2023 (10) TMI 709 - HC - Income Tax

Criminal proceedings dismissed under Section 276B due to industrial sickness causing TDS delay, per Section 278AA.

The HC quashed the criminal proceedings against the petitioners under Section 276B of the Income Tax Act, 1961, concerning the delay in depositing TDS for ... Delay in depositing tax deducted at source (TDS) - quashing of criminal prosecution - reasonable cause for delay - pendency of BIFR / sick industrial company proceedings - applicability of Section 278AA of the Income Tax Act - offence under Section 276B of the Income Tax ActDelay in depositing tax deducted at source (TDS) - reasonable cause for delay - pendency of BIFR / sick industrial company proceedings - applicability of Section 278AA of the Income Tax Act - quashing of criminal prosecution - Whether delay in depositing TDS, explained by pendency of BIFR proceedings and industrial sickness, constituted a reasonable cause invoking Section 278AA and warranted quashing of the criminal prosecution under Section 276B. - HELD THAT: - The Court accepted the petitioners' unchallenged position that the TDS amount for Financial Year 2011-12 (assessment year 2012-13) was deposited though after the statutory time and that BIFR proceedings for industrial sickness were pending. The Income Tax Department did not dispute deposit of the amount. Applying the concept of reasonable cause, the Court held that pendency of BIFR proceedings and industrial sickness constituted a reasonable ground for delay in deposit. On this basis Section 278AA was held to be applicable, and criminal proceedings for delayed deposit under Section 276B could be quashed. The Court noted that factual enquiry as to intention or other matters could be left to the trial court where required, but on the facts before it quashing was appropriate.Impugned cognizance order and the criminal prosecution under Section 276B were quashed as Section 278AA applied given the reasonable cause of industrial sickness and pendency of BIFR proceedings.Final Conclusion: The criminal miscellaneous petitions are allowed; the order taking cognizance and the criminal proceedings related to delayed deposit of TDS for Financial Year 2011-12 (assessment year 2012-13) are quashed on the ground that pendency of BIFR proceedings and industrial sickness constituted a reasonable cause engaging Section 278AA. Issues involved: The issues involved in this judgment are the quashing of criminal proceedings u/s 276B of the Income Tax Act, 1961 and delay in depositing TDS amount.Quashing of Criminal Proceedings: The petitioners filed Cr. M. P. No.1664/2015 and Cr. M. P. No.810/2016 seeking to quash the criminal proceedings, including the order taking cognizance u/s 276B of the Income Tax Act, 1961. The prosecution complaint alleged delay in depositing TDS amount for the Financial Year 2011-12 and assessment year 2012-13, which was deposited after the stipulated time. The main plea of the petitioners was that the TDS amount was deposited before the issuance of notice, citing industrial sickness of the company as a reason for the delay.Delay in TDS Deposit: The main allegation against the Petitioner Company was delay in depositing the TDS amount for the Financial Year 2011-2012 and assessment year 2012-2013. The prosecution claimed that the amount was deposited after the stipulated time, leading to the criminal proceedings. The petitioners argued that the delay was unintentional due to the company's industrial sickness and pending BIFR proceedings since 1991.Legal Arguments: The petitioner's counsel relied on previous judgments to support their case, highlighting a similar case where criminal prosecution was quashed by the Supreme Court. They also argued that there was an inordinate delay of six years in issuing the show cause notice, as the TDS amount was deposited in 2009 but the notice was issued in 2014. The Income Tax Department opposed the quashing petition, stating that penal provisions are attracted if the TDS is not deposited, and reasonable grounds for delay should be examined by the Trial Court. Reference was made to the Sick Industrial Company (Special Provisions) Act, 1985, and a Supreme Court case to support their argument.Court's Decision: The Court considered the industrial sickness of the company and the delay in TDS deposit as a reasonable cause, applying Section 278 AA of the Income Tax Act. Consequently, the Court quashed the impugned order and the entire criminal proceedings against the petitioners. The Criminal miscellaneous petitions were allowed, leading to the dismissal of the criminal proceedings against the petitioners.