2019 (5) TMI 1647 - HC - Income Tax

Prosecution u/s 276B read with Section 278B - survey u/s 133A - admitting default and sought time to remit the admitted TDS liability - HELD THAT - Provision makes it clear that in order to get over the penal consequences that follow on account of non-payment of tax deducted at source, it is open for the accused persons to come clean of the said charge by showing reasonable cause for failure to deposit the said amount. In the light of this provision, contentions urged by the learned counsel for the petitioners cannot be accepted. Since the material placed on record prima facie discloses that the petitioners have deducted tax at source but failed to credit the same to the account of the Central Government within the prescribed time, the petitioners cannot escape from the rigour of Section 276B. The alternative argument canvassed by the learned counsel for the petitioners that without determining the penalty, the respondent was not entitled to resort to criminal prosecution of the petitioners u/s 276B, also cannot be accepted for the reason that the petitioners/accused have not disputed their liability. The question of determining the liability and consequent imposition of penalty would arise only in case of dispute with regard to the liability to remit the deducted tax. In the instant case, the facts alleged in the complaint clearly indicate that the amount was credited subsequent to the survey. As a result, even this defence is not available to the petitioners. - petition is dismissed

Issues:
1. Whether the prosecution under Section 276B of the Income Tax Act can be sustained without determining the liability under Section 201.
2. Whether the deposit of TDS within 12 months as per CBDT circular/instruction obviates penal consequences.
3. Whether the amended guidelines of 07.02.2013 can be retrospectively applied to the petitioners.
4. Whether the prosecution without adjudication proceedings to determine penalty is valid.
5. Whether the circular/instruction issued by the department has binding force.

Detailed Analysis:

1. Prosecution under Section 276B without determining liability under Section 201:
The court examined whether the prosecution under Section 276B of the Income Tax Act could proceed without first determining the liability under Section 201. Section 201 deals with the consequences of failure to deduct or pay TDS, deeming the defaulter as an "assessee in default" and subject to penalties. However, the court clarified that prosecution under Section 276B is independent of the adjudication under Section 201. The Supreme Court in Madhumilan Syntex Ltd. vs. Union of India held that failure to deduct or pay TDS invites prosecution regardless of penalty determination under Section 201. Similarly, the Madras High Court in Rayala Corporation (P) Limited vs. V.M. Muthuramalingam ruled that prosecution under Section 276B is not contingent upon penalty proceedings under Section 201(1A) or Section 221.

2. Deposit of TDS within 12 months as per CBDT Circular:
The petitioners argued that they deposited the TDS with interest within 12 months as per a CBDT circular dated 24.04.2008, which should prevent penal consequences. However, the court noted that the circular does not extend the statutory time limit for TDS deposit nor absolve the accused from criminal liability. The court emphasized that the petitioners failed to provide evidence of compliance with the circular within the extended time. The prosecution's allegations indicated that the TDS was deposited only after a survey and repeated reminders, thus not within the stipulated time.

3. Retrospective Application of Amended Guidelines:
The petitioners contended that the amended guidelines dated 07.02.2013, prescribing a 60-day limit for TDS deposit, should not be retrospectively applied to their case. The court did not find merit in this argument, as the prosecution was based on defaults occurring before the amendment. The court maintained that the original statutory provisions applied to the petitioners' defaults, and the amended guidelines did not retrospectively absolve them from liability.

4. Validity of Prosecution without Adjudication Proceedings:
The petitioners argued that prosecution should not proceed without adjudication proceedings to determine the penalty. The court rejected this argument, citing the Madras High Court's decision in Rayala Corporation, which stated that prosecution under Section 276B is not controlled by penalty proceedings under Section 201(1A) or Section 221. The court reiterated that prosecution for failure to deduct or pay TDS can proceed independently of penalty adjudication.

5. Binding Force of Departmental Circular/Instruction:
While acknowledging that departmental circulars/instructions generally have binding force, the court noted that no such circular or instruction was presented for its perusal in this case. The court found no evidence that the petitioners deposited the TDS within any extended time provided by a circular. The prosecution's allegations indicated that the TDS was deposited only after a survey, undermining the petitioners' reliance on any such circular.

Conclusion:
The court dismissed the petition, holding that the prosecution under Section 276B of the Income Tax Act could proceed independently of penalty determination under Section 201. The court found no merit in the petitioners' arguments regarding compliance with CBDT circulars, retrospective application of amended guidelines, or the necessity of adjudication proceedings before prosecution. The court's observations were made without prejudice to the trial court's proceedings on the merits of the case.

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