Delayed TDS Deposit Not Automatically Criminal: Full Payment with Interest Negates Prosecution Under Income Tax Act Section 276B

RC held that delayed TDS deposit alone does not warrant prosecution under Income Tax Act. Despite 10-month delay in depositing Rs. 79,893/- TDS, petitioner paid full amount with 18% interest before show cause notice. Court set aside prosecution sanction, emphasizing penal proceedings require malicious intent, which was absent in this case.

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The Rajasthan High Court, through Justice Avneesh Jhingan, heard a writ petition challenging the sanction for prosecution under Section 279(1) of the Income Tax Act, 1961, concerning delayed TDS deposit of Rs. 79,893/- for AY 2014-15. The petitioner-company had deducted TDS but delayed its deposit by up to ten months, subsequently paying the amount with 18% interest. The Commissioner, Income Tax (T.D.S.), relying on the Supreme Court ruling in Madhumilan Syntex Ltd. v. Union of India, sanctioned prosecution.The Court emphasized the principle from Hindustan Steel Ltd. v. State of Orissa that "penal proceedings cannot be initiated merely because it is lawful to do so, unless the conduct of the assessee is malicious or contumacious." Since the petitioner voluntarily deposited TDS with interest prior to the show cause notice and their explanation regarding delays due to third-party billing was neither doubted nor rejected, the Court held that "delayed compliance of provision of deducting and depositing TDS stand alone shall not suffice for grant of prosecution sanction."Accordingly, the Court set aside the prosecution sanction order and allowed the writ petition, finding no case for prosecution against the petitioner.

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