Prosecution under section 276B for TDS/TCS default -CBDT SOP not to be read as to give undue advantage to an erring party
In a recent judgment, the Sessions Court held that timeline for prosecution u/s 276B of thirty days of receiving approval under Section 279(1) as specified under CBDT SOP for prosecution in cases of TDS/TCS default(s) not to be read as a bar so as to give undue advantage to an erring party to claim advantage thereof.
ABCAUS Case Law Citation:
4639 (2025) (07) abcaus.in DC
In the instant case, a revision petition had been filed under Sections 397/399 of the Code of Criminal Procedure, 1973 (Cr.P.C.) seeking setting aside of the order passed by the Additional Chief Metropolitan Magistrate (ACMM). By the said order, the Trial Court had taken cognizance of the offences under Section 276B read with Section 278B/278E of the Income Tax Act, 1961 (the Act) and directed issuance of summons against the company and the managing director of the company (the revisionist).
Proceedings against the revisionist was initiated on behalf of the Deputy Commissioner, Income tax after due sanction issued under Section 279(1) of the Act. The complaint averred the commission of offences under Section 276B read with Section 278B/278E and Section 279 of the Act by the company and the revisionist for the Financial Year 2014-15. Under the complaint it has been inter alia averred that on the basis of report generated from the ITD System, it was revealed that, though, the accused company and the Managing Director deducted tax at source (TDS) under various provisions, amounting to R. 5.5 crores approx. however, it was not deposited with the government account within the stipulated period, i.e., on or before seven days from the end of the month in which the deduction is made.
It was alleged under the said complaint that though, the accused were deducting the TDS on payments under the various provisions, however, they did not deposit the same into government accounts as per Section 200(1) of the Act, thereby, deliberately, intentionally and willfully misusing the same with fraudulent intention to use the said amount either for personal or business purpose(s). As per the Revenue, the delay in making the payment was a well calculated strategy to defraud the revenue and use the funds for their personal/business purpose(s).
The Trial Court took cognizance of the offences, specified under the complaint and issued summons against the accused, i.e., company and the revisionist stating that prima facie offence u/s 276B r/w section 278B/278E of The Act was made out against both the accused persons.
The accused challenged the order of the Trial Court before the Sessions Court and submitted that impugned order was passed by the Trial Court on mere assumptions and that no sound and/or cogent reasons have been delineated under the said order. It was further submitted that the Trial Court, while passing the impugned order did not appreciate that as per instructions bearing; F. No. 255/339/79-IT (Inv.), dated 28.05.1980, issued by the CBDT, it has been mentioned therein that the prosecution under section 276B of the Act should 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 the Government.
It was submitted that it was admitted case of the prosecution that the TDS amount, along with interest, had already been deposited by the accused before the detection of the default and it is not the case of the Department that no timely return was filed by the accused company in respect of TDS.
It was contended that Trial Court failed to appreciate that instant case was not a case of failure of deposit of TDS and therefore no offence under Section 276B of the Act was even prima facie made out against the accused. Section 221 of the Act specifically proves for imposition of penalty in case of default of the payment of tax.
Further, It was argued that in case the accused failed to deposit the TDS amount, as alleged within the stipulated time period, criminal prosecution against the revisionist ought/should have been initiated by the respondent, immediately, which had not been done in the instant case. On the contrary, the complaint had only been filed in the year, 2023, around nine years after the alleged default.
It was submitted that as per the Standard Operating Procedure for prosecution in cases of TDS/TCS default(s) (the SOP), dated 07.02.2013, the prosecutable cases are required to be identified within a period of one month of the filing of the quarterly TDS statement and thereafter, certain information/documents regarding the deductor is required to be collected. Further, same is to be followed with the issuance of show cause notice to the persons, responsible for the deduction within 45 (forty five) days of receipt of list of prosecutable cases. However, in the instant case, the said guidelines had not been scrupulously followed by the Department. In this case show cause notice was issued to the revisionist which was way later than the prescribed time period, making the impugned order liable to be set aside on this count.
It was submitted that as per SOP, dated 07.02.2013, time period for launching prosecution is 30 (thirty) days of receipt of approval under Section 279(1) of Act, which had not been followed in the instant case. The complaint was filed way beyond the prescribed time period, entitling the revisionist to the benefit of such deliberate lapse on the part of the respondent.
It was argued that Trial Court erred in not considering that as per the instruction of CBDT, if the delayed amount of TDS has been deposited with interest, then initiation of criminal proceedings would amount to an abuse process of law.
It was also submitted that Trial Court failed to appreciate that since the company was undergoing CIRP before NCLT and moratorium was underway, no proceedings could have been initiated against the company by the Department.
The Sessions Court noted that it is no longer res integra that the order of issuance of summons against an accused is not an interlocutory order within the meaning of Section 397 of the Code and revision petition against such an order is maintainable.
The Sessions Court further observed that Section 201(1) of IT Act defines any person, including the principal officer of company as an assessee in default, where such person/principal officer of company inter alia fails to pay the tax, as required under Chapter XVIIB of IT Act, after its deduction. Notably, under such circumstances, law provides that besides charging interest under Section 201(1A) of the IT Act on delayed payment, the person deemed to be assessee in default shall also be liable to be prosecuted for the offence under Section 276B of IT Act. Here, it is further pertinent to refer the provisions under Section 278B of the said enactment, which deals with a situation of commission of offences by company. In particular, as per the said provision, when an offence under the Act is committed by a company, every person who, at the time of commission of such offence, “was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly…”.
One of the primary bone of contention of the accused, challenging the order of cognizance/summoning was that since the TDS amount, along with interest, had already been deposited by the accused before the detection of the default by the respondent, no prosecution ought to be initiated inter alia against the revisionist in the instant case as per CBDT Instruction as well as the decision of the Hon’ble High Court of Jharkhand.
The Sessions Court noted that undoubtedly, in the aforenoted dictate, the Hon’ble High Court rebuked the continuation of proceedings under Section 276B of the Act, one the amount involved was eventually deposited with the authorities, albeit with delay. However, the facts of the present case would not be covered under the said dictates, as being clearly distinguishable. In the said case, the Hon’ble High Court specifically noted that the amount deducted in most of the cases was small which was deposited with interest by assessee in the said case. However, in the instant case, the amount involved was quite significant, besides as hereinunder observed, the default on the part of the accused in the present case is avowed to be repetitive
On the contrary the Sessions Court opined that the facts and circumstances brought forth were squarely covered under and governed by the decision of Hon’ble Apex Court which dismissed the argument, as one raised that since there is no provision under the Act, imposing criminal liability for delay in deduction or for non-payment in time, no liability under Section 276B Act can be attributed to a person/accused, one the amount has been deposited, though, with delay.
In so far as the contention of the revisionist, pertaining to the initiation of CIRP against the company in terms of IBC 2016 was concerned, The Court observed that the settled law is that stay of civil proceedings in terms of the provisions under IBC, pursuant to moratorium issued under Section 145 thereof, does not affect criminal proceedings.
With regard to contention of the accused pertaining to alleged delay in initiation of the criminal proceedings against the revisionist, the Sessions Court observed that by virtue of explicit provisions under Section 2 of the Economic Offences (Inapplicability of Limitation) Act, 1974 read with the Schedule of the said enactment, applicability of Cr.P.C. is excluded to the provisions under Income Tax Act. Even otherwise, since the offence under Section 276B of the Act provides for punishment/sanction of rigorous imprisonment for a term which shall not be less than three months, but which may extend to a period of seven years and with fine, the provisions under Section 468 Cr.P.C. would not even otherwise, be applicable to the instant case. Therefore, it was incorrect to say that the timeline for prosecution of thirty days of receiving approval under Section 279(1) of the Act, as specified under Clause 4 of the Standard Operating Procedure for prosecution in cases of TDS/TCS default(s), must be strictly construed.
The Sessions Court opined that where no embargo is provided under law for prosecution of such offence, same cannot be read in by seeking recourse to the provisions under the SOP. On the contrary, the said schedule/time limit can, at best be considered directory for concerned authorities to enable expeditious initiation/disposal of prosecution and not to be read as a bar so as to give undue advantage to an erring party to claim advantage thereof. Even otherwise, as per the Standard.
The Court further observed that even otherwise, as per the Standard Operating Procedure for prosecution in cases of TDS/TCS default, the timeline for initiation of such prosecution has been specified to be ‘preferably’ within a period of 30 days. Even otherwise, Clause 5.2 of the revised SOP has clarified that the timelines envisaged therein, “…should be followed as far as possible. However, any deviation from the timelines shall not render prosecution proceedings barred by limitation…
The Sessions Court further observed that so far as the defence for the revisionist pertaining to delayed deposit of TDS was concerned, or there being a reasonable cause for non-compliance of provisions under Section 276B of the Act, same, a subject matter of trial, which cannot be delved into detail at this stage.
The Sessions Court held that Trial Court did not commit any irregularity, illegality and/or impropriety under the impugned order, while taking cognizance of the offences specified under the complaint and inter alia directing issuance of summons to the revisionist.
Accordingly, the revision petition was dismissed.
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