14 Sections 194A, 194H, 201(1A), 276B and 279(1), and section 482 of Cr PC 1973 – TDS – Failure to deposit – Assessee depositing tax with interest once mistake of its accountant revealed during audit – Reasonable cause – Prosecution initiated three years after such payment – Not permissible

Sonali Auto Pvt. Ltd. vs. State of Bihar
(Patna); 396 ITR 636 (Patna):

A prosecution u/s. 276B of the Income-tax
Act, 1961 was initiated against the assessee on the basis of a complaint filed
by the Deputy Commissioner in accordance with the sanction granted by the
Commissioner u/s. 279(1) of the Act, for failure to deposit the tax at source
for the financial year 2009-10. The complaint also stated that there was a
delay of 481 days without any reasonable cause. The Special Judge, Economic
Offences, took cognisance against the assessee company and its three directors
for the offence u/s. 276B.

The assessee filed writ petition u/s. 482 of
Cr PC 1973 and challenged the prosecution proceedings. The assessee submitted
that due to oversight on the part of its accountant, it could not deposit the
tax deducted at source within the specified time limit, that once the mistake
was found during the audit, the amount had been deposited along with the
interest due u/s. 201(1A) for the delayed payment of tax deducted at source and
that the complaint had been filed after a lapse of three years from the date of
payment of dues. The Patna High Court allowed the petition and held as under:

 “i)   Reasonable
cause would mean a cause which prevents a reasonable person of ordinary
prudence acting under normal circumstances, without negligence or inaction or
want of bonafides. The assessee had been able to prove reasonable cause for not
depositing the amount of tax deducted at source within the prescribed time
limit. Oversight on the part of the accountant, who was appointed to deal with
accounts and tax matters, could be presumed to be a reasonable cause for not
depositing the amount of tax deducted at source within the prescribed time
limit. The assessee immediately after noticing the defects by its auditors had
deposited the amount along with interest as required u/s. 201(1A) for the
delayed payment in 2010 itself.

ii)   Prosecution
had been launched against the assessee after a lapse of about three years from
the date of deposit of the due amount of tax deducted at source along with
interest and that was contrary to the instruction, F. No. 255/339/79-IT(Inv),
dated May 28, 1980 issued by CBDT in that regard. Moreover, according to the
provisions of section 278AA, no person for any failure referred to u/s. 278B
should be punished under the provisions if he had proved that there was a
reasonable cause for such failure.

iii)   Continuance
of criminal proceedings u/s. 276B of the Act, against the assessee was mere
harassment and abuse of process of court. Accordingly, the order passed by the
special judge, Economic Offences, taking cognisance of the offence u/s. 276B of
the Act, along with the entire criminal proceedings against the assessee were
quashed.”