Belated Deposit Of TDS, Andhra Pradesh High Court Quashes Prosecution Against Assessee

The Andhra Pradesh High Court has quashed the prosecution proceedings launched against the assessee for belatedly depositing tax deducted at source (TDS).

The bench of Justice Venkata Jyothirmai Pratapa has observed that CIT conveniently ignored the material placed by the assessee to establish that there was a reasonable cause for their failure to remit the amount within a stipulated time. Since the assessee has paid the tax along with late payment interest (although belatedly), there are no tenable grounds to continue the proceedings against the petitioners in all three cases, and hence, the proceedings are liable to be quashed.

During the assessment years 2014–15, 2015–16, and 2016–17, the accused had TDS on contract payments, but they were not credited into the Central Government's account within time.

The accused deducted amounts of Rs. 32,82,250/-, Rs. 21,31,332/-, and Rs. 10,85,795/-, respectively, under Sections 192B, 194A, 194C, and 194J, on different dates, and they were deposited belatedly. Late payment interest for assessment years, respectively, has also been paid under Section 201(1)(a) of the Income Tax Act.

The accused contended that it is an educational institution, and cases have been lodged against the petitioners for violation of Section 276B. It is not the case that the taxes have not been deducted, but it is a case where the petitioners deducted the tax at source but not credited the amount to the credit of the government within time. It is a case of belated payment of tax, and the petitioners have clearly mentioned in their explanation that the reason for this delay was due to the delay in fee reimbursement from the government of A.P., due to which remittance of the amount to the government is delayed. No offense has been made against the petitioners under Section 276B, and hence, the proceedings against the accused petitioners are liable to be quashed.

The department contended that the petitioners have to deduct the tax at source and that it has to be deposited with the government within the time frame. Though the petitioners deducted the tax at source, they failed to deposit the same, and the payment was made with interest. The show-cause notices have also been issued by the Commissioner of Income Tax, and in reply, the petitioners failed to establish a reasonable cause for the delay.

Section 276B of the Income Tax Act indicates it is applicable when there is a failure by a person to pay to the credit of the Central Government the tax deducted at source by such person as required under Chapter XVII-B or the tax payable by such person as required under Section 115-O(2) or the second proviso to Section 194-B of the Income Tax Act.

The court noted that the proceedings issued by the Commissioner of Income Tax under Section 279(1) of the Income Tax Act would show that, if the petitioners were able to establish a reasonable cause for failure to deposit the amount within the stipulated time, there could not be any criminal prosecution. It is germane to mention that Section 278AA begins with a non-obstante clause, which is a powerful device in identifying the intention of the Legislature giving effect to the enacting part of the Section in case of conflict over the provisions mentioned in the non-obstante clause. Section 276-B is also included within the fold of Section 278 AA, which states that no person shall be liable for punishment for any failure to comply with Section 276B of the Income Tax Act if he is able to prove that he was prevented by a reasonable cause for such failure. Thus, reasonable cause is required to avoid prosecution.

The court held that the reason provided by the petitioner for the delay in remitting the amount to the Central Government is sufficient to constitute “reasonable cause” in view of Section 278AA of the Income Tax Act, and hence criminal prosecution against the petitioners is not warranted. There is no dispute that the petitioners have paid the tax along with late payment interest.

The Court held that there are no tenable grounds to continue the proceedings against the petitioners, and hence, the same are liable to be quashed.

Counsel For Petitioner: Vijay Mathukumilli

Counsel For Respondent: Public Prosecutor

Citation: 2024 LiveLaw (AP)47

Case Title: M/s Aditya Institute Of Technology And Management Versus The State Of Andhra Pradesh

Case No.: Criminal Petition Nos.1207, 1208 And 1212 Of 2020

Click Here To Read The Order