2025 (12) TMI 500 - HC - Income Tax

Quashing plea under Section 528 BNSS/482 CrPC rejected; TDS prosecution under Sections 276B, 278B, 278E to proceed

Dr Manoj Khanna Versus Income Tax Office.

HC dismissed the petition under Section 528 BNSS (Section 482 CrPC) seeking quashing of prosecution under Sections 276B, 278B and 278E. It held that the ... Offences u/s 276B read with section 278B and 278E - inherent power and jurisdiction of this Court under Section 528 of Bharatiya Nagarik Suraksha Sanhita/BNSS (Section 482 Cr.P.C.) at a pre-trial stage - HELD THAT:- While exercising the power under Section 528 of the BNSS (Section 482 of the CrPC) to quash a complaint at the pre-trial stage, it is pertinent for this Court to examine whether the factual defence is of such impeachable nature that the entire allegations made in the complaint is disproved. Court is required only to examine whether prima facie ingredients of the offence are disclosed, and not to enter into a detailed scrutiny of sufficiency or reliability of evidence. In the present case, it is noteworthy that Section 276B criminalises failure to pay TDS deducted to the credit of the Central Government. The sanction order clearly records that tax was deducted but not deposited within time and these are foundational facts constituting the offence and their existence has not been disputed by the Petitioner. Main defence taken by the Petitioner is that as per the replies of the Accused No. 2/Sanjeev Mahajan, it stands admitted that Sanjeev Mahajan was the CEO and Director of the Company at the relevant time, and was solely responsible for managing affairs of the company and deducting and depositing TDS - Sanction order records that both the Accused No. 2 and the Petitioner were held as Principal Officers/Responsible Officers of the accused/Company and the Petitioner was also a holder of almost 99% of shares and also the responsible person during Financial Year 2017-18. Pertinently, Accused No. 2 had also filed a separate reply, alleging that it was the Petitioner who was the Managing director-cum-chairman of the company and was responsible for all the financial activities of the company. Significantly, neither the default in deposit has been disputed nor it has been disputed that the Petitioner was the Manging Director. Both the directors have merely accused each other for the default and none has provided any reason for the actual cause of delay in the TDS deposits. Hence, in view of the above, the veracity of the allegations raised by both the directors and the liability of the Petitioner, becomes purely a factual issue, which can only to be decided after due consideration of evidence at the time of trial. Section 278B provides that every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to- be guilty of the offence and shall be liable to, be proceeded against and punished accordingly. Further Section 278E, raises a statutory presumption of culpable mental state. Hence, the presumption can be rebutted only at trial, upon leading evidence. Even the explanation of financial difficulty or “reasonable cause”, leading to the delay in filing of the TDS, again becomes a triable defence, and cannot be adjudicated in the present proceedings. Petition essentially invites this Court to appreciate the material and to sit in appeal over the satisfaction recorded by the sanctioning authority and the Trial Court’s assessment at the stage of summoning. Interference for that purpose would amount to conducting a mini-trial at the threshold, which is impermissible. The Petitioner’s contentions raise triable issues of fact and credibility which must be adjudicated in the course of a trial where oral and documentary evidence can be tested. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the inherent jurisdiction under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (Section 482 CrPC) can be invoked at the pre-trial stage to quash the complaint and summoning order in a prosecution under Section 276B read with Sections 278B and 278E of the Income Tax Act, 1961, on the basis of the petitioner's factual defences. (2) Whether, on the admitted facts, the complaint and summoning order against the petitioner (a Managing Director and principal officer) for failure to deposit TDS within time disclose the necessary prima facie ingredients of offences under Sections 276B, 278B and 278E, or are liable to be quashed on the grounds that (a) another director allegedly had sole responsibility for TDS, and (b) the TDS was subsequently deposited. (3) Whether subsequent deposit of TDS and pleas of 'financial difficulty' or 'reasonable cause' negate or extinguish criminal liability under Section 276B at the threshold stage. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Scope of inherent powers under Section 528 BNSS / Section 482 CrPC at pre-trial stage in tax prosecution Legal framework as discussed (a) The Court referred to the scope of inherent powers under Section 528 BNSS (corresponding to Section 482 CrPC) as elucidated by the Supreme Court in Rajiv Thapar v. Madan Lal Kapoor, emphasising that:    (i) Quashing at the stage of issuing process, committal, or framing of charge has far-reaching consequences as it negates the prosecution case without trial.    (ii) The High Court must be satisfied that the defence rests on 'sound, reasonable and indubitable facts' of 'sterling and impeccable quality' which rule out and displace the prosecution's assertions and clearly reject the veracity of the accusations.    (iii) Such material should be incapable of being justifiably refuted and sufficient to discard the accusations without recording evidence. (b) The Court reiterated that at the stage of cognizance, the requirement is only to see whether the complaint discloses the prima facie ingredients of the offence, not to evaluate sufficiency or reliability of evidence. Interpretation and reasoning (c) The Court held that the petition was filed at a pre-trial stage where 'questions of disputed fact, in absence of evidence of unimpeachable character to the contrary, cannot be inquired into or adjudicated upon'. (d) The petitioner's reliance on correspondence of another director and competing claims regarding who was 'solely responsible' for TDS deduction and deposit were found to raise disputed questions of fact, not material of unimpeachable and sterling quality that would outrightly demolish the prosecution case. (e) The Court noted that both directors had levelled allegations against each other and no party had produced conclusive material explaining the cause of delay or excluding the petitioner's responsibility; thus, the controversy was inherently factual and suitable only for adjudication at trial. Conclusions (f) The Court concluded that the threshold for exercise of inherent jurisdiction under Section 528 BNSS / Section 482 CrPC to quash the complaint was not met. (g) Entertaining the petitioner's contentions would require the Court to reappreciate material and sit in appeal over the sanctioning authority's satisfaction and the Trial Court's summoning order, amounting to a 'mini-trial at the threshold', which is impermissible. (h) The petition was therefore not a fit case for exercise of inherent powers to quash the prosecution at the pre-trial stage. Issue (2): Prima facie liability of a Managing Director / principal officer under Sections 276B and 278B, and effect of rival responsibility claims Legal framework as discussed (a) Section 276B criminalises failure to pay to the credit of the Central Government the tax deducted at source. (b) Section 278B provides that where an offence under the Act is committed by a company, every person who, at the time the offence was committed, was in charge of and responsible to the company for conduct of its business, as well as the company, shall be deemed to be guilty and liable to be proceeded against and punished. (c) Section 278E raises a statutory presumption of culpable mental state, which can be rebutted only at trial upon leading evidence. Interpretation and reasoning (d) The Court found that the foundational facts constituting the offence under Section 276B were not in dispute:    (i) The company deducted TDS of Rs. 2,09,13,002/- during the relevant financial year.    (ii) The deducted TDS was not deposited into the Government treasury within the stipulated time under the Act. (e) It was undisputed that the petitioner was the Managing Director during the relevant period. The sanction order further recorded that:    (i) Both the petitioner and the other director had been held to be 'Principal Officers/Responsible Officers' of the company under Section 2(35) of the Act.    (ii) The petitioner held almost 99% of shares and was the responsible person during the relevant financial year. (f) While the petitioner relied on replies of the other director to claim that the latter was 'solely responsible' for management and TDS compliance, the record also contained a separate reply by that director alleging that the petitioner, as Managing Director-cum-Chairman, was responsible for all financial activities. (g) The Court observed that:    (i) Neither the default in TDS deposit nor the petitioner's status as Managing Director was disputed.    (ii) Both directors were blaming each other, and no documentary material had been produced to conclusively establish that the petitioner was not in charge of and responsible for the conduct of the business at the relevant time. (h) In this backdrop, the Court characterised the determination of the petitioner's precise role and responsibility, and the veracity of the rival allegations, as pure questions of fact requiring evidence and cross-examination. (i) Given Section 278B's deeming provision and Section 278E's presumption of culpable mental state, the Court held that any attempt to rebut responsibility or mental element must be undertaken at trial, not in quashing proceedings. Conclusions (j) The complaint and sanction order disclosed prima facie ingredients of offences under Sections 276B, 278B and 278E against the petitioner as a person in charge of and responsible for the conduct of the company's business. (k) The petitioner's claim that another director alone was responsible, and that he was not concerned with TDS deposit, was a factual defence incapable of resolution without trial, and hence could not justify quashing. (l) The summoning order based on such prima facie material did not warrant interference under inherent powers. Issue (3): Effect of subsequent deposit of TDS and pleas of financial difficulty / reasonable cause on criminal liability under Section 276B Legal framework as discussed (a) The Court reiterated the settled principle that subsequent payment does not obliterate criminal liability unless the statute specifically provides for such effect. (b) Section 278E creates a presumption of culpable mental state, placing the onus on the accused to rebut the presumption by evidence. Interpretation and reasoning (c) It was argued that the present case involved only delayed deposit of TDS, and that TDS had ultimately been paid. The Court rejected this, holding that:    (i) Default in timely deposit is itself an offence under Section 276B.    (ii) The Act does not provide that subsequent deposit extinguishes or nullifies criminal liability for the earlier default. (d) The Court further held that explanations such as financial difficulty or 'reasonable cause' for delay constitute factual defences which require evidence and cannot be adjudicated in proceedings under Section 528 BNSS / Section 482 CrPC. (e) In view of Section 278E, the presumption of culpable mental state could only be rebutted at trial upon leading appropriate evidence; it could not be negated at the threshold merely by assertions of financial constraints or post-facto compliance. Conclusions (f) Subsequent deposit of TDS, even if admitted, does not by itself efface or extinguish criminal liability for default under Section 276B. (g) Alleged financial difficulty or reasonable cause for delay, and the question whether such cause rebuts culpable mental state, are triable issues to be determined at trial, not in quashing proceedings. (h) On these considerations, the Court held that there was no ground to quash the complaint or summoning order; the petitioner remains at liberty to raise all defences at trial.