Introduction
In the present case, Sree Metaliks Ltd. v. Union of India[i], a petition was filed to quash a complaint case registered against the Assessee under ss. 276B and 278B of the Income-tax Act, 1961 (‘IT Act’). The Orissa High Court (‘HC’) quashed the proceedings against the Assessee, as the delay in depositing the belated tax deducted at source (‘TDS’), along with interest, was attributable to factors like Insolvency Proceedings and COVID-19. Further, prosecution proceedings were initiated by the IT Department after receipt of the TDS amount; hence, under such circumstances, the proceedings were liable to be quashed.
Brief Facts
The Assessee failed to deposit the TDS amount for the financial year (‘FY’) 2019-20, pursuant to which complaint case under ss. 276B and 278B were initiated against the assessee.
The revenue contended that even with the subsequent deposit of the belated TDS amount, along with the interest, the offence under ss. 276B and 278B of the IT Act would be committed.
It was further alleged that delays were due to statutory dues collected on behalf of the government ranging from 15 to 394 days. Under such circumstances, the competent authority was right according to the sanction under s. 279 (1) of the IT Act.
The Petitioner made submissions regarding suffering significant losses because of sluggishness in the iron ore market, as well as the ongoing corporate insolvency resolution process (‘CIRP’), which was initiated against the Petitioner by one of his financial creditors, in which the resolution plan had duly been accepted.
The Petitioner also submitted that subsequent to acceptance of the resolution plan, they had started paying the debts and statutory dues based on the company's flow. Further, the delay in depositing the TDS for FY 2019-20 was attributable to the outbreak of the COVID-19 pandemic.
In light of the above-stated circumstances, the Petitioners contended that no mens rea was involved, and the delay in depositing the TDS amount with the revenue was unavoidable and unintentional.
The Petitioner, relying on judicial pronouncements and the departmental circular dated 24.04.2008, submitted that the prosecution against the Petitioner was unsustainable as the revenue had accepted the delayed TDS payment along with interest, and the prosecution was launched only upon the receipt of such payments.
Held
The HC held that the maximum delay of 394 days for non-deposit of the TDS was well explained by the Petitioner. The authorities should have considered this, particularly because the Petitioner underwent CIRP proceedings and the restrictions imposed during COVID-19.
Additionally, the Petitioner’s case was aptly covered by the observations made in Dev Multicom (P.) Ltd. v. State of Jharkhand[ii] and D.N Homes (P.) Ltd. v. Union of India[iii], wherein the criminal proceedings were quashed for being initiated after receipt of the TDS amount. The HC also quashed the present proceedings.
Our Analysis
In this case, the criminal proceedings initiated against the petitioner for the delay in submitting TDS were quashed because the petitioner had deposited the TDS amount along with interest and provided valid reasons for the delay. This ruling confirms that prosecution under ss 276B and 278B of the IT Act for delayed TDS filing should only occur if the delay lacks bona fide justification. Criminal prosecution is not warranted if the TDS is filed before the initiation of prosecution and the delay is adequately explained by the assessee. However, it is important to note that this judgment appears to diverge from a decision by the Hon’ble Punjab and Haryana High Court in Deputy Commissioner of Income Tax v. Modern Motor Works[iv]. In that case, it was held that mens rea is not a necessary element for offences under ss. 194A, 200, and 276B of the IT Act. The key distinction in the Modern Motor Works case (supra) was that the assessee failed to provide a bona fide explanation for the delay, which contrasts with the present case, where legitimate and bona fide reasons were acknowledged.
End Notes
[i] 2024 SCC OnLine Ori 1283
[ii] [2022] 138 taxmann.com 538/[2023] 454 ITR 48 (Jharkhand)
[iii] CRLREV No.408 of 2023
[iv] [1996] 87 Taxman 182 (Punjab & Haryana).
Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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