2023 (11) TMI 447 - HC - Income Tax

COVID-19 pandemic constitutes reasonable cause under Section 278AA for delayed TDS deposits prosecution quashed

M/s. D.N. Homes Pvt. Ltd., Khurda & Another Versus Union of India

The Orissa HC allowed a revision petition challenging prosecution under Section 276B of the IT Act for delayed TDS deposits ranging from 31 to 214 days. ... Offence punishable u/s 276B - delay in depositing the TDS amount in the account of the Opposite Party (Complainant) ranging from 31 days to 214 days - COVID-19 Pandemic Effects - Reasonable and sufficient cause - as alleged Petitioners (accused persons) have committed the offence u/s 276(B) of the IT Act punishable with rigorous imprisonment for a term not less than three months and may extend to 7 years and fine for contravention of the provisions contained in chapter-XVII-B of the IT Act and Rule-30 of the Income Tax Rules, 1962 which mandates the deposits to be made by 7th of the next month - HELD THAT:- The Court must lean for an interpretation which is consistent with the “object, good sense and fairness” thereby eschew the others which render the provision oppressive and unjust, as otherwise, the very intent of the legislature would be frustrated. It is in all plausibility therefore to be inferred that to cater such exigencies, the legislature has enacted section 278AA of the I.T. Act. It is also crucial to note that the legislative intent is well discernable so far the usage of the word ‘reasonable cause’ u/s 278AA of the I.T. Act is concerned which qualifies the penal provision laid under section 276B of the Act. Both the provisions accordingly are to be read together to ascertain the attractability of the penal provision. It is well settled law that in a criminal proceeding by merely showing a reasonable cause, an accused can be exonerated and for showing that reasonable cause, the standard of proof of such fact in support of the same is lighter than the proof of such fact in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason. It may not be out of place to note here that in case the ITO Vrs. Roshni Cold Storage [1998 (7) TMI 13 - MADRAS HIGH COURT] the terrible financial stringency, heavy losses, colossal losses and carry forward losses, have been recognized as reasonable cause in further holding that paucity of funds and financial stringency would fall as reasonable cause within the scope and ambit of the meaning of reasonable cause. This Court is of the considered view that the present complaint is vitiated as the failure on the part of the Petitioners to comply within the provision of law as to deposit of the deducted TDS was on account of the reasonable causes for the prevalence of COVID-19 Pandemic standing on their way. The order of sanction thus being found to have been passed without due application of mind and in a mechanical manner even putting the blame upon the Petitioners for not filing any exemption/ relaxation notifications / circulars, the same stands vitiated. The Court below in the facts and circumstances ought not to have taken cognizance of the offence under section-279B, section 2(35) and 278(B) of the I.T. Act when even the latter two are no penal provisions and as such is bad in law and liable to be set aside.Revision is allowed. Issues Involved:1. Maintainability of the Revision.2. Non-application of mind by the Magistrate while taking cognizance of the offences.Summary:I. Maintainability of the Revision:Addressing the objection as to the maintainability of the Revision, the court noted that under Section 397 of the Cr.P.C., powers conferred upon the Court in exercising the Revisional jurisdiction are wide but are curtailed by sub-section (2) which prohibits revisional jurisdiction in respect of interlocutory orders. The court referred to the Hon'ble Apex Court's decision in Girish Kumar Suneja (2017) and other precedents, which clarified that orders can be final, intermediate, or interlocutory. An intermediate order, such as an order taking cognizance of an offence, is revisable as it is not merely interlocutory. The court concluded that the objection raised by the Petitioners, if upheld, would terminate the entire prosecution, thus making the order an intermediate one and amenable to revisional jurisdiction.II. Non-application of Mind by the Magistrate:The Petitioners contended that their failure to deposit TDS within the stipulated time was due to the reasonable cause of the COVID-19 pandemic, which caused severe disruptions. They argued that the Magistrate failed to consider this reasonable cause and that the sanction for prosecution was granted mechanically without due application of mind. The court considered the legislative intent behind Section 278AA of the IT Act, which provides an exemption from penal consequences if there is a reasonable cause for failure. The court emphasized that the term 'reasonable cause' should be interpreted liberally based on the facts of each case.The court noted that the Petitioners had deposited the TDS along with interest, and there was no loss to the revenue. The COVID-19 pandemic was a globally recognized disaster that caused significant economic and operational disruptions, which the Petitioners cited as the reason for the delay. The court found that the Commissioner of Income Tax (TDS), Bhubaneswar, had not properly considered these reasonable causes in the sanction order, which led to the prosecution.In light of the above, the court held that the complaint was vitiated due to the reasonable causes for the Petitioners' failure to deposit the TDS on time. The order of sanction was found to be passed without due application of mind and was thus vitiated. Consequently, the court set aside the impugned order taking cognizance of the offences under sections 276B, 2(35), and 278B of the IT Act.Conclusion:The Revision was allowed, and the impugned order dated 02.02.2023 passed by the learned ACJM (Spl.), Cuttack in 2(CC) Case No.04 of 2023 was set aside.