TMI Blog2023 (11) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... ture has enacted section 278AA of the I.T. Act. It is also crucial to note that the legislative intent is well discernable so far the usage of the word reasonable cause u/s 278AA of the I.T. Act is concerned which qualifies the penal provision laid under section 276B of the Act. Both the provisions accordingly are to be read together to ascertain the attractability of the penal provision. It is well settled law that in a criminal proceeding by merely showing a reasonable cause, an accused can be exonerated and for showing that reasonable cause, the standard of proof of such fact in support of the same is lighter than the proof of such fact in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason. It may not be out of place to note here that in case the ITO Vrs. Roshni Cold Storage [ 1998 (7) TMI 13 - MADRAS HIGH COURT] the terrible financial stringency, heavy losses, colossal losses and carry forward losses, have been recognized as reasonable cause in further holding that paucity of funds and financial stringency would fall as reasonable cause within the scope and ambit of the meaning of reasonable cause. This C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Petitioner No.1 (Accused No.1) is a Private Limited Company having its registered office at Bhubaneswar has been accorded with the Tax Deduction and Collection Account Number (TAN) to Deduct Tax at Source (TDS) and the Opposite Party No.2 (Accused No.2) is the Director and Principal Officer of the Opposite Party No.1-Company (Accused No.1) who is accountable/responsible for the day to day affairs of Petitioner No.1-Company (Accused No.1) as per the provision of section 2(35) and section 278B of the IT Act. (B) By the virtue of the same, the Petitioner No.2 (Accused No.2) carries the responsibility to deduct and deposit TDS. As per the System Generated Statement reprieved from the portal, i.e., TDS Reconciliation and Correction Enabling System (TRACES), the Petitioner No.2 (Accused No.2) is said to have deducted a sum of Rs.2,58,29,945.00 for the Financial Year 2020-21 (Assessment Year 2021-22) as TDS. It is stated that the said amount was not deposited with the Central Government by the due dates. The Petitioner are said to have withheld such dues thereby have failed to pay in the account of the Central Government, the collected TDS. However, they have deposited the said amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (TDS), Bhubaneswar by an order under section 279(1) of the IT Act accorded sanction for launching the prosecution against the Petitioners for commission of offence under section 276B of the IT Act, the present complaint against the Petitioners have come to be filed in the court of law in which the Court below by the impugned order has taken the cognizance of the offences as afore-noted. Hence, this present Revision is at the instance of the Petitioners (accused persons) is at the instance of the Petitioners (accused persons). II. PETITIONERS SUBMISSION:- 4. Mr.R.P.Kar, learned Senior Counsel for the Petitioners submitted that the present prosecution which is being faced by the Petitioners is on account of non-deposit of the TDS with the Central Government account within the time provided under the statute, and therefore, it is said that the Petitioners have committed the offences under section- section-276B and 278B of the IT Act and accordingly, are to be visited with the penal consequences provided thereunder. He further submitted that in the instant case, the Petitioners have only deposited the TDS collected from different persons with the interest as per law wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers Vrs. Union of India and Another; (2007) 11 SCC 297; learned Senior Counsel submitted that the Hon ble Apex Court while dealing with the provision under section 276B of the I.T. Act has held therein that whenever Company is required to deduct tax at source and pay it to the account of the Central Government, failure on the part of the Company in deducting or in paying such amount constitute an offence under the Act and is punishable. Therefore, it cannot be said that the prosecution against the Company or its Directors in default of deducting or paying tax is not envisaged by the Act. Distinguishing this present case in hand, he points out that the non-deposit of tax deducted at source by the Petitioners in time as provided under law albeit is a delayed deposit of the said TDS along with interest but was for reasonable cause i.e. for the reason of prevalence of first bout of COVID-19 Pandemic situation not only in the entire country but also across the globe when the normalcy with respect to life, livelihood and business activities came to a grinding halt and life of the citizens remained confined to four walls of their respective houses grappling under panic stricken con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intentional nor deliberate nor even for the reasons or causes centering round the Petitioners affair or their employees but for the COVID-19 Pandemic situation, a global phenomenon. Moreso, placing reliance on various notifications, he submitted that Central Government and the State Government had made several notifications under the Disaster Management Act, 2005 and when even the Hon ble Apex Court taking cognizance of such situation has extended the period of limitation by providing several exemptions to the statutory provisions being not made applicable and keeping those in suspension during the period. He submitted that when the Authority had repelled the contentions of the Petitioners that there was reasonable cause for such failure to deposit the TDS in time and taken a view to the contrary, the learned Magistrate while taking cognizance of the offences has failed to apply its mind in finding out as to whether on the basis of the materials placed from the side of the Petitioners in their reply to the show-cause notice, the action of the Authority in launching the prosecution without due consideration and dealing with the submissions furnished to that effect that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the prosecution initiated by the order of cognizance is an abuse of process and the Court below by going through the discussion of the facts contained in the sanction order ought not to have taken cognizance of said offences and thus according to him, the impugned order has caused failure of justice. 6. Per contra, Mr. S.S. Mohapatra, learned Senior Standing Counsel for the Income Tax, while not disputing the distinguishing factual settings of the case of Madhumilan Syntex Ltd. and Others (supra) to the extent that the Petitioners therein had not projected the situation like Pandemic COVID-19 to be the reasonable cause for the failure to deposit the TDS; however at the outset raised, the question as to maintainability of this Revision in challenging the order by which the learned Magistrate has taken cognizance of the offences and issued process to the Petitioners. According to him, the order being an interlocutory one as the right of the Petitioners to raise the main ground on which they now question the impugned order to be bad and illegal is not altogether foreclosed during trial, this Revision calling in question the order of cognizance is not maintainable. He, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in challenging the order impugned hereafter as at 8(A); it is noticed that when the text of sub-section-1 of Section-397 of the Cr.P.C. is too wide in conferring the powers upon the Court in exercising the Revisional jurisdiction, it has been drastically curtailed by the very next sub-section i.e. sub-section (2) of said section. This provision introduces a complete prohibition on the Revisional Court in respect of interlocutory orders. Therefore, the nature of order whose legality and propriety is called in question before a Revisional Court liable for interference in exercise of revisional jurisdiction is the focal point for ruling touching on the entertainability of the Revision so as to exercise the jurisdiction conferred thereunder. 10. Further, reiterating and clarifying this conundrum, the Hon ble Apex Court has been held in case of Girish Kumar Suneja (supra) that there are three categories of order that a Court can pass:- final, intermediate and interlocutory. There is no doubt that in respect of a final order, a court can exercise its revision jurisdiction that is in respect of a final order of acquittal or conviction. There is equally no doubt that in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst interlocutory orders are being taken away, as it has been found to be one of the main contributing factors in the delay or disposal of criminal cases. In reply to the debate on the subject, it was stated by Shri Ram Niwas Mirdha the concerned Minister that:- It was stated before the Select Committee that a large number of appeals against interlocutory orders are filed with the result that the appeals got delayed considerably. Some of the more notorious cases concern big business persons. So, this new provision was also welcomed by most of the witnesses as well as the Select Committee. . . . This was a well-thought out measure so we do not want to delete it. 20. As noted in Amar Nath (supra) the purpose of introducing Section 397(2) of the Cr.P.C. was to curb delays in the decision of criminal cases and thereby to benefit the accused by giving him or her a fair and expeditious trial. Unfortunately, this legislative intendment is sought to be turned topsy-turvy by the appellants. 21. The concept of an intermediate order was further elucidated in Madhu Limaye v. State of Maharashtra; (1977) 4 SCC 551: 1978 SCC (Cri) 10, by contradistinguishing a final order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since that brings out the nature of the order more explicitly. 12. In proceeding to further deliberate upon the subject, the Hon ble Apex Court has held as follows:- 3. While we fully agree with the view taken by the learned Judge that where a revision to the High Court against the order of the Subordinate Judge is expressly barred under sub-section (2) of Section 397 of the 1973 Code the inherent powers contained in Section 482 would not be available to defeat the bar contained in Section 397(2). Section 482 of the 1973 Code contains the inherent powers of the Court and does not confer any new powers but preserves the powers which the High Court already possessed. A harmonious construction of Sections 397 and 482 would lead to the irresistible conclusion that where a particular order is expressly barred under Section 397(2) and cannot be the subject of revision by the High Court, then to such a case the provisions of Section 482 would not apply. It is well settled that the inherent powers of the Court can ordinarily be exercised when there is no express provision on the subject-matter. Where there is an express provision, barring a particular remedy, the Court cannot re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be rejected at the threshold. If the High Court is inclined to accept the revision petition it can do so only against a final order or an intermediate order, namely, an order which if set aside would result in the culmination of the proceedings. As we see it, there appear to be only two such eventualities of a revisable order and in any case only one such eventuality is before us. Consequently the result of paragraph 10 of the order passed by this Court is that the entitlement of the appellants to file a revision petition in the High Court is taken away and thereby the High Court is deprived of exercising its extraordinary discretionary power available under Section 397 of the Cr.P.C. 28. However, this does not mean that the appellants have no remedy available to them paragraph 10 of the order does not prohibit the appellants from approaching this Court under Article 136 of the Constitution. Therefore all that has happened is that the forum for ventilating the grievance of the appellants has shifted from the High Court to this Court. It was submitted by one of the learned counsel that this is not good enough for the appellants since this Court is not obliged to give reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Court or for the purpose of securing the ends of justice interference by the High Court is absolutely necessary, then nothing contained in Section 397(2) can limit or affect the exercise of the inherent power by the High Court. But such cases would be few and far between. The High Court must exercise the inherent power very sparingly. 31. The expanse of Section 482 of the Cr.P.C. was also discussed in great detail in State of Haryana v. Bhajan Lal; 1992 Supp (1) 335 in the context of quashing a first information report or a complaint. After giving several illustrations, this Court cautioned that the power available under Section 482 of the Cr.P.C. should be exercised in the rarest of rare cases. It was said: 103. We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for commission of the offences punishable under section-278B of the I.T. Act for the failure of the Petitioners-Company and others in crediting the TDS to the Central government as required by section-276B of the I.T. Act. The Petitioner-Company and others therein contended that they had not committed any offence for violation of the provision of I.T. Act. It was stated that it was not a case of non-payment of TDS. The amount of tax along with interest had been paid and all the statutory provisions had been complied with. They further contended that there was some delay in receiving the loan from their Banker due to which the TDS could not be paid in time and furthermore, because of construction of one unit by the Company, there being shortage of liquid fund, the payment was delayed. So, they stated that there was reasonable cause for non-payment of the collected TDS within the prescribed period and thus, when the payment had been made with interest and there was no loss to the revenue, according to the Petitioners therein, no case had been made out for taking action against them by launching the prosecution. 16. The Hon ble Apex Court while answering the controversy discussed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly. Explanation.- For the purposes of this section,- (a) company means a body corporate, and includes- (i) a firm; and (ii) an association of persons or a body of individuals whether incorporated or not; and (b) director , in relation to- (i) a firm, means a partner in the firm; (ii) any association of persons or a body of individuals, means any member controlling the affairs thereof . 26. Clause (20) of Section 2, inter alia, defines 'Director' in relation to a Company having the meaning assigned to it in the Companies Act, 1956. Section 2(13) of the Companies Act, 1956 defines 'Director'. The definition is inclusive and includes any person occupying the position of Director by whatever name called . Clause (31) of Section 2 defines 'person' which includes Company. Clause (35) defines 'principal officer' and it reads; 2. (35) principal officer , used with reference to a local authority or a company or any other public body or any association of persons or anybody of individuals, means- (a) the secretary, treasurer, manager or agent of the authority, company, association or body; or (b) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ID-19 situation in the given factual settings of the case at hand was the reasonable cause which had stood on the way of the Petitioners to comply with the provisions contained in the I.T. Acts and Rules in relation to the deposit of the TDS. 19. The word reasonable ; we find from the Black s Law Dictionary, 10th Edition as fair, proper or moderate under the circumstance. What is reasonable cause cannot be laid down with precision which would depend on the factual background. The reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. Expression reasonable is not susceptible be of a clear and precise definition; for a an attempt to give a specific meaning to the word reasonable would be trying to count what is not number and measure what is not space. It has to be described as rational according to the dictates of reasons and is not excessive was immoderate. The word reasonable has in law, the prima facie meaning of reasonable with regard to those circumstances of which actor, called on to act reasonably, knows or ought to know [see-In-re, A Solicitor,(1945) KB 368 (CA)]. The expression reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable cause, the standard of proof of such fact in support of the same is lighter than the proof of such fact in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason. It may not be out of place to note here that in case the ITO Vrs. Roshni Cold Storage; 2000 245 (ITR) 322 (Madras), the terrible financial stringency, heavy losses, colossal losses and carry forward losses, have been recognized as reasonable cause in further holding that paucity of funds and financial stringency would fall as reasonable cause within the scope and ambit of the meaning of reasonable cause. 22. Coming to the case before us, the prosecution has been launched against the Petitioners for delay in deposit of the collected TDS for the Financial Year, 2020-21 (Accounting Year, 2021-22). The collected TDS was admittedly not deposited with the Central Government by the due date. The Petitioners thus have failed to deposit the collected TDS within the time stipulated as ordained under provision of the I.T. Act and Rules. They have deposited the said amount in phase manner with the delay in making the deposit which begins with the minimum of 31 days, end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) augmentation of health work force and their insurance; d) augmentation, allocation, supply and transportation of oxygen and other essential drugs; e) research, development, enhanced production and administration of vaccinations to rapidly cover one of the world s largest eligible population of beneficiaries; f) ensuring food security to the vulnerable groups; g) minimizing the adverse impact of large-scale economic disruptions by multipronged approach; and h) rehabilitation, protection and education of children orphaned due to COVID-19. The situation required day to day expenditure, day to day monitoring, day to day change in priorities and day to day change in the methods and modalities to deal with the same. 24. It goes without saying that COVID-19 Pandemic has caused serious economic disruption. However, the Government both at Central and State level have made herculean efforts to deter it from becoming a matter of economic distress. In order to contain and arrest, the sporadic / rapid spread of the Virus, there have been frequent lock downs, shut downs, declaration of contentment zones, total ban on some activities, partial allowance of in some spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble cause for the said failure. A clause beginning with notwithstanding anything is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision or Act mentioned in the non obstante clause. (See Orient Paper Industries Ltd. v. State of Orissa AIR 1991 SC 672). A non obstante clause may be used as a legislative device, to modify the ambit of the provision or law mentioned in the non obstante clause, or to override it in specified circumstances (See T.R. Thandar v. Union of India; AIR 1996 SC 1643). The true effect of the non obstante clause is that in spite of the provision or Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment (See Smt. P.F.K. Kalliani Amma v. K. Devi; AIR 1996 SC 1963). Therefore, in order to bring in application of section 271C in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessed, is the sine qua non. 7. Levy of penalty under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Chartered Accountant who was handling the TDS matters of assessee died due to COVID which made really difficult for the assessee to deposit the amount in time. The Department has issued a show cause for launch of prosecution proceedings for such default of the assessee. The provisions related to launching of prosecution in case of failure of assessee to pay TDS have been prescribed in section 276B of the Act. The said section states that where the assessee has failed to pay to the credit of the Central Government tax deducted at source as required by or under the provisions of chapter-XVII-B, the person shall be punishable with imprisonment In this case, we submit that the assessee has paid the amount of Tax Deducted at Source to the account of Government and has neither used the money for personal purposes of the directors nor has mis-utilized the money nor has earned any interest on the same. The only fact is that there was a delay in deposit to conditions beyond the control of the assessee. At the cost of repeatation, it is important to bring before you the exact delay in deposit of TDS made by the assessee. A crux chart depicting the same is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial and the amount in default has also been deposited in the meantime to the credit of the Government. In the present, the TDS liability has arose on day to day transactions of the assessee. The CBDT intention vide this circular that where the amount has been by the assessee, the prosecution proceedings need not be launched. Moreover, if each entry is seen majority of entries of deduction of TDS are meager and very small in amount, as law as Rs.50/-. Therefore, launching of prosecution may be undue hardship on the assessee. 27. It would not be out of place to state that the Hon ble Apex Court during that period prevalence of Pandemic COVID-19 situation in the country in suo moto Writ Petition (C) No.03 of 2020 from time to time, has taken cognizance of the said situation and has even extended the period of limitation for all proceedings before the Courts/ Tribunals w.e.f. 15.03.2020 first of all, till 14.03.2021. But then due to second surge in COVID-19 cases, the move being made by the Supreme Court Advocates On Record Association (SCORA) that period was further extended from 15.03.2020 till 28.02.2022 by stating that the same period would stand excluded. 28. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Year 2019-20 and 2021-22 as well. Delay in remittance deprives the Government of the funds which genuinely belong to the Government and also results in undue delay in granting credit to the person from whose behalf tax has been deducted/ collected. The bonafides of the reasons explained for delay on various occasions have not been clearly established in this case. After considering various fettering and manacling circumstances as being ameliorating causes put forth by the assessee deductor, the factual evidence of delayed remittance in respect of the quantum of tax belatedly remitted and the periods of delay, it can be safely concluded that the causes as attributed do not constitute a reasonable cause as prescribed in section 278AA of the Act. It is further contended that TDS has already been remitted to the Govt. Account along with late payment interest and therefore, sanction for launching prosecution may not be warranted. In this regard, it is apt to quote the Hon ble Apex Court judgment in Madhumilan Syntex Vrs. Union of India (290 ITR 199) wherein disapproving Hon ble Calcutta High Court Judgment, it is held as below- Once a statute requires to pay tax and stipulates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed time as per sanction 200 and 204 of the Act, the assessee deductor has committed the default which comes under the offence as provided in section 276B of the Act. 12. Section 3(38) of General Clauses Act defines an offence to mean any act or omission made punishable by any law for the time being in force . Payment of the TDS is an obligation and duty covered bystatute and the default of such payment, which has been made an offence continuous from day to day till the payment, is made. The evidence regarding the delay in remittance is not only admitted but also unassailable ex-facie. The evidence is not un- worthy of credit or absurd as such to make it a prima-facie fit case for launch of prosecution. In view thereof, the case prima-facie is a fit one in which prosecution needs to be launched. 29. The above part of the order being tested in the touchstone of what have been discussed in the foregoing paras, the view taken by the Commissioner, Income Tax (TDS), Bhubaneswar is found to be suffering from the vice of non-consideration of the admitted factual settings as to the existence of reasonable cause for the said failure of the Petitioners in depositing the TDS. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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