If TDS already deposited belatedly, continuing proceedings u/s 276B/278B abuse of law – HC

If amount of TDS has already been deposited though belatedly, to allow the proceeding u/s 276B/278B will be abuse of process of law – High Court  

In a recent judgment/order Hon’ble Jharkhand High Court has quashed criminal proceedings u/s 276B and 278B of the Income Tax Act, 1961 observing that where huge amount of TDS has already been deposited belatedly with the Income Tax Department, to allow the proceeding to continue will amount to an abuse of the process of law. 

ABCAUS Case Law Citation:
4363 (2024) (12) abcaus.in HC

In the instant case, the Petitioners had filed a Writ Petition praying for quashing criminal proceedings including the order taking cognizance for the offence under Section 276-B read with Section 278-B of the Income Tax Act, 1961 (the Act), against the petitioners, related to five financial years.

The Petitioners were a Limited Company and its Directors. The company had deposited huge amount Tax Deducted at Source (TDS) belatedly as under:

The Petitioner submitted that in all above cases the first petitioner was a company registered under the Companies Act, 1956 and its Directors who were citizens of India. It was submitted that all these cases had been registered alleging therein that the TDS amount deducted by the company had been belatedly deposited with the Income Tax Department and the Trial court had taken cognizance under Section 276(B) and Section 278(B) of the Income Tax Act by the different orders.

It was further submitted that the petitioners had been show caused and pursuant to that show cause reply was filed, wherein the petitioners had categorically stated that there was delay in deposit of the TDS amount due to acute financial hardships. That even prior to issuance of the show cause notice, the entire TDS amount with interest had already been deposited with the Income Tax Department by the company. 

It was submitted that this aspect of the matter has already been decided by the Hon’ble High Court in an identical case observing that while passing the sanction under Section 279(1) of the Act, the sanctioning authority had not considered the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated 28.05.1980 which states that prosecution under Section 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.

It was submitted by the Petitioners that in the above said decision, it was noted that the CBDT guidelines was considered by the Patna High Court and after considering this guidelines, the Court had interfered with the matter and quashed the entire criminal proceedings. In the said case, the Patna HC had also observed that 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 had 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.

It was further pointed out by the Petitioner that the above said order of the Hon’ble Court was challenged before the Hon’ble Supreme Court wherein the Hon’ble Supreme Court had been pleased to dismiss the said challenge.

It was further submitted that the said order of the Hon’ble Court was further taken into consideration by the Hon’ble Orissa High Court as well as Hon’ble Bombay High Court and pursuant to that even an amendment is made in the Finance Act, 2024, wherein a proviso has been inserted under Section 276(B) to the effect that if the TDS amount has already been deposited, the prosecution cannot be launched.

On above grounds, the counsel for the petitioners submitted that the entire criminal proceedings in all these matters may kindly be quashed. 

On the other hand, the Income Tax Department opposed the Petition and submitted that the amount of TDS was deposited belatedly, which was in higher side and the petitioners were happened to be the habitual in depositing the TDS amount belatedly. 

The Hon’ble High Court observed that it was an admitted fact that the TDS amount in question, which was the subject matter of difference economic offence cases had already been deposited with interest with the Income Tax Department belatedly and the same had not been denied and in such a situation, the case of the petitioners are fully covered in light of the judgment of this court which had been affirmed by the Hon’ble Supreme Court.

The Hon’ble High Court further observed that pursuant to its judgment, in the Finance Act, 2024, the Parliament on his own wisdom has made amendment in Section 276(B), wherein it has been effected as under:-

“84. In section 276B of the Income-tax Act, the following proviso shall be inserted with effect from the 1st day of October, 2024, namely:-

“Provided that the provisions of this section shall not apply if the payment referred to in clause (a) has been made to the credit of the Central Government at any time on or before the time prescribed for filing the statement for such payment under sub-section (3) of section 200.”.

In view of the above and considering its judgment affirmed by the Hon’ble Supreme Court and undisputed fact that huge amount of TDS had already been deposited with the Income Tax Department, the Hon’ble High Court opined that to allow the proceeding to continue will amount to an abuse of the process of law. 

Accordingly, the entire criminal proceedings and the cognizance orders were quashed and the Petition was allowed..

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