Onus to prove bad financial condition is on assessee in prosecution proceedings u/s 276B

Onus to prove bad financial condition is on assessee in prosecution u/s 276B for delay in deposit of TDS 

In a recent judgment, the Delhi High Court has held that onus to prove bad financial condition is on the assessee in prosecution proceedings under section 276B for delay in deposit of TDS and mere bald assertion would not be enough.

ABCAUS Case Law Citation:
4815 (2025) (10) abcaus.in HC

The Income Tax Department had challenged the order passed by the Session Judge (ABCAUS 3143 (2019) (09) AC)setting aside the prosecution u/s 276B of the Income Tax Act 1961 (the Act) and sentence of Rs. 25 lakhs on the appellant company on account of delay of 4-5 months in deposit of TDS due to financial difficulties holding that the intention of the company was to pay TDS. 

Before the Hon’ble High Court, the Department contended that the Sessions Judge has failed to appreciate that the Trial Court after examining all the facts, evidence and circumstances had concluded that the Respondent company had failed to show any reasonable cause for delay in depositing the TDS. Furthermore, the Respondent had not examined any defence evidence to show the bonafide or the genuine difficulty in timely deposit of TDS. 

The Hon’ble High Court observed that TDS amount deducted in a month has to be deposited on or before 7th day of the subsequent month in terms of the Act and rules made thereunder. The facts proved that Respondent company had committed default in timely deposit of TDS during the Financial Year 2012-13 showing the details of the tax deducted. The ACMM concluded that the document and the evidence on record reflected a delay in deposit of TDS ranging from 4-15 months.  The Respondent also had not disputed that there was delay in deposit of TDS amount.  The offence as provided under Section 276B is, therefore, shown to have been committed.

However, the Hon’ble High Court observed that Section 278AA provides that notwithstanding anything contained in the provisions of Section 276A, 276AB or Section 276B or Section 276BB, no person shall be punishable for any failure referred in the said provisions if he proves that there was reasonable cause for such failure.

The Hon’ble High Court noted that the entire case was dependent on whether the Respondent was able to give any reasonable cause for the delay, which was not denied. In the Statement under Section 313 Cr.P.C, the Accused Company through its Director, took the defence of the bad financial condition of the Company on account of which the TDS could not be deposited in time and was ultimately deposited after the availability of funds and interest.

The Hon’ble High Court opined that The Trial Court had rightly observed that aside from a bald assertion about the financial condition, no cogent evidence had been led by the Respondent in proof thereof.  Pertinently, no witness was examined by the Respondent Company nor any documents placed on record to explain the alleged financial condition of the Company.

The Hon’ble High Court opined that the onus to prove special circumstance of bad financial condition was on the Respondent to dispel the absolute liability imposed by a Company under Section 276B of the Act. The best evidence to establish this defence was to produce the documentary evidence to reflect the poor financial condition, which it has miserably failed to do.

The Hon’ble High Court further observed that it was also pertinent to observe that there was a delay of 4-15 months, in deposit of TDS. It showed that the Respondent was functioning and had the financial capacity to pay, though delayed by 4 months to 15 months. There was no circumstance brought forth by the Respondent to show that there existed any reasonable cause in depositing the TDS with delay. The bald assertion in the Statement of Accused under Section 313 cannot be considered as a defence proven in terms of S. 278AA the Act, so as to entitle the Respondent to an Acquittal. 

The Hon’ble High Court held that the respondent company miserably failed to establish its defence under Section 278AA of the Act.  The Trial Court in the Impugned Judgment was right in holding the Respondent guilty for the offence under Section 276B of the Act for not depositing the TDS in time, despite deducting it in the Government Account within the prescribed period.

However, considering the fact that it was a technical offence and the Respondent company had already deposited the entire amount along with the compensatory interest, and that the Company was facing Liquidation proceedings, reflecting its poor financial status, the Hon’ble High Court opined that further imposition of fine was not merited in the given circumstances.

Accordingly, the Hon’ble High Court set aside the judgment of the Sessions Judge setting aside the Judgment of the Trial Court as erroneous and based on wrong appreciation of facts and. Also, the sentence of fine of Rs. 25 lacs, as imposed by ACMM, was modified and the respondent Company was sentenced to admonition

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