2023 (9) TMI 32 - HC - Income Tax

Court quashes prosecution sanction due to overlooked payments, allowing criminal petition

Rajesh Agarwal and another Versus The State of Telangana Rep. by its Public Prosecutor and others

The court found the sanction for prosecution invalid as it did not consider relevant payments made by the petitioners. Consequently, the proceedings ... Prosecution of offence u/s 276-B r/w 278B(2) - belated payment of TDS into the Central Government Treasury - A1 company had deducted at source on more than 2664 occasions but the same was deposited with a time variation of 1 to 12 months - HELD THAT:- The Hon’ble Supreme Court in the case of Mohd. Iqbal Ahmed v. State of Andhra Pradesh [1979 (1) TMI 238 - SUPREME COURT] held that it is well settled that any case instituted without a proper sanction must fail because this being a manifest defect in the prosecution, the entire proceedings are rendered void ab initio. Prosecution launched without a valid sanction, it was held that the cognizance taken by the Special Judge was without jurisdiction and proceedings were quashed. The sanction was granted without considering payment of interest; and Late filing fee of TDS. Further reply which was filed on 01.02.2018 in the office of Additional Commissioner, Income Tax (TDS), Hyderabad is also not considered. The competent authority not considering the same amounts to not considering the facts of the case and granting sanction which is invalid. Apparently sanction was sought by suppressing facts or deliberately omitted. It is not disputed that the Sanction mentioning that the penal interest not being paid and the petitioners not replying to show cause is apparently wrong. For the said reason of launching prosecution on the sanction, which according to this Court is invalid, the proceedings before the learned Special Court are liable to be quashed. Issues Involved:1. Prosecution for belated payment of TDS.2. Validity of the sanction for prosecution.3. Impact of payment of dues before the issuance of the show-cause notice.4. Application of mind by the sanctioning authority.Summary:Prosecution for Belated Payment of TDS:The petitioners faced prosecution under Section 276-B read with 278B(2) of the Income Tax Act, 1961, for delayed payment of TDS into the Central Government Treasury. The complaint stated that the company deducted tax on more than 2664 occasions amounting to Rs. 91,80,995/-, which was deposited with a delay of 1 to 12 months. The Deputy Commissioner of Income Tax issued a show-cause notice on 18.01.2018, but received no response, leading to the prosecution of the company's Managing Director and Director.Validity of the Sanction for Prosecution:The petitioners argued that the sanction for prosecution was invalid as it did not consider the payment of Rs. 4,67,670/- interest and Rs. 1,73,970/- late filing fee made on 14.12.2017, nor the reply filed on 01.02.2018. The court held that a prosecution could only be launched with a valid sanction from the Principal Commissioner or appropriate authority under Section 279(1) of the Act. The Supreme Court's judgments emphasized that the sanction must reflect the competent authority's application of mind to the entire facts of the case.Impact of Payment of Dues Before the Issuance of the Show-Cause Notice:The petitioners had paid the TDS amount, interest, and late filing fee before the issuance of the show-cause notice on 18.01.2018. The court noted that the sanction order dated 16.02.2018 did not mention these payments or the reply submitted on 01.02.2018, which indicated non-application of mind by the sanctioning authority. The Supreme Court's precedent in Madhumilan Syntex Limited v. Union of India stated that prosecution could still be launched even if the defaulted amount was paid belatedly.Application of Mind by the Sanctioning Authority:The court observed that the sanctioning authority must apply its mind independently and consider all relevant material before granting sanction. The sanction order in this case failed to reflect such consideration, rendering it invalid. The Supreme Court in Mansukhlal Vithaldas Chauhan v. State of Gujarat emphasized that the grant of sanction is a solemn act to protect against frivolous prosecutions and must be based on a thorough assessment of the case facts.Conclusion:The court concluded that the sanction for prosecution was invalid due to non-consideration of relevant facts and payments made by the petitioners. Consequently, the proceedings against the petitioners were quashed, and the criminal petition was allowed.