Facts of the Case

A criminal complaint was filed by the Income Tax Department under Section 200 of the CrPC for offences punishable under Sections 276B read with Sections 278B and 278E of the Income-tax Act, 1961. The complaint alleged that M/s Enhance Aesthetic & Cosmetics Studio Pvt. Ltd. deducted tax at source amounting to ₹2,09,13,002 during Financial Year 2017–18 but failed to deposit the same within the prescribed time. The petitioner, Dr. Manoj Khanna, was the Managing Director of the company during the relevant period. The Deputy Commissioner of Income Tax passed orders under Section 2(35) of the Act treating the petitioner and another director as Principal Officers responsible for the default. Sanction for prosecution was granted by the CIT (TDS) on 18.05.2022. The Trial Court took cognizance and issued summons on 21.10.2024. Aggrieved, the petitioner approached the High Court seeking quashing of the complaint and summoning order.

Issues Involved

Whether criminal proceedings for delayed deposit of TDS could be quashed at the pre-trial stage under Section 528 of the Bharatiya Nagarik Suraksha Sanhita read with Section 482 CrPC, whether the petitioner could escape prosecution by attributing responsibility solely to the other director, and whether subsequent deposit of TDS extinguished criminal liability under the Income-tax Act.

Petitioner’s Arguments

The petitioner contended that he was wrongly summoned and was not responsible for deduction and deposit of TDS. It was argued that the other director, who was the CEO and whole-time director, had admitted responsibility for TDS compliance in contemporaneous replies filed before the Department. The petitioner also submitted that the TDS had eventually been deposited, though belatedly, and therefore criminal prosecution was unwarranted.

Respondent’s Arguments

The Revenue opposed the petition, submitting that the petitioner was the Managing Director and in charge of the day-to-day affairs of the company during the period of default. It was argued that the sanctioning authority had passed a detailed sanction order after due application of mind and that subsequent payment of TDS does not wipe out criminal liability. The Department contended that all defences raised by the petitioner involved disputed questions of fact, which could only be adjudicated at trial.

Court Order / Findings

The Delhi High Court held that the inherent powers under Section 528 BNSS / Section 482 CrPC are to be exercised sparingly, particularly at the pre-trial stage. Relying on the Supreme Court decision in Rajiv Thapar vs. Madan Lal Kapoor, the Court observed that quashing is permissible only where the defence is based on unimpeachable material of sterling quality, which conclusively demolishes the prosecution case. The Court noted that it was undisputed that TDS was deducted but not deposited within time and that the petitioner was the Managing Director during the relevant period. The rival claims of responsibility between the two directors and the plea of reasonable cause were held to be disputed factual matters. The Court further held that subsequent deposit of TDS does not extinguish criminal liability under Section 276B and that statutory presumptions under Sections 278B and 278E could be rebutted only during trial.

Important Clarification

The Court clarified that where the foundational facts of deduction of TDS and delay in deposit are admitted, and the accused was in charge of the company at the relevant time, criminal liability cannot be ruled out at the threshold. Defences relating to internal management, financial difficulty or reasonable cause are matters of evidence and must be tested during trial, not in quashing proceedings.

Final Outcome

The petition was dismissed. The Delhi High Court declined to quash the criminal complaint and summoning order, holding that the petitioner’s liability under Sections 276B, 278B and 278E of the Income-tax Act involves triable issues of fact to be decided during trial.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769503114_DRMANOJKHANNAVsINCOMETAXOFFICE.pdf

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