Case Law Details
Rahee Infratech Limited Vs Union of India & Ors. (Calcutta High Court)
Summary: The Calcutta High Court considered a writ petition challenging the validity of a sanction order dated 19.05.2025 issued under Section 279(1) of the Income Tax Act, 1961 for Assessment Year 2022-23, authorizing prosecution for delayed deposit of TDS. The petitioner contended that it had replied to the show cause notice, explaining that the delay of 1 to 446 days occurred due to reasonable cause and that the reply had not been considered before granting sanction. The Department submitted that a criminal complaint had already been filed and the prosecution was pending. The High Court held that its jurisdiction under Article 226 was not barred merely because prosecution had commenced. It found that the sanction order had been passed in a perfunctory manner without considering the petitioner’s reply or recording reasons for rejecting it. Accordingly, the Court quashed the sanction order and directed the authority to reconsider the reply, grant a hearing, and pass a reasoned order in accordance with law.
Core Issue: The principal issue before the Calcutta High Court was whether a sanction order under section 279(1) of the Income-tax Act for launching prosecution relating to delayed deposit of TDS could be sustained when the assessee’s detailed reply to the show-cause notice was not considered by the sanctioning authority. An ancillary issue was whether a writ petition under Article 226 of the Constitution was maintainable after prosecution proceedings had already been initiated.
Facts: The petitioner-company was issued a show-cause notice dated 16.03.2025 proposing prosecution for delay in depositing TDS for AY 2022-23. In response, the assessee filed a detailed reply on 29.04.2025 explaining the circumstances that led to the delay. It was specifically contended that the delay ranged from one day to 446 days and was attributable to reasonable causes, thereby attracting the protection available under section 278AA of the Act. The assessee further asserted that the entire TDS together with applicable interest had already been deposited before initiation of prosecution proceedings.
Despite the detailed explanation furnished by the assessee, the competent authority granted sanction under section 279(1) and prosecution proceedings were initiated before the Metropolitan Magistrate, Kolkata. Challenging the validity of the sanction order, the assessee approached the High Court under Article 226 of the Constitution.
Contentions of the Assessee: The assessee contended that the sanction order suffered from complete non-application of mind. It was argued that the reply submitted to the show-cause notice had neither been discussed nor adjudicated by the sanctioning authority. According to the assessee, the order granting sanction was passed mechanically without considering the explanation offered regarding reasonable cause for delay. Reliance was also placed on the decision of the Supreme Court in ACIT v. At Dev Prabha (TV) & Ors., wherein it was observed that criminal proceedings may not survive where the TDS amount along with interest had been deposited prior to initiation of prosecution.
Department’s Stand: The Revenue opposed the writ petition on the ground that prosecution had already been launched and a complaint was pending before the criminal court. It was argued that once prosecution proceedings had commenced, the assessee ought to pursue remedies before the criminal court rather than invoke writ jurisdiction.
High Court Findings: The High Court rejected the Revenue’s preliminary objection regarding maintainability. It held that mere initiation of prosecution proceedings does not automatically bar the exercise of writ jurisdiction under Article 226. Where the facts disclose exceptional circumstances and a patent procedural illegality, the High Court can interfere notwithstanding pendency of criminal proceedings.
Examining the sanction order, the Court found prima facie merit in the assessee’s grievance that its reply had not been properly considered. The Court observed that the sanctioning authority had passed the order in a “perfunctory and slip-shod manner” without demonstrating any application of mind to the explanation furnished by the assessee. The order did not indicate why the defence raised by the assessee was rejected, nor did it contain any reasons dealing with the plea of reasonable cause under section 278AA.
The Court emphasized that before granting sanction for prosecution, the competent authority is required to objectively evaluate the assessee’s explanation and record reasons. A sanction order affecting civil and criminal consequences cannot be sustained if it is passed mechanically without considering relevant material placed on record.
The High Court held that the absence of any discussion or adjudication of the assessee’s reply rendered the sanction order legally unsustainable.
Held:
The High Court quashed the sanction order dated 19.05.2025 passed under section 279(1) of the Income-tax Act. The matter was remanded to the competent authority with a direction to reconsider the assessee’s reply dated 29.04.2025, grant an opportunity of hearing, and thereafter pass a fresh reasoned order in accordance with law.
Ratio Decidendi: A sanction order under section 279 authorising prosecution cannot be sustained where the assessee’s reply to the show-cause notice is not properly considered and the order does not disclose reasons for rejecting the explanation offered. Grant of sanction requires conscious application of mind and objective consideration of all relevant material. A mechanical or non-speaking sanction order is liable to be quashed. Further, pendency of criminal prosecution does not oust the High Court’s writ jurisdiction where exceptional circumstances disclose violation of principles of natural justice or failure of the authority to properly exercise statutory powers.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. The instant writ petition has been filed challenging inter alia, the legality, validity and the sustainability of the sanction order dated 19.4.20259 passed under Section 279(1) of the Income Tax Act, 1961 for the assessment year 2022-23.
2. The core issue involved herein is whether a prosecution case can be initiated against the assessee for the delay in depositing the collected TDS, despite the issuance of a notice and a reply filed thereto, and whether a sanction order can be passed arbitrarily and mechanically to initiate criminal proceedings before the appropriate Court of law.
3. Learned counsel appearing for the petitioner submits that the show cause notice dated 16.3.2025 for the assessment year 2022-23 has been responded to and replied on 29.4.2025.
4. It is submitted that by way of a letter dated 29.4.2025 the petitioner has categorically explained the reasons for the failure to deposit the entire TDS within the statutory period.
5. As per the mandate of the Section 278 (AA) a delay renging from a minimum of 1 day to a maximum of 446 days is attributable to reasonable cause for non-compliance in depositing the TDS within the statutory period.
6. Learned counsel appearing for the petitioner places reliance upon the judgment of the Hon’ble Apex Court in the case of Asstt. CIT v. At Dev Prabha (2023) 150 Com 275/293 Taxman 172/454 ITR 59 wherein it has been held that in cases where the TDS amount, along with interest, has been deposited prior to the initiation of criminal proceedings, the criminal proceedings initiated subsequently are liable to be quashed and set aside.
7. The petitioner submits that the sanction order passed under Section 279 of the said Act, 1961 suffers from legal infirmity, since the same has been passed without considering the reply filed by the petitioner. The same is tantamount to being perverse and is not sustainable in the eye of law and is liable to be quashed.
8. Learned counsel appearing for the Department vehemently opposes the same and submits that a complaint has been lodged and a prosecution cases has been initiated, and 19.9.2026 has been fixed for hearing of the prosecution case before the 16th Metropolitan Magistrate, Kolkata.
9. In conspectus of the facts adumbrated herein, I find that the petitioner has been able to prima facie satisfy this Court that interference is warranted at this stage.
10. Despite the prosecution case has been initiated, the jurisdiction of this Court under Article 226 of the Constitution of India cannot be ousted.
11. The instant case also falls within certain exceptional circumstances on the ground that the reply filed by the petitioner to the show cause notice has not been apparently considered and adjudicated and the concerned authority has passed the sanctioned order in a very perfunctory and slip-shod manner, without proper application of mind to the reply filed by the petitioner and without recording any reasons for rejecting the explanation furnished therein.
12. Since the sanction order does not reflect the proper consideration and adjudication of the reply, the said order dated 19.5.2025 for the assessment year 2022-23 passed under Section 279 of the said Act is hereby quashed and set aside.
13. I direct the respondent no. 2 to revisit the issue by considering the reply dated 29.4.2025 within a period of two weeks from the date of communication of this order and to pass a reasoned order in accordance with law upon affording an opportunity of hearing to the petitioner and communicate such decision within a week thereafter.
14. With the above observation, the writ petition is disposed of along with other consequential proceedings.
15. Since the affidavits have not been called for, the allegations made in the writ petition are deemed not to have been admitted.
16. Urgent Photostat certified copy of this order be supplied to the parties, if applied for, as early as possible.
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