No penalty u/s 276B can be levied once TDS stands deposited along with interest much before sanction for criminal prosecution

While hearing a challenge to commencement of criminal proceedings under the Sections Income Tax Act against the Petitioner herein, the High Court of Jharkhand observed that no criminal proceedings could be commenced against the Petitioner, where the penalty proceedings themselves were yet to be initiated.

A Single Judge Bench of Justice Sanjay Kumar Dwivedi relied on the Supreme Court’s judgment in K.C. Builders and Another v. Assistant Commissioner of Income Tax wherein it was held that “criminal prosecution under the Income Tax Act would not sustain where the penalty imposed on the assessee had been struck down”.

The Petitioner-Assessee was represented by Advocate Parth Jalan, whereas the Respondent-Revenue was represented by Advocate RN Sahay.

The facts of the matter are that an Economic Offence Complaint Case was lodged for alleged offence committed under Section 276B read with Section 278B of the Income Tax Act. The allegation was that the Petitioner deducted TDS to the tune of about Rs 2.02 Lakhs but failed to deposit the same with the Government.

The partners in the Assessee-company were also made accused in the complaint as per Section 248B of the Act. The Revenue alleged that the Petitioner wilfully & deliberately did not deposit TDS within the time limit, despite being liable to deposit TDS. Sanction for prosecution under Section 279(1) of the Act was granted by the Commissioner of Income Tax (TDS).

On hearing the contentions of both the parties, the Bench noted that when the Petitioner received the notice of commencement of criminal prosecution for not depositing TDS, the Petitioner filed reply mentioning that TDS with interest was already deposited much before the sanction for criminal prosecution had come to be granted.

From these facts, the Bench observed that the present case was not one in which TDS had been deposited with interest, after launching of prosecution.

The Bench further noted that no penalty proceedings had been commenced against the Petitioner, and also that the Petitioner successfully provided full and sufficient reasons explaining the inability to deposit TDS within the due dates prescribed.

Therefore, the Bench surmised that since no penalty proceedings had commenced and since the Petitioner had deposited TDS with interest before the sanction for criminal prosecution was granted, the criminal prosecution commenced by the Revenue was unsustainable, and thus were quashed.

Cause Title: M/s A.M Enterprises and Another vs The State of Jharkhand and Another [W.P.(Cr.) No. 577 of 2022 / 2023-Enterslice-11-HC-Jharkhand-IT]

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