SC Upholds Quashing of TDS Prosecution as Tax & Interest Were Deposited Before Criminal Proceedings

ACIT Vs AT Dev Prabha (TV) & Ors. (Supreme Court of India)

The Supreme Court dismissed the Special Leave Petition (SLP) filed against the judgment of the Jharkhand High Court in ACIT v. AT Dev Prabha (TV) & Ors. After condoning the delay, the Supreme Court heard the petitioner, found no merit in the Special Leave Petition, dismissed it, and disposed of the pending applications.

The underlying judgment of the Jharkhand High Court concerned a batch of criminal miscellaneous petitions seeking quashing of cognizance orders and criminal proceedings initiated under Sections 276B and 278B of the Income-tax Act for delayed deposit of Tax Deducted at Source (TDS). The prosecution alleged that the petitioners had deducted TDS but failed to deposit the amounts with the Central Government within the prescribed time, resulting in prosecution after obtaining sanction under Section 279(1). The TDS amounts varied across the cases.

Read HC Judgment in this case: Initiation of Criminal Proceedings after TDS Deposit with Interest is invalid: HC

The petitioners contended that although there had been delay in depositing TDS, the entire TDS amounts had subsequently been deposited along with interest under Section 201(1A). They argued that prosecution was unwarranted after payment of both the tax and interest. They also relied upon the CBDT Instruction dated 28.05.1980, which provides that prosecution under Section 276B should not normally be proposed where the amount involved and/or the period of default is not substantial and the defaulted amount has already been deposited to the credit of the Government. The petitioners relied on judicial precedents, including the Patna High Court decision in Sonali Autos (P) Ltd., which had considered the same CBDT instruction.

The Income Tax Department argued that payment of interest under Section 201(1A) and criminal prosecution under Sections 276B and 278B operate independently. It submitted that delayed deposit of TDS could attract both civil consequences and criminal prosecution and that questions relating to reasonable cause were matters for trial. Reliance was placed on decisions including Income Tax Officer v. Sultan Enterprises and Shaw Wallace & Co. Ltd.

The Jharkhand High Court noted that the TDS amounts had been deposited with interest in all the cases and that, except in one or two matters, the amounts involved were not more than ₹50,000. It found that while granting sanction under Section 279(1), the sanctioning authority had not considered the CBDT Instruction dated 28.05.1980. Referring to the Patna High Court decision in Sonali Autos (P) Ltd., the Court observed that the CBDT instruction states that prosecution under Section 276B should ordinarily not be proposed where the amount involved or the period of default is not substantial and the amount has already been deposited, while interest under Section 201(1A) would still apply.

The High Court further observed that prosecution had been launched only after the TDS amounts, together with interest, had already been deposited. It held that the position would have been different had prosecution been initiated immediately after the default and the deposit made subsequently. The Court also referred to Section 278AA, which provides that no person shall be punished for a failure under Section 276B if reasonable cause is established. It distinguished the authorities relied upon by the Income Tax Department on the ground that the CBDT instruction had not been considered in those decisions.

Holding that continuation of the criminal proceedings after receipt of the TDS amount and interest, coupled with non-consideration of the CBDT instruction while granting sanction, amounted to an abuse of the process of the Court, the High Court quashed all the cognizance orders and criminal proceedings pending before the Special Judge, Economic Offences, Dhanbad. The Supreme Court thereafter declined to interfere with the High Court’s decision by dismissing the Special Leave Petition.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

Delay condoned.

Heard learned counsel for the petitioner.

We do not find any merit in the special leave petition.

The special leave petition is dismissed.

Pending applications, if any, are disposed of.