TDS Delay- Offence u/s 276/278- Separate notice u/s 2(35) is not necessary before issuance of SCN to consider Directors as principal officers

Mehala Machines India limited Vs ITO (TDS) (Madras High Court)

TDS Delay- Offence u/s 276/278- Separate notice u/s 2(35) is not necessary before issuance of SCN to consider Directors as principal officers

The Company assessee  had deducted TDS but failed to pay  within the prescribed time. As the Petitioners (Company & directors) had delayed the deposit of TDS, Revenue filed complaints as they were liable for offences under Section 276 B r/w 278

Relying  upon the Judgment of Madras HC  in ITO vs. Roshini Cold Storage (P.) Ltd., and others reported in [2000] 245 ITR 322 (Mad), Petitioners argued that AO  had not issued a notice u/s 2 (35)   to the Directors of the Company before the   prosecution was launched and hence the complaint is liable to be quashed.  Madras HC  in Sujatha Venkateshwaran vs. ACIT  (Prosecution) [ 2018 SCC online Madras 13731]   had observed that a notice u/s 2 (35)   is a requirement for the prosecution of Directors for the offences u/s 276 B. Petitioners also contended that the CIT  had granted sanction nearly 18 months after the SCN  was issued, which is in violation of the instructions issued by the Board u/s 119.

Revenue argued that the Apex Court in  Madhumilan Syntex Ltd vs. Union of India   (2007) 11 SCC 297, held that when there is an allegation in the complaint that the Directors are principal officers & persons in charge of and responsible to the company for the conduct of its business and no separate notice is necessary u/s 2 (35). That apart, delay cannot be attributed to the Revenue because  CIT  did not grant sanction immediately since the Petitioners had submitted the reply belatedly and the time taken for reply has to be excluded as per the Board’s  instructions.

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