Court quashes criminal proceedings for delayed TDS deposit by beverage company under Income Tax Act

The court quashed the criminal proceeding under Sections 276B and 278B of the Income Tax Act, 1961, regarding the delay in depositing TDS amount. The petitioner, a beverage company, faced financial instability causing delays in TDS deposit due to a Trust and Retention Account agreement. The defense relied on a circular stating prosecutions should not be proposed for insignificant amounts already deposited. The court considered the substantial defaults required before prosecution initiation, and the valid reasons presented by the petitioner led to the quashing of the cognizance order.

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Issues Involved:
1. Quashing of criminal proceeding under Sections 276B and 278B of the Income Tax Act, 1961 based on delay in depositing TDS amount.
2. Application of CBDT guidelines and Section 278-AA of the Act for defense in the prosecution.

Summary:
The petition was filed to quash the criminal proceeding regarding the delay in depositing TDS amount under Sections 276B and 278B of the Income Tax Act, 1961. The petitioner, a company engaged in the beverage business, faced financial instability leading to delays in TDS deposit due to conditions imposed by a Trust and Retention Account (TRA) agreement. The defense also cited a circular stating prosecutions should not be proposed for insignificant amounts already deposited. The court noted previous judgments and guidelines emphasizing the importance of substantial defaults before initiating prosecution.

The department argued that TDS was deducted but not deposited within the statutory period, following the standard operating procedure for prosecution. Notices were issued to the petitioner, but no response was received. The defense highlighted the restructuring of debts by International Asset Reconstruction Company affecting fund control and payments. The court considered the delay in TDS deposit and whether the petitioner had a reasonable cause under Section 278AA of the Act. It was found that the belated notice and valid reasons prevented timely deposit, leading to the quashing of the cognizance order dated 13.11.2017 in Complaint Case No. C 05 of 2017.

The court allowed the criminal misc. petition, considering the circumstances and defenses presented by the petitioner, ultimately setting aside the cognizance order for the delay in TDS deposit.

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