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2008 (3) TMI 109 - HC - Income TaxPenalty imposed for non-deduction of tax at source - admittedly the assessee had deducted the TDS of ₹ 34,552 from the amount of interest credited to the account of the party, even though late tribunal has vacated the penalty imposed by dept. - penalty imposed by the Department has already been set aside and basis of prosecution has already gone, therefore, prosecution is not sustainable - prosecution of the petitioners is quashed
Issues:
Petition for quashment of prosecution under sections 276C and 278B of the Income-tax Act, 1961 based on non-deduction of tax at source. Analysis: The petitioners, a partnership firm and its partners, were prosecuted for not deducting tax at source on interest payments to a manufacturer company in the assessment year 1984-85. The petitioners argued that the penalty imposed by the Revenue was set aside by the Income-tax Appellate Tribunal, citing the precedent of K. C. Builders v. Asst. CIT. They contended that prosecution cannot be sustained when the penalty has been revoked by the Tribunal. The trial court and revisional court rejected this argument, stating that after framing charges, the petitioners cannot be discharged. However, a similar case, S. S. R. Pirodia v. Union of India, held that if the Tribunal has set aside the penalty, prosecution under relevant sections of the Act cannot be upheld. The Income-tax Appellate Tribunal had ruled that the penalty was unjustified, as the assessee had deducted the TDS and suffered interest under section 201(1A) of the Act. The court referred to precedents like Hindustan Steel Ltd. v. State of Orissa and Government of India v. Citadel Fine Pharmaceuticals to support its decision to quash the prosecution. The judgment emphasized that the Tribunal's decision to set aside the penalty meant the basis for prosecution no longer existed. Citing the principles laid down in K. C. Builders case, the court concluded that the prosecution was not sustainable. Therefore, the petition was allowed, and the prosecution of the petitioners was quashed.
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