2019 (5) TMI 1329 - HC - Income Tax

Prosecution u/s 276B r.w.s. 278B - failure to deposit TDS deducted to govt account - consequences of failure to deduct or pay u/s 201 - HELD 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. Alternative argument canvassed by 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. Lastly, the contention urged by the petitioners that the circular/instruction issued by the department have binding force though needs to be accepted as a principle of law, but in the instant case, none of the parties have placed the said instruction or circular for perusal of this Court. No material is available to show that the petitioner No.1-Company has deposited the amount within the extended time. On the other hand, the allegations are to the effect that survey itself was conducted on 20.09.2014. According to prosecution, the amount was deposited subsequent to survey conducted by the Department. Under the said circumstances, even on question of fact, the above principle does not come to the aid of the petitioners. As a result, no merit in the contentions urged by petitioners. - Decided against assessee.

Summary

Issues Involved:
1. Legality of prosecution without determining liability and quantifying penalty.
2. Compliance with the CBDT circular/instruction regarding the time limit for depositing TDS.
3. Applicability of amended guidelines retrospectively.
4. Whether prosecution under Section 276B requires prior adjudication under Section 201.
5. Validity of the circular/instruction as a defense.

Detailed Analysis:

1. Legality of Prosecution Without Determining Liability and Quantifying Penalty:
The petitioners argued that prosecution should not have been initiated without first determining their liability through adjudication proceedings and quantifying the penalty. They relied on precedents from the Delhi High Court (Sequoia Construction Co. P. Ltd and Indo Arya Central Transport Limited cases). However, the respondent countered that Section 200 of the Act, read with Rule 30 of the Income Tax Rules, mandates timely deposit of TDS, and failure to do so warrants prosecution under Section 276B. The court upheld this view, citing the Supreme Court's decision in Madhumilan Syntex Ltd., which clarified that non-payment of TDS within the stipulated period constitutes an offense, making prosecution permissible without prior adjudication under Section 201.

2. Compliance with the CBDT Circular/Instruction:
The petitioners claimed that they deposited the TDS with interest within 12 months, as allowed by a CBDT circular dated 24.04.2008, which should obviate penal consequences. They cited the Delhi High Court's decision in Indo Arya’s case and the Supreme Court's affirmation in State of Kerala vs. Kurian Abraham (P) Ltd. The respondent argued that the circular only provided a Standard Operating Procedure and did not extend the time limit for TDS deposit or absolve criminal liability. The court noted that no evidence was presented to show compliance with the circular's extended time limit, and the prosecution's allegations indicated that the TDS was deposited only after a survey by the Department.

3. Applicability of Amended Guidelines Retrospectively:
The petitioners contended that a subsequent circular dated 07.02.2013, which reduced the time limit for TDS deposit to 60 days, should not apply retrospectively to violations from 2010-2011 to 2013-2014. The court did not find this argument compelling, as the primary issue was the failure to deposit TDS within the originally prescribed period, irrespective of subsequent changes in guidelines.

4. Whether Prosecution Under Section 276B Requires Prior Adjudication Under Section 201:
The court examined whether prosecution under Section 276B necessitates prior adjudication under Section 201. It referred to the Madras High Court's decision in Rayaal Corporation (P) Limited, which held that prosecution under Section 276B is independent of Sections 201(1A) and 221. The court concluded that prosecution could proceed without prior adjudication, as Section 276B penalizes failure to deduct or pay TDS, and this view was supported by the Supreme Court in Madhumilan’s case.

5. Validity of the Circular/Instruction as a Defense:
The petitioners argued that the CBDT circular/instruction had binding force. However, the court noted that no material evidence was provided to substantiate compliance with the circular. The prosecution's allegations indicated that the TDS was deposited only after the Department's survey. Consequently, the court found no merit in this defense.

Conclusion:
The court dismissed the petition, affirming that prosecution under Section 276B of the Income Tax Act is valid without prior determination of liability under Section 201. The petitioners' failure to deposit TDS within the prescribed period constituted an offense, making them subject to prosecution. The court clarified that its observations would not influence the trial court's proceedings on the matter's merits.