Case Law Details
D.N. Homes Pvt. Ltd. Vs Union of India (Orissa High Court)
Orissa High Court reviewed a revision petition challenging the legality of an order passed by the Additional Chief Judicial Magistrate (Special Court), Cuttack, in a case under Sections 276B and 278B of the Income Tax Act, 1961. The case arose from a complaint alleging that D.N. Homes Pvt. Ltd. failed to deposit tax deducted at source (TDS) within the stipulated timeframe. The petitioners argued that the delay occurred due to the COVID-19 pandemic during the financial year 2020-21. Despite eventually depositing the TDS along with the applicable interest, prosecution proceedings were initiated. The petitioners cited past Supreme Court and Jharkhand High Court rulings, asserting that when TDS is deposited with interest, prosecution should not be pursued unless the delay is substantial. They also invoked Section 278AA of the Act, which provides that no person shall be punished for failure to comply if a “reasonable cause” exists, arguing that the pandemic constituted such a cause.
The court acknowledged that the issue of “reasonable cause” warranted examination, particularly in light of the pandemic. It noted that there was no revenue loss since the TDS was ultimately deposited. The Income Tax Department, however, maintained that the statute mandates prosecution for delays, with “reasonable cause” being a matter for trial. Given these arguments, the court admitted the revision petition for further hearing, directing that the case be listed on August 23, 2023, and that the digitized lower court records be obtained. The ruling highlights the ongoing legal debate over TDS compliance and the impact of external circumstances on tax obligations.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. The Petitioners by filing this Revision has called in question the legality and propriety of an order dated 02.02.2023 passed by the learned Additional Chief Judicial Magistrate (Special Court), Cuttack (Special Court), Cuttack in 2(CC) Case No.04 of 2023.
A complaint being lodged by the Opposite Party (Complainant) arraigning these Petitioners as the accused persons for commission of offence under section-276B and 278B of the Income Tax Act, 1961 (for short called as ‘the I.T. Act’); the learned Court below by the impugned order has taken cognizance of the said offences and issued summons to the Petitioners, which is impugned in this Revision.
2. Mr. R.P. Kar, learned Senior Counsel for the Petitioners submits that the prosecution has been launched for the reason that the Petitioners having collected the Tax by deducting at source (TDS) from different persons have not deposited the same within the time stipulated under the statute and therefore, the penal consequence for being visited with the sentence as provided under section-276B and 278B of the I.T. Act by filing the complaint has been invited. He further submitted that in so far as the present case is concerned, the delay is in view of the prevalence of the COVID- 19 Pandemic situation during the Financial Year, 2020-21, and for that the Petitioners having not been able to deposit the collected TDS within the time stipulated, though they have deposited the same after few months as shown in detail in the Table as at Annexure-12; wherein the Petitioners had made a request not to launch the prosecution for such delayed period of the collected TDS, the complaint has been filed. It is also submitted that the Petitioners while depositing the collected TDS after the delay which ranges from thirty one (31) to two hundred fourteen (214) days, The interest as payable over the collected TDS has also been deposited and that has been accepted by the Authority without any demur.
Mr. Kar, learned Sr. Counsel placing the position of law laid down by the Hon’ble Apex Court in case of Madhumilan Syntex Ltd. and Others Vrs. Union of India and Another; (2007) 11 SCC 297 submits that in the case, it has been held 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 and therefore, it 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.
He however submitted that in the present case, the prevalence of COVID-19 Pandemic has stood on the way of depositing the TDS with the Government within the time stipulated. He therefore submitted that the word “reasonable cause” employed in section-278AA would squarely come to the rescue of the Petitioners since here the Petitioners are not projecting the reason confined to the Company’s affairs and the employees in- charge, which according to him, would only stand for consideration at the time in the trial has been so said in case of Madhumilan Syntex Ltd. and others (supra). Placing the provision contained therein, that notwithstanding anything contained in the provisions of section-276A, 276AB, or 276B or 276BB of the I.T. Act, no person shall be punishable for any failure referred to in the said provisions, if he proves that there was reasonable cause for such failure; he contended that in the peculiar fact situation, the reasonable cause for such failure is quite real and is apparent so as to be decided on the basis of the evidence during trial. According to him, in the present case for establishing the reason which is projected by the Petitioners to have stood on the way of depositing the TDS within the stipulated time, nothing is required to be further proved as the situation stands accepted across the globe and therefore, the failure was for the reasonable cause.
He also submitted that in several cases disposed by the Hon’ble High Court of Jharkhand on 28.02.2022 in “Dev Multicom Pvt. Ltd. and Another Vrs. State of Jharkhand and batch; (2022 SCC OnLine Jhar 537); (2023) 454 ITR 48), a view has been taken that when the prosecution for such failure to deposit the TDS by the person concerned is not launched after receiving the said amount with interest and not immediately, it amounts to abuse of the process of Court. He next submitted that the Hon’ble Jharkhand High Court in that case in taking the view has taken a queue from the CBDT instructions, bearing F.No.255/339/79-IT (Inv.) dated 28.05.1980 which reads that the prosecution under section-276B of the I.T. Act shall not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has been deposited in the meantime to the credit of Government. It is submitted that in the present case, admittedly there has been no loss of the revenue and it is not in dispute that the Petitioners while depositing the collected TDS have also deposited the interest being computed in terms of the provisions contained in the statute. He, therefore, contends that the prosecution initiated by the order of cognizance is an abuse of process of Court and the Court below by going through the detail facts contained in the sanction order ought not to have taken cognizance of said offences and thus the impugned order has caused failure of justice.
3. Mr. S.S. Mohapatra, learned Senior Standing Counsel for the Income Tax prays for grant of time to obtain instruction on all those factual settings as have been averred in the petition as also the documents more importantly Annexure-12. He, however, at the same time submits that for the delay deposit, the statute provides that the person concerned is liable for prosecution and the question of existence of reasonable cause is a matter to be decided in the trial, but not at this stage which according to him is premature while Madhumilan Syntex Ltd. and Others (supra), the Court was not faced with the situation like COVID-19 Pandemic.
4. Taking into account the submissions made, this Court is of the view that the words ‘reasonable cause’ as find mention in section-278AA of the I.T. Act arise for appropriate consideration in the touchstone of the prevalence of COVID-19 Pandemic situation during the Financial Year, 2020-21. In view of the above, since there is no loss of revenue but the prosecution is for the delay in deposit that too in the case at hand when it has been deposited with the interest, and thereafter, prosecution has been launched; I am inclined to admit this Revision.
5. Accordingly, the Revision is admitted for hearing on
6. Accepting the request of the learned Senior Standing Counsel (Income Tax); it is directed that the matter be listed on 23rd August, 2023.
In the meantime, the digitized version of the lower Court record be called for.
Author Bio
