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

The court found the sanction for prosecution invalid as it did not consider relevant payments made by the petitioners. Consequently, the proceedings against the petitioners were quashed, and the criminal petition was allowed.

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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.

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