Facts of the Case

A complaint was filed by the Income Tax Department against the respondent company for failure to deposit tax deducted at source for Financial Year 2012–13 within the prescribed time, in violation of Section 276B read with Section 278B of the Income-tax Act, 1961. The learned ACMM convicted the respondent company by judgment dated 17.12.2018 and imposed a fine of ₹25 lakhs. On appeal, the learned Additional Sessions Judge by judgment dated 14.08.2019 set aside the conviction and acquitted the respondent on the ground that the TDS along with fine had already been deposited. Aggrieved, the Department preferred the present criminal appeal after obtaining leave to appeal.

Issues Involved

Whether subsequent deposit of TDS along with interest absolves criminal liability under Section 276B of the Income-tax Act, whether the respondent had established “reasonable cause” under Section 278AA to avoid punishment, and whether the acquittal recorded by the Sessions Court was sustainable in law.

Petitioner’s Arguments

The Department contended that the offence under Section 276B is complete upon failure to deposit TDS within the statutory time and that subsequent payment does not erase the offence. It was argued that the Sessions Court erred in relying solely on the statement of the accused under Section 313 Cr.P.C. without any corroborative evidence to establish reasonable cause. The Department submitted that no documentary or oral evidence was led by the respondent to substantiate alleged financial hardship and that the acquittal was contrary to settled law.

Respondent’s Arguments

The respondent company submitted that the entire TDS amount along with compensatory interest had been deposited and that the company was facing liquidation proceedings, reflecting poor financial condition. It was contended that no offence was made out and that the Sessions Court had rightly appreciated the facts in acquitting the respondent.

Court Order / Findings

The Delhi High Court examined the evidence on record and held that the respondent had admittedly deducted TDS but failed to deposit the same within the prescribed time, with delays ranging from four to fifteen months. The Court held that the offence under Section 276B stood established. The Court further held that Section 278AA requires the accused to prove reasonable cause for failure, and that a bald assertion of financial difficulty in a statement under Section 313 Cr.P.C., without any supporting evidence, is insufficient. The High Court found that the Sessions Court erred in setting aside the conviction merely because the TDS was subsequently deposited. Accordingly, the acquittal was held to be unsustainable.

Important Clarification

While restoring the finding of guilt, the Court took note of the fact that the entire TDS amount along with substantial compensatory interest had already been deposited, that the offence was technical in nature, and that the respondent company was undergoing liquidation. In these circumstances, the Court held that further imposition of a heavy fine was not warranted.

Final Outcome

The appeal filed by the Department was allowed. The judgment of the Sessions Court dated 14.08.2019 acquitting the respondent was set aside. The conviction of the respondent company under Section 276B of the Income-tax Act was restored; however, the sentence of fine of ₹25 lakhs imposed by the learned ACMM was modified, and the respondent company was sentenced to admonition. The appeal and all pending applications were disposed of accordingly.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769502768_INCOMETAXOFFICERWARD743NEWDELHIVsGREATINDIANNAUTANKICO.PVT.LTD.pdf 

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