) of the Act in the year 2010 itself. Instant prosecution has been launched against the petitioner on 14.05.2013 after lapse of about three years from the date of deposit of due tax along with interest by the petitioner under Section 201(1A) of the Act, which is contrary to the instructions bearing F. No.255/339/79-IT (Inv.) dated 28.05.1980 (Annexure-1 to the Counter Affidavit) issued by the CBDT in this regard. Moreover, Section 278 AA clearly states that no person for any failure referred to under Section 276 B of the Act shall be punished under the said provisions if he proves that there was reasonable cause for such failure. This Court on the basis of explanation submitted by the petitioner, as mentioned above, is of the view that the petitioner has been able to prove the reasonable cause for not depositing the aforesaid tax amount within the specified time limit. This Court is of view that continuance of the criminal proceeding against the petitioner is mere harassment to him and abuse of process of the Court.

Issues Involved:

1. Validity of the order taking cognizance under Section 276B of the Income Tax Act.
2. Reasonable cause for failure to deposit TDS within the specified time.
3. Adherence to CBDT instructions regarding prosecution under Section 276B.
4. Applicability of Section 278AA providing immunity from punishment.

Detailed Analysis:

1. Validity of the order taking cognizance under Section 276B of the Income Tax Act:

The petitioner sought to quash the order dated 15.05.2013 passed by the Special Judge, Economic Offences, Patna, which took cognizance of the offence under Section 276B of the Income Tax Act. The prosecution was initiated based on a complaint that the petitioner-company failed to deposit TDS amounting to ?1,43,029/- within the specified time for the financial year 2009-2010, resulting in a delay of 481 days. The Commissioner of Income Tax (TDS) granted sanction under Section 279(1) for prosecution. The court acknowledged that the petitioner had indeed failed to deposit the TDS within the specified time but had subsequently paid the amount along with interest.

2. Reasonable cause for failure to deposit TDS within the specified time:

The petitioner argued that the delay was due to an oversight by the Accountant responsible for handling accounts and income tax matters. This mistake was identified during an audit in August 2010, after which the petitioner promptly deposited the TDS amount along with interest. The court noted that Section 278AA of the Act provides that no person shall be punished for failure to comply with Sections 276A, 276AB, or 276B if there was a reasonable cause. The court found that the oversight by the Accountant constituted a reasonable cause, preventing the petitioner from being penalized under Section 276B.

3. Adherence to CBDT instructions regarding prosecution under Section 276B:

The petitioner contended that the prosecution was mechanical and contrary to CBDT instructions (F. No.255/339/79-IT (Inv.) dated 28.05.1980), which state that prosecution under Section 276B should not be proposed if the amount involved or the period of default is not substantial, and the amount in default has been deposited. The court observed that the petitioner had deposited the TDS amount along with interest in 2010, and the prosecution was initiated three years later, contrary to CBDT instructions. The court emphasized that the instructions explicitly discourage prosecution in cases where the default amount is not substantial and has been subsequently deposited.

4. Applicability of Section 278AA providing immunity from punishment:

Section 278AA of the Act states that no person shall be punished under Sections 276A, 276AB, or 276B if they prove a reasonable cause for failure. The court reiterated that the oversight by the Accountant was a reasonable cause, as it prevented the petitioner from depositing the TDS on time. The court concluded that the petitioner had successfully demonstrated a reasonable cause, thus qualifying for immunity under Section 278AA.

Conclusion:

The court concluded that the continuance of the criminal proceeding against the petitioner would amount to harassment and an abuse of the judicial process. Consequently, the order dated 15.05.2013 taking cognizance of the offence under Section 276B and the entire criminal proceeding against the petitioner were quashed. The application was allowed, providing relief to the petitioner from prosecution under the specified sections of the Income Tax Act.

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