2023 (9) TMI 70 - HC - Income Tax

Court quashes criminal proceedings for non-deposit of TDS under Income Tax Act, emphasizing mens rea.

M/s. A.M. Enterprises and Another Versus The State of Jharkhand and Another

The Court quashed the criminal proceedings and order taking cognizance in a case involving non-deposit of TDS under the Income Tax Act, 1961. The ... Prosecution proceedings for TDS default - Economic Offence - complainant was posted as Deputy Commissioner (TDS) filed the complaint in his official capacity of the alleged offence committed u/s 276B r.w.s. 278B of Income Tax Act, 1961 and the petitioner’s firm had deducted TDS for the financial year 2015-16, Assessment year 2016-17 but failed to deposit the same with the department as per the provision of the Income Tax Act - petitioner is partner of the firm and he has also been made accused in the complaint in accordance with section 248B and as alleged has wilfully and deliberately not deposited TDS - HELD THAT:- As the Court finds that there is no denial that the commencement of the operation of the petitioner company is with effect from January, 2016 and when the notice was received by the petitioner, the petitioner has filed reply disclosing that the TDS amount along with interest has already been deposited on 11.5.2016 itself whereas sanction order was passed on 14.02.2018 and the prosecution was launched on 13.04.2018 i.e. after much delay of depositing the said TDS amount along with the interest. It is not a case that the prosecution was filed earlier and thereafter the T.D.S amount was deposited. No penalty proceeding initiated against the petitioner - Court finds that the amount of the TDS along with the interest has already been deposited and after lapse of time the said case was registered and the Court further finds that the assessee has succeeded in proving that there is full and sufficient reasons for his failure before the authority under the Act by way of filing the said reply wherein he has intimated that this amount in question has already been deposited along with the interest and no penalty proceeding is initiated against the petitioner and in the case in hand as the amount has been deposited along with the interest and as such, there was no occasion to proceed against the petitioner under section 276(B) of the Income Tax Act. It is well settled that penalty should serve as a deterrent. In the case in hand, the petitioner has already been deposited the TDS amount along with the interest. In the case of K.C. Builders and Another [2004 (1) TMI 7 - SUPREME COURT] the criminal case was held to be not survived in view of the fact that the penalty is struck down and in the case in hand even the penalty proceeding has not been initiated against the petitioner. How the amount is deposited and when sanction and prosecution have been initiated which has already been discussed hereinabove. The Court finds that in such a situation to allow the present proceeding to continue further will amount to abuse of process of law. Accordingly, the entire criminal proceeding including the order taking cognizance dated 02.05.2018 arising out of Economic Offence Complaint Case No. 17 of 2018, pending in the court of learned Special Court, Economic Offence, Ranchi is quashed. Issues Involved:The petition was filed to quash criminal proceedings and order taking cognizance arising from an Economic Offence Complaint Case related to non-deposit of TDS under the Income Tax Act, 1961.Details of the Judgment:1. The complaint alleged that the petitioner's firm failed to deposit TDS as per Income Tax Act provisions. The petitioner, a partner in the firm, was accused of willfully not depositing TDS despite knowledge of the liabilities. The prosecution was launched based on a sanction order by the Commissioner of Income Tax. 2. The petitioner argued that the firm started operations in January 2016 and was unaware of TDS requirements initially. Upon learning, the petitioner promptly consulted a chartered accountant, obtained a TAN number, and deposited the TDS with interest. The petitioner contended that the prosecution was unwarranted as the amount was deposited before the sanction order and no penalty proceedings had commenced.3. The Income Tax Department countered that non-compliance justified the criminal case, citing precedents where courts upheld proceedings for such failures. They argued that the petitioner had been given ample opportunity and expressed readiness to face trial in an anticipatory bail application. 4. The Court noted that the TDS amount with interest was deposited before the prosecution was initiated, and no penalty proceedings were initiated against the petitioner. Citing legal principles, the Court emphasized that penalties should serve as deterrents. Referring to relevant case law, the Court highlighted the need for mens rea in willful failure cases.5. Drawing parallels to a Supreme Court case, the Court held that since penalty proceedings were not initiated and the TDS amount was deposited before prosecution, allowing the case to proceed further would be an abuse of the legal process. Consequently, the Court quashed the criminal proceedings and the order taking cognizance.6. The judgment allowed and disposed of the petition, vacating the interim order in the matter.