Reasonable cause for delayed TDS deposit can defeat prosecution when tax is later paid with interest and default is promptly corrected.

Prosecution under section 276B for delayed deposit of tax deducted at source was held unsustainable where the assessee showed reasonable cause under section 278AA and later remitted the entire tax with interest. The delay had occurred due to an accountant's oversight, was noticed in audit, and was corrected promptly. The Court also relied on the CBDT instruction that prosecution should not normally be proposed where the default is not substantial and the amount has since been deposited. On these facts, continuation of the criminal proceeding was treated as harassment and abuse of process, and the cognizance order was quashed.

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Issues: Whether the criminal proceeding and cognizance under section 276B of the Income-tax Act, 1961 were liable to be quashed on the ground that the deducted tax was subsequently deposited with interest and the delay was supported by reasonable cause under section 278AA.

Analysis: The admitted position was that tax deducted at source was not deposited within time, but the entire amount was later deposited along with interest under section 201(1A). The delay was explained as an oversight by the accountant, which was noticed during audit and corrected promptly. The Court also noted the CBDT instruction that prosecution under section 276B should not normally be proposed where the amount involved and period of default are not substantial and the defaulted amount has since been deposited. On these facts, the Court held that the petitioner had shown reasonable cause within the meaning of section 278AA and that continuation of the prosecution would amount to harassment and abuse of process.

Conclusion: The cognizance order and the entire criminal proceeding were quashed in favour of the petitioner.

Ratio Decidendi: Where the assessee proves reasonable cause for delayed deposit of deducted tax and subsequently remits the tax with interest, prosecution for the default cannot be sustained.

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