2025 (5) TMI 1589 - HC - Income Tax

Order for sanctioning of prosecution proceedings for liability - delay in deposit of the TDS - HELD THAT - There cannot be a quarrel with the proposition that penal proceedings cannot be initiated merely because it is lawful to do so unless the conduct of the assessee is malicious or contumacious. Reference be made in the case of Hindustan Steel Ltd. versus State of Orissa 1969 (8) TMI 31 - SUPREME COURT This petition is pending since year 2018 and the interim protection was granted in favour of the petitioners and there is no prosecution launched till date. Even otherwise the explanation given by the petitioners was neither doubted nor rejected. The case in hand is not of TDS not being deducted and deposited. As undisputed that before issuance of show cause notice the T.D.S. was deposited voluntarily by the petitioner-company along with the interest. The delayed compliance of provision of deducting and depositing TDS stand alone shall not suffice for grant of prosecution sanction. No case is made out for prosecution against the petitioner.

Summary

The Rajasthan High Court, through Justice Avneesh Jhingan, heard a writ petition challenging the sanction for prosecution under Section 279(1) of the Income Tax Act, 1961, concerning delayed TDS deposit of Rs. 79,893/- for AY 2014-15. The petitioner-company had deducted TDS but delayed its deposit by up to ten months, subsequently paying the amount with 18% interest. The Commissioner, Income Tax (T.D.S.), relying on the Supreme Court ruling in Madhumilan Syntex Ltd. v. Union of India, sanctioned prosecution.The Court emphasized the principle from Hindustan Steel Ltd. v. State of Orissa that "penal proceedings cannot be initiated merely because it is lawful to do so, unless the conduct of the assessee is malicious or contumacious." Since the petitioner voluntarily deposited TDS with interest prior to the show cause notice and their explanation regarding delays due to third-party billing was neither doubted nor rejected, the Court held that "delayed compliance of provision of deducting and depositing TDS stand alone shall not suffice for grant of prosecution sanction."Accordingly, the Court set aside the prosecution sanction order and allowed the writ petition, finding no case for prosecution against the petitioner.