Reasonable cause for delayed TDS deposit can protect a company from prosecution when industrial sickness and BIFR proceedings are shown.

Belated deposit of TDS may attract statutory protection where the delay is shown to have occurred for reasonable cause. The Jharkhand HC accepted that the company's industrial sickness and pendency of BIFR proceedings constituted reasonable cause, so Section 278AA of the Income-tax Act protected the petitioners despite prosecution under Sections 276B and 278B. As the tax had already been deposited, though late, the Court found no basis to continue the criminal proceeding and quashed the prosecution.

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Issues: Whether prosecution for delay in deposit of tax deducted at source could be quashed on the ground of reasonable cause, where the company was stated to be under BIFR proceedings due to industrial sickness.

Analysis: The complaint related to delayed deposit of TDS for the relevant financial year, but the amount had already been deposited, though belatedly. The Court accepted the plea that the company's industrial sickness and pendency of BIFR proceedings constituted a reasonable cause for the delay. In that view, the protection under Section 278AA of the Income-tax Act, 1961 was held applicable, even though the prosecution had been launched under Sections 276B and 278B of the Income-tax Act, 1961. The Court therefore found no reason to continue the criminal proceeding against the petitioners.

Conclusion: The prosecution was held not sustainable and the criminal proceeding was quashed in favour of the petitioners.

Final Conclusion: Belated deposit of TDS, when supported by reasonable cause arising from industrial sickness and BIFR proceedings, can attract the statutory protection against prosecution.

Ratio Decidendi: Where delay in deposit of TDS is shown to have occurred for reasonable cause, prosecution for default under the Income-tax Act cannot be sustained by virtue of Section 278AA.

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