2024 (12) TMI 1351 - HC - Income Tax

Criminal proceedings quashed for TDS/TCS non-deposit delays during COVID pandemic under Section 178AA IT Act

M/s. Kashvi International Pvt. Ltd. & another Versus Union of India

HC quashed criminal proceedings against petitioners for offences under sections 276B/276BB of IT Act relating to non-deposit of TDS/TCS amounts. Delays ... Cognizance of offences punishable u/s 276B/276BB - non deposit of TDS and TCS amounts in the revenue account by the stipulated due date - delay ranging from 1 day to 84 days - HELD THAT:- Explanation offered by the petitioners to explain the delay ranging from 1 day to 84 days owing to the prevailing COVID pandemic then was sufficient explanation. Therefore, the Revenue ought to have considered the same under Section 178AA of the I.T. Act and ought not to have proceeded against the petitioners. Thus, it is appropriate to exercise the jurisdiction u/s 482 Cr.P.C. and quash the proceeding in the exceptional circumstances - impugned order passed by Additional Chief Judicial Magistrate (Special Court), Cuttack quashed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the delay in depositing Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) by the petitioners constitutes an offense under Sections 276B and 276BB of the Income Tax Act. Whether the explanation provided by the petitioners for the delay, particularly citing the impact of the COVID-19 pandemic, constitutes a 'reasonable cause' for the delay under the relevant legal framework. Whether the proceedings initiated against the petitioners should be quashed based on the precedents set by the High Court in similar cases.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Delay in Depositing TDS/TCSRelevant Legal Framework and Precedents: The prosecution was initiated under Sections 276B and 276BB of the Income Tax Act, which penalize failure to deposit TDS/TCS within the stipulated time. The petitioners were issued a show cause notice under Section 279(1) of the I.T. Act. Court's Interpretation and Reasoning: The court considered whether the delay was justifiable under the circumstances, particularly the impact of the COVID-19 pandemic. Key Evidence and Findings: The petitioners argued that the delay was due to financial constraints exacerbated by the COVID-19 pandemic, which was not adequately considered by the sanctioning authority. Application of Law to Facts: The court applied precedents from similar cases where delays due to financial distress and COVID-19 were considered reasonable causes. Treatment of Competing Arguments: The Revenue argued that financial distress and the pandemic were not valid reasons for the delay. However, the court found that the pandemic's impact was a significant factor. Conclusions: The court concluded that the delay was sufficiently explained by the pandemic's impact, and the prosecution was not warranted.Issue 2: Quashing of ProceedingsRelevant Legal Framework and Precedents: The court referred to its previous judgments in similar cases, such as D.N. Homes (P) Ltd. and Sree Metaliks Ltd., where proceedings were quashed due to reasonable explanations for delays. Court's Interpretation and Reasoning: The court emphasized the need to consider the pandemic's unprecedented impact on businesses and the economy. Key Evidence and Findings: The petitioners had deposited the TDS amount along with interest, and the delay was primarily attributed to the pandemic. Application of Law to Facts: The court applied the reasoning from previous cases, finding that the petitioners' situation was analogous to those where proceedings were quashed. Treatment of Competing Arguments: The Revenue's argument for pursuing the prosecution was outweighed by the petitioners' reasonable cause for delay. Conclusions: The court decided to quash the proceedings, considering the exceptional circumstances of the pandemic.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The explanation offered by the petitioners to explain the delay ranging from 1 day to 84 days owing to the prevailing COVID pandemic then was sufficient explanation. Therefore, the Revenue ought to have considered the same under Section 178AA of the I.T. Act and ought not to have proceeded against the petitioners.' Core Principles Established: The court reaffirmed that delays in statutory compliance due to the COVID-19 pandemic can constitute a reasonable cause, warranting the quashing of prosecution proceedings. Final Determinations on Each Issue: The court quashed the proceedings against the petitioners, recognizing the pandemic's impact as a valid reason for the delay in depositing TDS/TCS.The judgment underscores the importance of considering the broader economic and social impacts of the COVID-19 pandemic on statutory compliance and the necessity of applying legal precedents consistently to ensure fairness and justice.