2022 (3) TMI 1038 - HC - Income Tax

Prosecution for commission of offence u/s 276B r/w 278B - Sanction u/s 279(1) - TDS deducted but not deposited in time - offence allegedly committed under section 276(B) and 278(B) - HELD THAT - It is an admitted fact that the TDS amount in all these cases were deposited with interest and the chart with respect to the same is also annexed with the counter affidavit of the Income Tax Department, wherein the date of deduction and date of depositing the said amount has been mentioned - some delay occurred in depositing the TDS. Apart from one or two cases, the deducted amount are not more than 50,000/-. While passing the sanction u/s 279(1) the sanctioning authority has not considered the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated 28.05.1980, issued in this regard by the CBDT. In CBDT instructions, it is mentioned that prosecution u/s 276(B) of the Act shall not normally be proposed when the amount involved and / or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of Government. No such consideration will, of course, apply to levy of interest u/s 201(1A) - This is quoted in the case of Sonali Autos (P) Ltd. (Supra). Moreover after receiving the deducted amount with interest, the prosecution has been launched against the petitioners, which is not in accordance with law. If the petitioners failed to deposit the amount in question within the stipulated time, i.e. by the 7th day of the subsequent month, it was required to launch the prosecution immediately, which has not been done in the cases in hand. Moreover Section 278(AA) of the Act 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. The judgment relied by Ms Amrita Sinha, the CBDT guidelines were not considered. On this ground these cases are distinguishable in view of the facts and circumstances of the cases relied upon by Ms. Amrita Sinha. The amount has already been deposited with interest and there is no reason why the criminal proceeding shall proceed and the criminal proceeding was launched after receiving the said amount with interest, had it been a case that the case was immediately instituted and thereafter the TDS amount has been deposited with interest, the matter would have been different. As such the continuation of the proceedings will amount to an abuse of the process of the Court. The entire criminal proceedings and the cognizance orders in their respective cases, passed by the learned Special Economic Offices, Dhanbad, in the respective C.O. Cases, whereby cognizance has been taken against the petitioners for the offences u/s 276(B) and 278(B) of the Income Tax Act, pending in the Court of learned Special Judge, Economic Offences, Dhanbad, are hereby, quashed.

Summary

Issues Involved:
1. Quashing of cognizance orders under Sections 276(B) and 278(B) of the Income Tax Act.
2. Validity of prosecution after TDS amount and interest were deposited.
3. Consideration of CBDT guidelines in prosecution decisions.
4. Distinction between criminal and civil liabilities under the Income Tax Act.

Detailed Analysis:

1. Quashing of Cognizance Orders under Sections 276(B) and 278(B) of the Income Tax Act:
The petitioners sought to quash various cognizance orders passed by the Special Judge, Economic Offences, Dhanbad, for offences under Sections 276(B) and 278(B) of the Income Tax Act. The petitions argued that the TDS amounts were deducted and deposited, albeit with a delay, along with interest as per Section 201(A) of the Income Tax Act. The petitioners contended that once the TDS amount and interest were deposited, there was no occasion to initiate prosecution under the said sections.

2. Validity of Prosecution after TDS Amount and Interest were Deposited:
The petitioners argued that the prosecution was mechanical and contrary to CBDT instructions, which state that prosecution should not normally be proposed when the amount involved or the period of default is not substantial, and the amount in default has been deposited. The counsel for the petitioners cited the case of Sonali Autos (P) Ltd. vs. State of Bihar, where the Patna High Court quashed the prosecution on similar grounds.

3. Consideration of CBDT Guidelines in Prosecution Decisions:
The court noted that the sanctioning authority did not consider the CBDT guidelines, which were crucial in deciding whether to initiate prosecution. The guidelines specify that prosecution under Section 276(B) should not be proposed when the default amount is not substantial and has been deposited. The court observed that the guidelines were considered by the Patna High Court in Sonali Autos (P) Ltd., leading to the quashing of criminal proceedings in that case.

4. Distinction between Criminal and Civil Liabilities under the Income Tax Act:
The counsel for the Income Tax Department argued that the duty to deposit TDS is a separate provision under Section 276(B), and failure to do so invites both civil and criminal liabilities. The department cited the case of Income Tax Officer vs. Sultan Enterprises, where the Bombay High Court held that recovery of the amount with interest and penalty does not preclude criminal prosecution. However, the court distinguished this case on the grounds that the CBDT guidelines were not considered in the cited judgments.

Conclusion:
The court concluded that the criminal proceedings were not in accordance with law, as the prosecution was launched after the TDS amount and interest were deposited. The court held that continuation of the proceedings would amount to an abuse of the process of the court. Accordingly, the entire criminal proceedings and the cognizance orders in the respective cases were quashed. The criminal miscellaneous petitions were allowed and disposed of.