TDS default and reasonable cause: bare financial hardship claim is insufficient, but sentence may be reduced after payment.

Failure to deposit TDS within the prescribed time attracts liability under Section 276B, and once default is shown the accused must prove reasonable cause under Section 278AA with cogent evidence. A bare assertion of financial hardship in a Section 313 CrPC statement, unsupported by documents or witnesses, is insufficient to discharge that burden. Where the tax and compensatory interest have already been paid and the default is treated as technical, the sentence may be moderated. In the stated facts, conviction was restored, but the fine was set aside and substituted with admonition.

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Issues: (i) Whether the respondent company was rightly acquitted of the offence under Section 276B of the Income-tax Act, 1961 in view of the delay in depositing TDS and the defence of reasonable cause under Section 278AA; (ii) Whether the sentence of fine imposed for the offence under Section 276B required interference.

Issue (i): Whether the respondent company was rightly acquitted of the offence under Section 276B of the Income-tax Act, 1961 in view of the delay in depositing TDS and the defence of reasonable cause under Section 278AA.

Analysis: The material on record showed that TDS deducted during the relevant financial year was not deposited within the prescribed time and the delay ranged from four to fifteen months. The respondent did not dispute the delay. Once default in timely deposit was established, the burden shifted to the respondent to prove reasonable cause under Section 278AA. The only defence was a bald assertion of financial hardship in the statement under Section 313 of the Code of Criminal Procedure, 1973, unsupported by any witness or documentary evidence. Such an unsubstantiated plea was insufficient to discharge the statutory burden.

Conclusion: The acquittal was unjustified and the finding of guilt under Section 276B read with Section 278B of the Income-tax Act, 1961 was restored.

Issue (ii): Whether the sentence of fine imposed for the offence under Section 276B required interference.

Analysis: The tax deducted, together with compensatory interest, had already been deposited. The Court treated the matter as a technical default and also noted that the company was in liquidation and in a poor financial position. In these circumstances, further imposition of fine was not considered necessary, and the sentence was modified.

Conclusion: The fine of Rs. 25 lakhs was set aside and the respondent company was sentenced to admonition.

Final Conclusion: The appeal succeeded on the challenge to acquittal, while the monetary sentence was reduced, resulting in restoration of conviction with modification of punishment.

Ratio Decidendi: In a prosecution for failure to deposit TDS, once the default is established, the accused must prove reasonable cause under Section 278AA of the Income-tax Act, 1961 by cogent evidence; a bare plea in a statement under Section 313 of the Code of Criminal Procedure, 1973 is insufficient, though the sentence may be moderated where the tax and compensatory interest have already been paid.

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