2025 (10) TMI 1065 - HC - Income Tax

Conviction under Section 276B for TDS non-deposit upheld; failure to prove reasonable cause under Section 278AA; fine reduced to admonition

HC upheld conviction under Section 276B for failure to deposit TDS, finding delays of 4-15 months and that the respondent failed to prove reasonable cause ... Offence u/s 276B r/w Section 278B - delay in depositing the TDS - Failure to pay tax to the credit of Central Government under Chapter XllD or XVIIB - Reasonable cause of delay - HELD THAT:- TDS amount deducted in a month has to be deposited on or before 7th day of the subsequent month in terms of the IT Act and rules made thereunder. Ex.CW1/4 proves that Respondent had committed default in timely deposit of TDS amount during the Financial Year 2012-13 showing the details of the tax deducted. The Ld. ACMM concluded that the document and the evidence on record reflected a delay in deposit of TDS ranging from 4-15 months. The Respondent also had not disputed that there was delay in deposit of TDS amount. The offence as provided under Section 276B is, therefore, shown to have been committed. Section 278AA of IT Act provides that notwithstanding anything contained in the provisions of Section 276A, 276AB or Section 276B or Section 276BB, no person shall be punishable for any failure referred in the said provisions if he proves that there was reasonable cause for such failure. Whether the Respondent was able to give any reasonable cause for the delay, which is not denied. In the Statement under Section 313 Cr.P.C, the Accused Company through its Director Sumit Singhal, took the defence of the bad financial condition of the Company on account of which the TDS could not be deposited in time and was ultimately deposited after the availability of funds and interest. ACM had rightly observed that aside from a bald assertion about the financial condition, no cogent evidence had been led by the Respondent in proof thereof. Pertinently, no witness was examined by the Respondent Company nor any documents placed on record to explain the alleged financial condition of the Company. The onus to prove special circumstance of bad financial condition was on the Respondent to dispel the absolute liability imposed by a Company under Section 276B of IT Act. The best evidence to establish this defence was to produce the documentary evidence to reflect the poor financial condition, which it has miserably failed to do. There was a delay of 4-15 months, in deposit of TDS. This shows that the Respondent was functioning and had the financial capacity to pay, though delayed by 4 months to 15 months. There is no circumstance brought forth by the Respondent to show that there existed any reasonable cause in depositing the TDS with delay. The bald assertion in the Statement of Accused under S.313 cannot be considered as a defence proven in terms of S. 278AA IT Act, so as to entitle the Respondent to an Acquittal. Respondent miserably failed to establish its defence under Section 278AA of IT Act. The Ld. ACMM in the Impugned Judgment dated 17.12.2018 was right in holding the Respondent guilty for the offence under Section 276B IT Act for not depositing the TDS for the Financial Year 2012-13 in time, despite deducting it in the Government Account within the prescribed period. Quantum of fine imposed upon the Respondent - ACMM had sentenced the Company to a fine of Rs.25 lacs u/s 276B IT Act. However, it is not in dispute that the entire amount along with compensatory interest has already been deposited by the Respondent. Considering that it is a technical offence and the Respondent has already deposited the entire amount along with the compensatory interest, and that the Company is facing Liquidation proceedings, reflecting its poor financial status, further imposition of fine is not merited in the given circumstances. Judgment of the Ld. ASJ setting aside the Judgment of Ld. ACMM is, therefore, erroneous and based on wrong appreciation of facts and is hereby, set aside. The Sentence of fine of Rs.25 lacs, as imposed by learned ACMM, is hereby modified and the Respondent Company is sentenced to admonition. ISSUES PRESENTED AND CONSIDERED 1. Whether the ingredients of offence under Section 276B read with Section 278B, Income Tax Act are made out where Tax Deducted at Source (TDS) was deducted but deposited with delay. 2. Whether a statement recorded under Section 313 Cr.P.C. can, without corroborative documentary or oral evidence, constitute proof of a 'reasonable cause' under Section 278AA, Income Tax Act, sufficient to absolve a deductor of criminal liability under Section 276B. 3. Whether, having found commission of the offence under Section 276B, imposition of a monetary fine is warranted where the TDS principal amount along with compensatory interest has subsequently been deposited and the corporate accused is undergoing liquidation/has poor financial condition (sentencing discretion). ISSUE-WISE DETAILED ANALYSIS Issue 1: Establishment of offence under Section 276B read with Section 278B (TDS deducted but deposited with delay) Legal framework: Section 276B criminalizes failure to pay deducted tax to the credit of the Central Government; the statutory timeline requires deposit of monthly TDS on or before the 7th day of the subsequent month. Section 278B relates to penalties/procedural adjuncts for offences under the Chapter. Precedent Treatment: The Court primarily applied the statutory scheme and evidentiary record to determine commission of the offence; no earlier decision was treated as overruling the statutory standard for establishing the offence. Interpretation and reasoning: The documentary record (deduction particulars) established that TDS of Rs.1,28,94,348/- was deducted during the relevant year but deposited with delays ranging 4-15 months. The accused did not dispute the existence of delay. Given the absolute liability of a deductor under Section 276B to deposit deducted tax within the prescribed period, the proved delay satisfied the mens rea/actus reus required for conviction under the provision. Ratio vs. Obiter: Ratio - Delay in depositing deducted TDS established by uncontroverted documentary evidence constitutes commission of the offence under Section 276B; the statutory timeline is determinative. Obiter - ancillary remarks on the length of delay evidencing capacity to pay. Conclusions: The offence under Section 276B read with Section 278B was made out on the evidence of deduction and delayed deposit; conviction on the substantive offence was justified by the Trial Court's findings. Issue 2: Sufficiency of statement under Section 313 Cr.P.C. to establish 'reasonable cause' under Section 278AA Legal framework: Section 278AA provides a statutory defence: notwithstanding provisions creating offences (including Section 276B), no person shall be punishable if he proves there was a 'reasonable cause' for failure to deposit. Section 313 Cr.P.C. permits the court to put incriminating material to the accused and record his explanation; such a statement is not itself substantive evidence. Precedent Treatment: The Court treated the settled evidentiary principle that a Section 313 statement is not evidence and cannot substitute for adducing defence evidence or documentary proof to discharge an onus placed by a statutory exception. Interpretation and reasoning: The accused's explanation in the Section 313 statement was that poor financial condition prevented timely deposit; however, no corroborative oral witnesses or documentary evidence (financial statements, bank records, ledgers, contemporaneous communications) were produced to establish the claimed special circumstance. The Court observed that the onus to prove the special circumstance lies on the accused and that bald assertions in Section 313 are insufficient to discharge that onus in terms of Section 278AA. The duration of delays (4-15 months) was held to indicate ongoing functioning and capacity to pay, undermining the assertion of genuine financial inability. Ratio vs. Obiter: Ratio - A statement under Section 313 Cr.P.C., standing alone and unsupported by corroborative evidence, cannot establish 'reasonable cause' under Section 278AA and cannot defeat criminal liability under Section 276B. Obiter - Observations on the nature and quantum of corroborative evidence that would be expected (documentary proof of insolvency/illiquidity) to establish reasonable cause. Conclusions: The defence under Section 278AA was not established. Reliance solely on the Section 313 statement was impermissible; absence of documentary or witness evidence meant the accused failed to discharge the statutory onus, supporting the Trial Court's conviction on the substantive offence. Issue 3: Sentencing - whether fine should be imposed where principal and compensatory interest have been deposited and company faces liquidation Legal framework: Sentencing under Section 276B contemplates fine and rigorous imprisonment; sentencing discretion allows consideration of remedial acts (payment of dues and interest), nature of the offence (technical versus deliberate evasion), and the offender's financial condition (e.g., liquidation proceedings). Precedent Treatment: The Court exercised statutory sentencing discretion informed by remedial payment and the accused's present financial status; no precedent was treated as binding to mandate a specific quantum where relevant mitigating factors exist. Interpretation and reasoning: Although conviction was upheld, the Court noted the entire principal amount and compensatory interest (Rs.22,095,859/-) had been deposited. The offence was characterized as technical (delay in deposit after deduction, not failure to deduct), and the corporate entity was undergoing liquidation, reflecting poor financial status. In these circumstances, imposing the originally imposed fine of Rs.25 lakhs was deemed not merited. The Court therefore modified the sentence from fine to admonition, balancing the need for deterrence with remediation already effected and the accused's financial incapacity. Ratio vs. Obiter: Ratio - Where the penal consequence flows from failure to deposit deducted tax, payment of the principal with compensatory interest and demonstrable poor financial condition of the offender may justify reduction or modification of fine, while maintaining conviction. Obiter - Commentary on the rehabilitative or deterrent aims in taxing criminal liability in corporate contexts. Conclusions: Conviction under Section 276B read with Section 278B is affirmed; however, sentencing is modified - monetary fine remitted and replaced with admonition in view of full deposit of dues with interest and the company's liquidation/poor financial state. Cross-references See Issue 1 for statutory basis of liability; see Issue 2 for evidentiary burden to invoke the Section 278AA defence; see Issue 3 for application of mitigating factors at sentencing where remedial payment has been made.