Case Law Details
Fusion Engineering Products Vs Union of India (Jharkhand High Court)
Introduction: The case of Fusion Engineering Products vs. Union of India, heard in the Jharkhand High Court, revolves around allegations of a delay in depositing Tax Deducted at Source (TDS) and whether Section 278AA of the Income Tax Act applies due to the pendency of BIFR (Board for Industrial and Financial Reconstruction) proceedings. This article provides a detailed analysis of the case and its implications.
Background: Fusion Engineering Products Ltd, through its Director Jyotirmoy Ghosh, sought to quash the entire criminal proceeding, including the order taking cognizance under Section 276B of the Income Tax Act, 1961, in connection with the delay in depositing TDS.
Delay in TDS Deposit: The prosecution’s complaint alleged a delay in depositing TDS of Rs. 2,89,844 for the Financial Year 2011-12 and assessment year 2012-13. According to the prosecution, the amount was deposited after the stipulated time of seven days from the following month.
Company’s Defense: Fusion Engineering Products argued that the entire TDS amount had been deposited before the issuance of any notice. The delay was not intentional. They pointed out that BIFR proceedings had been pending against the company since 1991, leading to industrial sickness. Consequently, they couldn’t deposit the TDS within the stipulated time.
Legal Precedents: The petitioner’s counsel relied on legal precedents where criminal prosecutions in similar circumstances were quashed. They also referred to a judgment by the Jharkhand High Court in a case involving M/s A. M. Enterprises and the State of Jharkhand.
Delay in Show Cause Notice: It was highlighted that there was an inordinate delay of six years in issuing the show cause notice. The TDS amount had already been deposited in 2009, while the notice was issued in 2014.
Opposing View: The Income Tax Department opposed the quashing of the case, arguing that the law explicitly imposes penalties when TDS isn’t deposited. They contended that Section 22 of the Sick Industrial Company (Special Provisions) Act, 1985, didn’t exempt companies from criminal prosecution under Sections 276B of the Income Tax Act. The Income Tax Department relied on the Madhumilan Syntex Ltd. v. Union of India case to support its stance.
Court’s Decision: The court considered the pendency of BIFR proceedings and the company’s industrial sickness as a reasonable cause for the delay in TDS deposit. It invoked Section 278AA of the Income Tax Act, which provides for reasonable cause exemptions. As a result, the court quashed the impugned order and the entire criminal proceeding against the petitioners.
Conclusion: The Fusion Engineering Products vs. Union of India case underscores the importance of considering reasonable causes for TDS deposit delays. In this instance, the court’s application of Section 278AA recognized the impact of BIFR proceedings and industrial sickness on the company’s ability to meet the stipulated deadline for TDS deposit. This decision sets a precedent for cases where external factors contribute to payment delays.
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
Both the criminal misc. petitions raise common questions of law and fact therefore, they are heard together and will be disposed of by this common order.
1. Cr. M. P. No.1664/2015 has been filed M/s Fusion Engineering Products Ltd through its Director Jyotirmoy Ghosh for quashing the entire criminal proceeding including the order taking cognizance dated 11.06.2015 learned, Special Court (Economic Offence), Jamshedpur in connection with Complaint Case No. C/2-337/ 15 whereby and where under cognizance of offence has been taken under Section 276B of the Income Tax Act, 1961 read with Section 278B of the said Act against the petitioner. Cr. M. No.810/2016 has been preferred by the Petitioners who are the directors M/s Fusion Engineering Products Ltd.
2. Prosecution complaint was lodged for the delay in depositing the TDS amount of Rs.2,89,844/- for the Financial Year 2011-12 and assessment year 2012-13. As per the case of the prosecution, the complaint filed by Income Tax Officer (TDS Ward), Jamshedpur, the amount had been deposited after the stipulated time of seven days of the following month.
3. The main allegation against the Petitioner Company is that there was delay in depositing the TDS amount of Rs.2,89,844/- for the Financial Year 2011- 2012 and assessment year 2012-2013. As per the case of the prosecution disclosed in the prosecution complaint filed by Income Tax Officer (TDS Ward), Jamshedpur, the amount had been deposited after the stipulated time of seven days of the following month.
4. The main plea of the petitioner is that the entire TDS amount has been deposited even before the issuance of receipt of notice. The delay was not intentional since 1991 BIFR proceeding was pending against the company and due to industrial sickness of the company, the TDS amount could not be deposited within the stipulated time.
5. Learned counsel for the petitioner in support of her submission has relied upon the judgment reported on 2022 SCC Online Jhar 537 wherein the criminal prosecution has been quashed on similar fact situation and the SLP has been dismissed by the Hon’ble Supreme Court. Reliance is also placed in the judgment passed in W.P.(Cr.) No.577 of 2022 by this Hon’ble High Court in the case of M/s A. M. Enterprises and Anr. vs. The State of Jharkhand and Anr.
6. It is submitted that there is inordinate delay of six years in issuing the show cause notice. The TDS amount was already deposited in the year 2009 whereas the show cause notice was issued in the year 2014.
7. Learned counsel for the Opp. Party- Income Tax Department has opposed the quashing petition. It is submitted that the provisions is express and emphatic that once the TDS has been made and the company fails to deposit, penal provision is attracted. It cannot be said that the Petitioner-Company was not having the requisite amount for depositing it in the account of the Central Government. It is further submitted that Section 22 of the Sick Industrial Company (Special Provisions) Act, 1985, certain coercive actions have been mentioned, but that does include criminal prosecution under Sections 276B of the Income Tax Act. Whether there existed a reasonable ground for not depositing the said amount is a matter which can be looked into only by the learned Trial Court. Reliance is placed on Madhumilan Syntex Ltd. v. Union of India, (2007) 11 SCC 297
27. From the above provisions, it is clear that wherever a company is required to deduct tax at source and to pay it to the account of the Central Government, failure on the part of the company in deducting or in paying such amount is an offence under the Act and has been made punishable. It, therefore, cannot be said that the prosecution against a company or its Directors in default of deducting or paying tax is not envisaged by the Act.
8. The Income Tax Department in the counter-affidavit has not disputed that the TDS amount has been deposited, although after a delay of 12 months.
9. This Court is of the view that pendency of BIFR proceeding against the company due to industrial sickness of the company, delay in deposit of the TDS amount within the stipulated time was a reasonable cause. In view of the reasonable cause, Section 278AA of the Income Tax will apply.
Under the aforesaid facts and circumstance, the impugned order as well as the entire criminal proceeding is quashed against the petitioners named above.
Criminal miscellaneous petitions are allowed.
