Sponsored
    Follow Us:

Case Law Details

Case Name : Kashvi International Pvt. Ltd. & another Vs Union of India (Orissa High Court)
Appeal Number : CRLMC No. 2622 of 2024
Date of Judgement/Order : 23/12/2023
Related Assessment Year :
Become a Premium member to Download. If you are already a Premium member, Login here to access.
Sponsored

Kashvi International Pvt. Ltd. & another Vs Union of India (Orissa High Court)

In the case of Kashvi International Pvt. Ltd. v. Union of India, the Orissa High Court quashed prosecution proceedings initiated against the petitioners for delay in depositing TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) amounts. The petitioners had collected these taxes for the financial year 2021-2022 but failed to deposit them within the prescribed timeline, resulting in the initiation of criminal proceedings under Sections 276B and 276BB of the Income Tax Act. The delay ranged from 1 to 84 days, and the authorities had filed a complaint, arguing that the late deposit amounted to an offence.

The petitioners explained that the delay was due to a series of financial and operational challenges, exacerbated by the COVID-19 pandemic. They highlighted the adverse economic conditions, including the impact of restrictions on their business and cash flow issues caused by the state government’s decision to withdraw installment payments for a mining lease. The petitioners argued that the delay was a result of reasonable causes beyond their control. The Orissa High Court, after reviewing similar precedents, concluded that the COVID-19 pandemic and the financial difficulties stemming from it provided a reasonable explanation for the delay. In light of these circumstances, the court exercised its inherent jurisdiction and quashed the prosecution proceedings.

The court referenced prior judgments where delays in tax payments were excused due to the pandemic, including cases where the financial strain on businesses was acknowledged. The decision emphasized that the prosecution, in this case, was not in the public interest, especially since the TDS amounts had eventually been paid along with interest. The court’s ruling provides a significant precedent for businesses facing difficulties due to unforeseen circumstances, such as a global pandemic, and highlights the judiciary’s understanding of the challenges businesses faced during this period.

FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT

1. By way of this petition, the petitioners are seeking quashing of the order dated 11.08.2023 passed by the learned Additional Chief Judicial Magistrate (Special Court), Cuttack in 2(C)C.C. Case No.47 of 2023, whereby cognizance of offences punishable under Sections 276B/276BB of I.T. Act has been taken and summons have been issued against the petitioners.

2. The respondent-revenue initiated the prosecution by filing complaint case under Section 190 of Cr.P.C. of the alleged offences, cognizance of which has been taken by the learned court below.

3. The allegations against the petitioners are that they have collected TDS and TCS amounts from various sources during the financial year 2021-2022 to the tune of Rs.1,03,78,362/- but did not deposit the same in the revenue account by the stipulated due date. As per Rule 30 of the I.T. Rules, the tax deducted from source is required to be deposited by 7th day of the succeeding month and if the TDS is made in the month of March, then the said amount is to be deposited by 20th April of the next financial year. In the present case, the TDS amount has been deposited by the petitioners in the Government account belatedly delayed ranging from 1 day to 84 days. Therefore, they have allegedly committed the offences punishable under Sections 276B and 276BB of the I.T. Act. The petitioners were issued show cause notice under Section 279(1) read with Section 276B and Section 276BB of the I.T. Act on 08.02.2023 calling upon them to explain the delay in depositing the amount collected from different sources towards TDS and TCS. The petitioners vide separate reply dated 01.03.2023 have given the following explanation:

“2. That the notice wish to state that the assesse company Kashvi International (P) Ltd. which was granted lease of Jaribahal iron ore mines in the district of Keonjhar in the PY 2020-21 through exaction process. The said exaction was successfully bided after quoting a premium of 150% which means the assesse company shall be required to pay premium on regular basis to the State Government @150% on rate of iron ore published by Indian Bureau of Mines (IBM) from time to time. To set an example if rate published by IBM for a particular month is Rs.5000/- per MT. then the assesse shall be required to pay to the State Government premium Rs.7,500/- per MT in addition to royalty @ 15% of IBM price i.e Rs.750/, DMF @10% of Royalty i.e Rs.75/-, NMET @2% of Royalty i.e Rs.15/- and GST@18% of Sales Price Rs.900/-. Thus the final cost to the assesse company works out to be Rs.18240/-. If the market rate is higher than Rs.18240/- then only the assesse will gain. But drastic hike in export duty on iron ore and range of finished steel products w.e.f. 26.05.2022 adversely impacted iron ore market and steel industries as the market price of iron ore and finished steel products remained lower than the cost of sales. Furthermore, the new mining policy of the Government requires a lessee to dispatch a guaranteed quantity on the basis of Minimum Dispatch Production Agreement (MDPA) even if the market price is lower than the cost. In case a lessee is unable to dispatch the MDPA quantity, the lease is liable to be terminated. Therefore, the assesse having no other option had to sale both iron ore and finished steel products at incurring cash loss in order to save the livelihood of its workers and employees as cancelation of lease would have resulted in loss of jobs for its workers and employees. It is pertinent to state that there are about 327 nos. of permanent employees and 428 nos. of casual workers engaged both at the mines and plant of the assesse company. The State Government after realizing the difficulties faced by the mine owners initially had allowed the assesse company to pay the premium amount of Rs.83.05 Crore in installaments. But subsequently the State Government due its own cash crunch had to withdraw the installments by directing the lessees to pay the whole premium amount at one go. Due to sudden withdrawal of installments by the State Government the cash flow of the assesse was severely affected leading to delay in payment of various dues including TDS as protecting the livelihood of employees had to be given priority particularly in post COVID-19 scenario of joblessness in the country. Thus the delay in deposit of TDS was due to a reasonable cause which was beyond the control of the assesse company. In view of the reasonable cause as explained above, the impugned proceedings in the matter of prosecution u/s 276B in the case of the assesse Company is not in public interest.”

4. Pursuant to this notice, the competent authority has accorded sanction under Section 279(1) of the I.T. Act, 1961 vide its order dated 09.05.2023. The said sanction order is placed at Annexure-3 to this Perusal of the sanction order reveals that the competent authority although has taken into consideration some of the explanation offered by the petitioners to explain the sufficient reason for delay in depositing the TDS amount, but the vital aspect of the explanation offered by the petitioners regarding the cause of delay attributable to the COVID restriction has not been considered. Be that as it may, after obtaining sanction from the competent authority through the Public Prosecutor, the complaint case being 2(C)C.C. Case No.47 of 2023 has been lodged against the petitioners. Subsequent thereto, cognizance of offences has been taken by the competent court by the impugned order.

5. Heard Mr. Rudra Prasad Kar, learned Senior Counsel for the petitioner and Mr. Avinash Kedia, learned counsel for the Revenue.

6. Mr. Kar, at the outset, submitted that the case of the present petitioners is directly covered by the judgments of this Court in the case of D.N.  Homes  (P)  Ltd.  v.  Union  of  India,  reported  in  (2023)  156 taxmann.com 169 (Orissa) and Sree Metaliks Ltd. v. Union of India, reported in (2024) 162 taxmann.com 161 (Orissa) and also the judgment dated 01.05.2024 passed by this Court in CRLMC No.824 of 2024, Yash Marothia v. Union of India. Mr. Kar has extensively read out the judgments at the Bar. I feel it appropriate to highlight the following passages from one of the aforementioned judgments which assume relevance in the facts of the present case. In Sree Metaliks Ltd. (supra), this Court has held as under:

“4. Mr. Sidhartha Ray, learned Senior Counsel appearing for the petitioners, inter alia, contended that due to general sluggishness in the market price of iron ore etc, the petitioners-company suffered huge loss. Apart from that at the instance of one of the financial creditor, a proceeding under Section-7 of the Insolvency & Bankruptcy Code, 2016 was initiated against the petitioner company. The I.B. proceeding was admitted on 30.01.2017 and resolution plan of the resolution applicant was approved on 07.11.2017. After approval of the resolution plan, the company gradually started paying the debts and statutory dues on the basis of the case flows of the company. Therefore, the delay has been caused in making payment of the TDS amount to the revenue. The petitioners have also contended that due to the outbreak of COVID-19 pandemic in the month of March, 2020, they could not deposit the TDS amount for the Financial Year 2019-20.Therefore, there is no mense rea involved in the unavoidable act of the petitioner in depositing the TDS amount with the Revenue belatedly. Despite general explanation afforded by the petitioners, the opposite parties have mechanically dealt with those explanations and proceeded to file the statutory complaint against the petitioners. Hence, the petitioners seek, indulgence of this Court.

9. Mr. Mohapatra, learned Senior Standing Counsel appearing for the Income Tax opposed the prayer made by the petitioners and contended that the distress financial condition of the petitioners company and the COVID-19 pandemic situation cannot be taken as an alibi for late deposit of TDS into the Government account, as the amount was collected on behalf of the Government and due diligence was supposed have been taken for depositing the tax amount within the stipulated time frame. Mr. Mohapatra further contends that the COVID-19 pandemic restriction measures were only imposed during the month of March, 2020. However, the delay in remittance is not limited to that period. Mr. Mohapatra further contends that the Circular dated 24.04.2008 relied upon by the petitioners will not come to their aid because the delay is beyond one year. The petitioners could have escaped the prosecution, had the delay been within a period of 12 months. In that view of the matter, the sanction accorded by the competent authority under section 279(1) of the Act cannot be faulted with.

10. Taking into consideration the rival contentions of learned counsels for the parties and the judgments relied upon by the petitioners, I am of the considered view that the maximum delay of 394 days for depositing the TDS amount to the revenue account have been well explained by the petitioners, therefore, the authorities ought to have been taken into consideration same, particularly for the reasons that the petitioners company has suffered the I.B. proceeding and the restriction imposed during the COVID-19 pandemic, I am of the view that the petitioners case is directly covered by the judgments cited in the case of Dev Multicom Pvt. (supra) and M/s. D.N. Homes (P) Ltd. Khurda & another (supra), because the prosecution indeed has been initiated by the opposite parties against the petitioners after having received the TDs amount along with the interest. Therefore, the entire proceeding arising out of 2(c) CC Case No.09 of 2023 pending in the Court of the learned Additional Chief Judicial Magistrate (Spl.)- cum-Asst. Sessions Judge, Cuttack and the consequential proceedings arising therefrom qua the petitioners stands quashed.”

From D.N. Homes (P) Ltd. (supra), the following paragraphs are reproduced hereunder, which matches the facts of the present case:

“17. In the present case in hand, the distinguishable factual settings of the facts behind the projected reasonable cause vis-à-vis the case of Madhumilan Syntex Ltd. (supra) is that here the Petitioners do not project the causes concerning the Petitioner-Company or its officials-in-charge or their business affairs or the conduct of some other party/agency posing any hurdle/hindrance to the Petitioner- Company in operation causing hindrance to the smooth running of their business activities, but they proffer the prevalence of Pandemic COVID-19 situation in the country to be the reasonable cause standing on their way leading to the delay in depositing the collected TDS, thereby failing to strictly comply with the provision contained in the provision in Chapter-XVII-B of the IT Act read with the Rule- 30 of the I.T. Rules thereunder which is a punishable offence.

18. The above being the crucial distinguishable factual aspect in the cited case of Madhumilan Syntex Ltd. (supra) to that of the case at hand which is being now dealt with, this Court is of the considered view that the prevalence of COVID-19 Pandemic situation in the country, when stands admitted, it would not be impermissible to say that the said factual settings being projected by the Petitioners as the reasonable cause occasioning their failure thus cannot be taken to be the failure falling within the ambit of reasonable cause which cannot be gone into at this stage but to be delved upon only in the trial; more so when that aspect can be judged without even the Petitioners tendering any evidence in support of the same.

Therefore, now it stands to be examined as to whether prevalence of the Pandemic COVID-19 situation in the given factual settings of the case at hand was the reasonable cause which had stood on the way of the Petitioners to comply with the provisions contained in the I.T. Acts and Rules in relation to the deposit of the TDS.

22. Coming to the case before us, the prosecution has been launched against the Petitioners for delay in deposit of the collected TDS for the Financial Year, 2020-21 (Accounting Year, 2021-22). The collected TDS was admittedly not deposited with the Central Government by the due date. The Petitioners thus have failed to deposit the collected TDS within the time stipulated as ordained under provision of the I.T. Act and Rules. They have deposited the said amount in phase manner with the delay in making the deposit which begins with the minimum of 31 days, ending at 214 days. It is not in dispute that the Petitioners have by the time of consideration of the matter as to launching of the prosecution for such delayed deposit, had deposited the entire TDS with the interest as they were liable to pay as per this statutory provision for such delayed deposit of the TDS. The collected TDS with interest as above has been accepted and gone to the State Exchequer when by then no loss to the Revenue was standing to be viewed.

23. COVID-19 had come as a novel virus and disease resulting in a Pandemic for the entire world. The whole world has faced this phenomenon with differing intensity, mutations and waves, impacting life itself, healthcare systems, livelihood, access to amenities, liberties etc. making it a global health challenge affecting all countries.

When COVID-19 virus started spreading in our country, the Union of India proactively notified COVID-19 as a pandemic in order to exercise the responsibility of mitigating the loss of life under Disaster Management Act, 2005 (DMA, 2005). The Ministry of Home Affairs, keeping in view the spread of COVID-19 virus in India vide its letter dated 14.03.2020 decided to treat it as „notified disaster‟ for the purpose of providing assistance under the State Disaster Response Fund (SDRF). It has always been considered as a „disaster‟ within the meaning of DMA, 2005.

Several important steps have been taken by the Central Government under DMA, 2005, as also, the steps taken specifically as Nations response to COVID-19 Pandemic wherein more comprehensive, multipronged, multi sectoral, whole of society and whole of Government, while at the same time dynamic approach has been adopted, from time to time with the evolving nature of COVID-19 virus during first, second and third surges. Various steps have been taken by the Union of India, to strategies nations response to COVID-19, a once in a lifetime Pandemic inflicted on the entire world, wherein not just the funds of NDRF and SDRF, but even from the Consolidated Fund of India had been utilized. Specific steps have been taken for ramping up the entire health care infrastructure, preparedness, relief, restoration, mitigation and reconstruction, in a very short time to include:-

(a) testing, tracing, treatment and quarantine facilities;

(b) augmenting hospital facilities, oxygenated, beds, ventilators, ICU facilities etc;

(c) augmentation of health work force and their insurance;

(d) augmentation, allocation, supply and transportation of oxygen and other essential drugs;

(e) research, development, enhanced production and administration of vaccinations to rapidly cover one of the world’s largest eligible population of beneficiaries;

(f) ensuring food security to the vulnerable groups;

(g) minimizing the adverse impact of large-scale economic disruptions by multipronged approach; and

(h) rehabilitation, protection and education of children orphaned due to COVID-19.

The situation required day to day expenditure, day to day monitoring, day to day change in priorities and day to day change in the methods and modalities to deal with the same.

24. It goes without saying that COVID-19 Pandemic has caused serious economic disruption. However, the Government both at Central and State level have made herculean efforts to deter it from becoming a matter of economic distress.

In order to contain and arrest, the sporadic/rapid spread of the Virus, there have been frequent lock downs, shut downs, declaration of contentment zones, total ban on some activities, partial allowance of in some specific activity and even restraints on number of employees coming to perform those allowable activities. The Real Estate Sector heavily faced the wrath of Pandemic COVID-19 situation when even there were serious labour migrations, stoppage of all forms of construction activities as well as buying and selling of real estate projects which are all undeniable facts.

Considering the economy wide impact, the Government of India announced several packages, protecting cheap credit to small and medium business, relaxing the payment of loan dues by extending the period of repayment, exempting payments of certain taxes and fees in many areas and sectors and extending the submission of tax returns from time to time waiver of interest and/or restructuring of loan account. Similarly, various State Governments also declared all such relaxations in various Revenue related matters. The press release dated 30.12.2020 of the Ministry of Finance Department of Revenue, Government of India and the circular dated 11th January, 2022 state all these reliefs etc., keeping in view the challenges faced by taxpayers in meeting the statutory and regulatory compliances due to outbreak of COVID-19.

All these situations caused by such COVID-19 Pandemic passing though first, second and third surges somehow came to normalize only after March, 2022 which as such as a phenomenon is irrefutable.”

7. It is relevant to mention that the judgment passed by this Court in D.N. Homes (P) Ltd. (supra) was assailed by the Revenue by filing SLP (Crl.) Diary No(s).23438 of 2024. The Hon”ble Supreme Court dismissed the Special Leave Petition in limine, which has been reported in 2024(164) taxmann.com 569(SC), Union of India v. D.N. Homes (P) Ltd.

8. It is evident from the aforementioned judgment that the explanation offered by the petitioners to explain the delay ranging from 1 day to 84 days owing to the prevailing COVID pandemic then was sufficient Therefore, the Revenue ought to have considered the same under Section 178AA of the I.T. Act and ought not to have proceeded against the petitioners.

9. Mr. Kedia, learned counsel for the Revenue has vehemently opposed the prayer made by the petitioners on various grounds. He has read out extensively the sanction order dated 09.05.2023 passed by the Commissioner of Income Tax (TDS), Bhubaneswar. He contended that the Commissioner, Income Tax has extensively dealt with all the points raised by the petitioners which have been highlighted in the present petition. The sanction order is just, proper and well within the frame of law. The contentions of the petitioners are disputed questions of facts. This could only be thrashed out at the trial stage. Hence, the prayer made by the petitioners in the present petition deserves no merit. Even otherwise the offences are compoundable, hence the petitioners shall surrender to the trial court jurisdiction and resort to the right remedy. Mr. Kedia hands up a recent Circular dated 17.10.2024 issued by CBDT, which provides fresh guidelines for compounding of offences under the I.T. Act. This Circular harmonized the entire procedure for compounding all kinds of offences under the I.T. Act arising out of curable defects. Clauses 4.6 and 8.3 of the said Circular deal with the offences under Sections 276B/276BB of the Act, those clauses are reproduced for ready reference:

“4.6 Consolidation of offences: Any application for compounding of offence u/s.276B/276BB of the Act by an applicant for any period for a particular TAN should cover all defaults constituting offence u/s 276B/276BB in respect of that TAN for such period. For the purposes of considering the quantum of TDS defaults, the total default on account of non-payment of TDS/TCS for a quarter shall be considered by combining the defaults in all the statements filed by the TDS deductor, in respect of the relevant quarter.

8.3 In case an applicant files Compounding application for offences committed u/s 276B/276BB of the Act, in respect of two or more TANs falling in two or more jurisdictions, the jurisdictional authority where the quantum of TDS default is higher shall be the Competent Authority. All other applications shall be transferred to such Competent Authority. Further, in case of any dispute in deciding Competent Authority, the Pr. CCIT having PAN jurisdiction will decide Competent Authority, within 30 days of receipt of such reference.”

Mr. Kedia submits the parties should be granted liberty to resort to the alternate remedy.

10. I have given a conscious thought to the contentions raised by both the parties. Perused the documents placed before me in the present petition and also analysed the settled position of law in the subject and arrived at a conclusion that the case of the present petitioners are squarely covered by the judgments of this Court as referred to above. Hence, at this stage, this Court can give indulgence to the petitioners under inherent jurisdiction under Section 482 of Cr. P.C., although the contention raised by Mr. Kedia is in principle is correct that the offences being compoundable in nature, the petitioners generally should have resorted to the procedure under Section 320 of Cr. P.C. instead of invoking the jurisdiction of this Court. But in this case the delay being primarily because of Covid Pandemic restriction, I feel it appropriate to exercise the jurisdiction under Section 482 Cr. P.C. and quash the proceeding in the exceptional circumstances. Therefore, in the facts and circumstances of the present case, the impugned order dated 11.08.2023 passed by the learned Additional Chief Judicial Magistrate (Special Court), Cuttack in 2(C)C.C. Case No.47 of 2023 is quashed and the consequential proceedings arising therefrom are also quashed.

11. The CRLMC is accordingly disposed of.

Sponsored

Author Bio

A Blogger by Passion and a Chartered Accountant by Profession. View Full Profile

My Published Posts

Patna HC Quashes Antedated Reassessment Order No GST Penalty for Goods Description Mismatch Without Tax Evasion Intent Section 269SS Not Applicable to Broker Acting as Agent or Facilitator of Payment Service Tax Cannot Be Levied Solely Based on ITR Data: Bombay HC GST Assessment Order Invalid Without DIN: Andhra Pradesh HC View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Ads Free tax News and Updates
Sponsored
Search Post by Date
February 2025
M T W T F S S
 12
3456789
10111213141516
17181920212223
2425262728