Ignorance of law is no excuse for avoiding prosecution due to non payment of tax

TDS is just an additional compliance burden on the payer or deductor. This job has to be performed under legal compulsion, without any reward. Non compliance may result in the prosecution.

This is what is being ordered by Mumbai High Court in the case of  Mr. Firoz Abdul Gafar Nadiadwala. The court have categorically observed that

1. Pleas of financial problem, incompetent staff, accountant’s negligence, unawareness about law etc are not acceptable as a defense
2. Section 276B invariably provides for Prosecution for delay in payment of TDS.
3. The accused has no right to retain the TDS amount and use it for any other purpose.
4. The default is complete if the TDS is not deposited in time.
5. Late deposit does not absolve the accused.
6. Madhumilan Syntex AIR 2007 SC (148) followed)

Here is the copy of the judgment:

CNR No. MHMM200001812014
Complaint filed on : 26.03.2014.
Complaint registered on:26.03.2014.
Decided on : 25.04.2019
Duration : 05Y. & 29D.
IN THE COURT OF ADDL. CHIEF METROPOLITAN MAGISTRATE,
38th COURT, BALLARD PIER, MUMBAI
(Presided over by R. S. Sarkale)
COURT CASE NO.95/SW/2014.
Exh. –
Income Tax
Through AjayG. Kamble
Income Tax Officer(TDS)1(5) .. Complainant.
V/s.
Mr. Firoz Abdul Gafar Nadiadwala
Plot No.20, Barkat, Gulmohor Cross Road,
No.5, Juhu Scheme, Andheri(W), Mumbai. .. Accused.
Charge : Under Section 276B of The Income Tax Act,1961.
Appearance : Special Public Prosecutor Mr. Amit Munde for
complainant. Ld. Advocate Mr. Ashok Bhatia for accused.
JUDGMENT

(Delivered on 25.04.2019)
1. The complainant Ajay Kamble, Income Tax Officer(TDS)1(5) had filed the complaint u/s. 200 of the Cr.P.C. against the accused for committing the offence punishable u/s. 276B of Income Tax Act,1961 pertaining to financial year 20092010 and assessment year 20.10.2011.

2. Brief facts of the complainant’s case are as under The complainant is the Income Tax Officer (TDS)1(5),Mumbai, attached to CIT(TDS), Mumbai. The sanctioning authority in .2…..exercise of powers conferred u/s. 279(1) of Income Tax Act has accorded sanction to prosecute the accused u/s. 276B of Income Tax Act. Accused is an assessee in the jurisdiction of the complainant for the income tax (TDS purpose). The accused is an individual having his office at plot No.20, Barkat, Gulmohor Cross Road, No.5, Juhu Scheme, Andheri(W), Mumbai. The accused during various dates from the period 01/04/2009 to 31/03/2010 and was under obligation u/s.194A of the Act to deduct the income tax from interest paid/credited under section 194C of the act to deduct the income tax from the payment of contractors, u/s.194H of the Act to deduct the income tax from the payments of commissions and u/s.194J of the Act to deduct the income
   tax from the payment of fees for professional or technical services. The accused was under further obligation u/s. 200 and 204 of the Act r/w Rule 30 of the Income Tax Rules, 1962 to pay or to deposit income tax so deducted to the credit of Central Government within the prescribed period. During the period from 01/04/2009 to 31/03/2010 accused had deducted tax of Rs. 8,56,102/u/s. 194A, 194C, 194H and 194J of
   the Income Tax Act but failed to pay or to deposit income tax so deducted to the credit of Central Government. The accused failed to show reasonable cause or excuse to pay deducted tax within the prescribed period to the credit of Central Government within the prescribed period. The said amount was paid after a long period of delay beyond 12 months. Therefore, the accused has committed default u/s. 200 and 204 of the Act, 1961 r/w Rule 30 of the Income Tax Rules, 1962.
3. The complainant further submitted that in view of default committed by the accused show cause notice was issued to the accused,

3…..C.C.No.95/SW/2014.Judgment. the accused required to show cause as to why prosecution should not belaunched against him for offence u/s. 276B of the Income Tax Act for failure to pay the amount deducted by way of income tax within stipulated time. The complainant submitted that the explanation given by the accused for his failure to pay the said tax deducted at source within prescribed time does not constitute reasonable cause for the said default. The accused has committed a default u/s. 200 and 204 of the Income Tax Act 1961 r/w Rule 30 of the Income Tax Rules, 1962 by
failing without reasonable cause or excuse to pay the income tax so deducted to the credit of Central Government and said default amounts to an offence punishable u/s. 276B of the Income Tax Act. Therefore, by granting sanction u/s. 279(1) of the Income Tax Act, prosecution launched against the accused as accused has failed to comply with the statutory provisions without reasonable cause. Hence accused has
committed an offence punishable under section 276B of Act. Hence, present complaint.

4. After filing of the complaint, cognizance was taken and case was registered against the accused for offence punishable u/s. 276B of the Income Tax Act. The process was issued u/s. 276B of the Income Tax Act. Notice was served on the accused, in response to the notice, accused appeared through his Counsel and enlarged on bail.
5.  The complainant complied the formalities u/s. 207 of Cr.P.C. All the documents were furnished to the accused. Thereafter evidence of the complainant and sanctioning authority was recorded before charge and after hearing both the sides my Predecessor hold that there is sufficient material to frame the charge and accordingly charge

..4….was framed against the accused as per Ex.17 u/s. 276B of the Income Tax Act. Contents of the charge were read over to the accused in vernacular. Accused pleaded not guilty and claimed for trial. The plea of the accused is at Ex.18.

6. In order to prove the charges leveled against the accused, the complainant has examined two witnesses. These are C.W.1 Vinod Kumar Pande, sanctioning authority at Ex.10 and C.W.2 Ajay Ghanshyam Kamble, complainant at Ex.19 and placed number of
   documents on record. After closer of evidence of the complainant, statement of accused u/s. 313 of Cr. P.C. was recorded at Ex.23. The accused denied incriminating evidence put to him. Defence of accused is of total denial. The accused submitted that TDS amount is already deposited with the Government and he is regular payee of the tax and false case filed against him.
7. From the contents of the complaint and evidence of both the sides, after hearing Ld. Advocate for complainant and accused at length, following points arise for my determination and I have recorded my findings against each point with reasons as follows Sr. No. Points Findings 1 Does prosecution prove that, accused is responsible for deduction of Tax at source but accused failed to pay TDS of the Financial year 20092010
   and Assessment year 20102011 to the credit of Central Government within time without any justifiable reason and thereby committed an offence punishable u/s. 276B of The Income Tax Act? ..In the affirmative. 2 What order ? As per final order.

    ..5.. C.C.No.95/SW/2014.Judgment.REASONS.

8. In order to prove the guilt against the accused, complainant has examined C.W.1 Vinod Kumar Pande, sanctioning authority at Ex.10 and C.W.2 Ajay Ghanshyam Kamble, complainant at Ex.19. Except that no other witness was examined by the complainant. While complainant relied upon documentary evidence i.e. proposal Ex.14, reply Ex.15, show cause notice Ex.12, 13, 16, details of traces Ex.20, sanction order Ex.11. Except that no other oral or documentary evidence led by the complainant. Thereafter complainant has filed evidence closed pursis at Ex.21. While in defense accused has not led any oral or documentary evidence and filed evidence close pursis at Ex.25. As to Point No.1:
9. It is the case of complainant that the accused has deducted the tax amount but failed to deposit the tax within stipulated period prescribed in the Income Tax Act to the Central Government, therefore accused has committed offence u/s. 276B of the Income Tax Act. In order to prove the guilt against the accused, complainant has examined two witnesses. C.W.2 Ajay Ghanshyam Kamble, complainant deposed at Ex.19. He deposed that from 2013 to 2015 he was attached to TDS office situated at Charni Road, Mumbai. He received sanction order from CIT(TDS) Shri. V.K. Pandey for launching prosecution
   against the accused Firoz Nadiadwala. During assessment of case of accused he found that accused had deducted tax of Rs. 8,56,102/of the financial year 20092010 but deducted tax amount not deposited or paid to the Central Government account within stipulated time. The period of deduction of tax amount is up to the 7th day of next month.
   ..6….He collected the information from the system of his department and found that accused was defaulter for non payment of tax amount within stipulated time. The traces statement is at Ex.20. The accused deposited tax and TDS amount after expiry of 12 months.
   10. The witness was cross-examined. In the cross examination witness admitted that he did not remember which documents are annexed with sanction order by CIT(TDS), he also did not remember on which date he received the sanction order. He has not issued the notice dtd. 27/09/2012 and the said notice was issued by his Predecessor. He
   denied that he was not signatory of any document filed on record. He admitted that reply given by the accused to show cause notice is seen by him before filing of complaint. He did not file reply of the accused of show cause notice as he do not want it is necessary. He admitted that Ex.20 is unsigned document and there was no mention of name of Government Website. He admitted that in the complaint nowhere mentioned about Ex.20 is generated by him personally from official computer system traces. He did not remember on which date accused filed income tax returns of financial year 20092010
   and year 20102011. On Ex.20 there are 104 PAN numbers are mentioned. Witness
   admitted that the amount of Rs. 8,56,102/was deposited by the accused. He also admitted that in his complaint it was mentioned that accused deposited said amount and delayed by 12 months. He admitted that his department levied penalty, interest and legal fees in case of delayed payment. He admitted that accused deposited same amount in the department. He did not remember about the correspondence dtd. 09/10/2012 made by the accused with department. The sanction order is of dtd. 25/03/2014 while he filed complaint on 26/03/2014 but denied that he has no any authority to file the complaint. Witness denied that accused has given satisfactory

..7…. C.C.No.95/SW/2014. Judgment. explanation to the department but department has not considered his explanation about delayed payment of TDS. He denied that department has accepted the amount from the accused after giving satisfactory
explanation by the accused, by accepting explanation of the accused. He denied that he has filed false complaint against the accused without any authority.

11. By perusing the evidence of complainant, it seems that as per the directions given by Principal Income Tax Commissioner(TDS), he has filed complaint against the accused as accused deducted the tax but not deposited the said amount with tax authority within stipulated time. The witness admitted that the accused have paid the TDS amount but amount was paid by the accused after expiry of stipulated time. As perdirections given, witness filed present complaint as per authority given to him.
12. C.W.1 Vinod Kumar Pande, sanctioning authority deposed at Ex.10. He deposed that he has passed sanction order for prosecution against the accused on 25/03/2014 as per Ex.11 and authorised complainant Ajay Kamble to file complaint against the accused. Before granting sanction he issued show cause notice dtd. 12/11/2012 as per Ex.12 & 13. The proposal came from Shri. Ramankumar I.T.O. TDS 1(5) as per Ex.14, reply received by the accused as per Ex.15. Assessee deducted the TDS from various payment made to others but assessee/ accused did not deposit TDS with the Government within stipulated period. On 01/10/2013 notice was issued to the accused through ITO head quarter, Mumbai and one more opportunity was given to accused but accused not complied with the same. ..8..
13.  The witness was cross-examined by defence. In the cross-examination
    the witness admitted that he has gone through the record of assessee. In the financial year 20092010 assessee deducted Rs. 8,56,102/ but deposited said amount after 12 months. He did not remember whether accused gave a reply to the notice. Witness denied that if the amount of income exceeded Rs. 20,000/then TDS would be
    applicable. To the notice issued by him, accused gave reply dtd. 17/12/2012 but witness denied that he ignored that reply. When he found that reply of accused is not satisfactory that is why he has passed sanction order for launching prosecution against the accused. He denied that before passing sanction order he had not gone through the
    reply of assessee. He denied that in spite of satisfactory explanation given by the accused, he passed sanction order in the year 2014. He denied that he passed orders without verifying details of assessee and not verified whether the said amount comes under the exceptions of section 192 clause1 A of Income Tax Act.
14.  C.W.2 is the sanctioning authority, as per procedure and authorisation given by the Act to him and by perusing relevant documents and by applying his mind and after considering all the relevant factors, he passed sanction order against the accused for prosecution. Nothing brought on record from the mouth of this witness
    to discard his testimony.
15. Spl. Public Prosecutor Shri. Munde argued that on perusal of the evidence on record the guilt of accused is proved. The accused deducted TDS but failed to deposit the deducted tax to the Government within stipulated perod. The accused himself admitted the said fact

..9…..C.C.No.95/SW/2014 .Judgment. during recording the statement under section 313 of The Code of Criminal Procedure as well as in his reply to the show cause notice therefore accused be punished as per law. The Advocate also submitted that the accused is duty bound to remit the deducted TDS amount within stipulated period of time as prescribed in Rule 30 Income Tax rules and the failure to remit the TDS after its deduction within stipulated period of time attracts penal provision contained in section
276B of The Income Tax Act. The deducted TDS amount belongs to the Government and the payer acts in fiduciary capacity. Thus, it is bounden duty to remit the TDS to the Government account and no amount of helplessness and financial difficulty will not come in the rescue of the payer. The payer is not entrusted to retain the deducted
TDS and used the same for any other purpose. Thus, the accused has failed to comply with the statutory provisions without reasonable cause, hence committed an offence punishable under section 276 B of Income Tax Act.

16.  Advocate for accused submitted that before any initiating the prosecution, the accused has deposited all the TDS amount to the department, therefore present complaint is not maintainable. It is also submitted by Advocate that during the stipulated period, the economical condition of the accused is not well and the business of the complainant was not in a good condition. After March 2008, there were no active film production. His income comprised of only sale receipt of old movie. No new movie released during three years therefore accused could not paid TDS amount within stipulated period. The accused submitted reply to the show cause notice and this is the first time accused defaulted for payment of money. It is further submitted that in

..10……view of the instructions issued by Government Of India, Ministry Of Finance, CBDT dt. 28.05.1980, the prosecution under section 276B are not expected to be proposed when the amount involved and period of default is not substantiated and the amount in default has also been deposited, in the meantime, to the credit of Government along with interest and these instructions are binding on the Government. Advocate for accused also submitted that in view of provisions under section 278AA when there is reasonable cause, in such cases, no penalty should be imposed. On that basis Advocate for accused submitted that accused is entitled for acquittal.

17.  It is not disputed that the accused had deducted the TDS amount of Rs.8,56,102/for
    the period from 01/04/2009 to 31/03/2010. It is admitted that accused not deposited said amount within stipulated period i.e. on or before 7th day of next month. It is also
    admitted position that subsequently out of total amount deducted under section 194A, 194C,194H and 194J of the Act accused paid all the amount with interest as required under section 201A of the Act. Owing to the delay in payment of the aforesaid amount. The accused paid TDS amount after statutory period, therefore there was delay for the
    payment of amount. The complainant during the evidence brought on record that the accused deducted TDS, but not deposited and deposited after the period of 12 months. It means that the accused not deposited
    TDS amount within stipulated time or deposited beyond the period of statutory limit, the accused not denied the same fact. The accused is responsible to deposit deducted TDS amount within stipulated time as per section 200 and 204 of the Act and accused committed default.

        ..11…. C.C.No.95/SW/2014. Judgment.

18.  Advocate for accused submitted that sanction accorded by sanctioning authority under section 279(1) of Income Tax Act for launching prosecution against accused under section 276B of Income Tax Act is mechanical and contrary to the instructions issued by the Central board of Direct taxed Dt. 28.05.1980. Advocate for accused further submitted that section 278A of the Act postulates an express bar on punishment under section 276A, 276AB or 276B of the Act. If access is proved that there was reasonable cause for such failure. In the present case accused shows reasonable cause about financial difficulty and payment of taxes to the Government and shows bonfires the tax along with interest has been paid, therefore the prosecution is unwarranted. While Advocate for complainant submitted that by making payment of TDS amount along with interest will not exonerate the accused from the liability of section 278B of the Act. Accused deducted the tax at the source, but did not deposit with Central Government within specified time limit.
19.  Advocate for accused submitted that sanction accorded without proper offering opportunity and not considered say or reply and only mechanical sanction is granted. Accused gave a reply to show cause, but it was not considered by sanctioning authority, but here in this case the sanction order on record at Ex.12 in paragraph No. 05 of Ex.12, the sanctioning authority mentions that the facts and materials placed before me which I have gone through fully and carefully examined and I am further satisfied that adequate ground exist to prosecute the said person.
20.  Sanction is an administrative function and is only to see that frivolous or avoidable trials do not take place notwithstanding that it is

..12…… an objective exercise by the sanctioning authority to consider the material on record to satisfy himself whether a case fit for launching prosecution exists, on such satisfaction, the sanction can be accorded and thereafter the trial proceedings in which the person sent proceeded against has ample opportunity to defend himself against the allegations made against him and to meet the evidence, led to substantiate those allegations by the prosecution. In the present case notice is given before issuance of sanction to which reply was filed by accused and after considering all the relevant facts and material on record sanction was granted.

21.  Advocate of accused submitted that no proper sanction to initiate the criminal proceeding against accused person as sanction order does not mentioned any details regarding explanation given by the accused in respect of delay in making the payment. Sanction order at Ex.11 is on record and that discloses in paragraph No.05 that “ the
    facts and material placed before me which I have gone through fully and have carefully examined and I am further satisfied that adequate grounds exists to prosecute the said person”, accordingly sanction was granted to initiate the criminal proceeding. In case of Gopal Engineering V/s Thanngaraja reported in 1995 211 ITR 303, it is held that “ there is no necessity that each and every aspect of the case must be dealt with in the authorisation”. Thus there is no merit in the contention of the accused that there is no proper sanction to initiate the criminal proceeding against the accused person.

22.  Section 277AA provides a window for the accused to escape from the penal consequence by proving that he had reasonable

..13.. C.C.No.95/SW/2014.Judgment. cause for the no depositing of deducted TDS amount within time limit. The accused taken defence that financial constraints and lower down the business activity during financial year 20092010 as no active film production and income only comprised old films sale resulted in not depositing of TDS amount but except putting suggestions and say filed on record, no material is produced to substantiate the fact. Say of the accused on record which shows that the taxes are deducted and same was deposited but it is delayed. But accused during the trial not
produced any material to substantiate the contentions referred above. Mere taking of the contentions is not amounting to offering a reasonable cause for the failure to remit the deducted TDS.” It is the defence of accused that accused gave detailed explanation of non payment of TDS in time where accused’s business activities during the financial year 20092010 is not active in film production. His income comprised only sale receipts of old movies and no movies were completed and sold or released during three years, also problem of competent staff, accountants negligence, accused not aware about deducted and payment of tax voluntary payment of TDS and small amount of default. There is no intentional default, no means rea, but because of above reasons accused could not deposited TDS in time. But accused not produced any material to substantiate the contention above referred. Mere taking up the contention is not amounting to offering a reasonable cause for the failure to remit the defaulted TDS.

23. Advocate of complainant submitted that financial constrains could not be made as a ground to evade the penal consequences. Once TDS amount is deducted then the deduct or is legally bound to remit the same to the Government. The accused has no
    right to retain the TDS amount and make use of the same for any