S. 279 Prosecution for late deposit of TDS offense: Principles applicable to launching prosecution set out. If the assessee is able to make out that cognizance was not justified and as per law they can challenge and question the summoning order by way of petition u/s 397 read with Section 401 of the Code of Criminal Procedure, 1973 or if permissible, by way of a petition under Section 482 of the Code

(i) Counsel for the petitioners submits that the Sanctioning Authority has failed to consider the requirements of Section 278AA, which states that no punishment would be imposed for offence committed under Section 276A, 278AB or Section 276B if the person being prosecuted proves that there was reasonable cause for such failure.

(ii) The second contention raised is that the Sanctioning Authority has failed to correctly apply the Press Note dated 6th August, 2013 and Standard Operating Procedure in the form of instruction F.No.285/90/2008-IT(Inv-I)/05 dated 24th April, 2008 modified by the Central Board of Direct Taxes (CBDT) vide instruction F.No. 285/90/2013-IT(Inv.) dated 7th February, 2013 on the ground that the delay in deposit of TDS did not exceed the prescribed period of twelve months.

(iii) Further, the petitioners had paid interest on late deposit of TDS prior to issuance of the notice. The findings recorded by the Sanctioning Authority are neither fair nor judicious as they do not take into account the provisions of Section 278AA.

(iv) Petitioners, do not dispute default and delay in deposit of TDS of more than Rs.3.53 crore relating to the four quarters between 30th June, 2012 to 31st March, 2013. TDS was belatedly deposited between 30th June, 2013 to 16th September, 2013.

(v) The issues raised by the petitioners are ex-facie factual and could constitute defense of the petitioners, as constituting reasonable cause. Onus to prove reasonable cause under Section 278AA of the Act is on the person being prosecuted.

(vi) Similarly, with regard to the Standard Operating Procedure, the contention that default had continued for less than twelve months and effect thereof are aspects which would be considered and decided in the course of criminal proceedings.

(vii) Late deposit of TDS in gigantic proportions after the end of the financial year, as per the respondents, has huge ramifications and consequences not limited to non-payment of tax, but adverse consequences and sufferance of hundreds of deductee who did not get credit of the tax deducted and had to pay tax and interest.

(viii) Subsequently, they would have filed revised returns for refund causing harassment and inconvenience. We would accept that grant of sanction could become subject matter of judicial review, albeit in a limited manner to ensure that the authority has acted fairly and reasonably and we do not act as an appellate forum that can substitute the opinion.

(ix) Necessity of sanction is to filter out frivolous, malafide and vindictive prosecution. It is given on prima facie reaching the result that relevant facts constitute an offence. Technicalities and hyper-technical approach should not be adopted when the sanction order indicates and reflects application of mind.

(x) In The Director, CBI and Others. vs. Ashok Kumar Aswal and Others, (2015) 16 SCC 163 it was observed that once grant of Sanction by the competent Authority was accepted, the test would be whether prejudice was caused to the accused. This was to be left to be determined during the course of trial.

(xi) This Judgment refers to Prakash Singh Badal and Another vs. State of Punjab and Others, (2007) 1 SCC 1 and Chairman, Airport Authority of India and Another, (2012) 1 SCC 532.

(xii) Legality or validity of order granting sanction would be the subject matter of the review before the Criminal Court, even if the order was silent and application of mind does not appear from sanction or extrinsic evidence may be placed before the Court. Evidence could be lead.

(xiii) In State of Maharashtra Through C.B.I. Vs. Mahesh G.Jain, (2013) 8 SCC 119, it was held;-

“11. In R. Sundararajan v. State [(2006) 12 SCC 749 : (2007) 2 SCC (Cri) 563] , while dealing with the validity of the order of sanction, the two learned Judges have expressed thus: (SCC p. 752, para 14)

“14. … it may be mentioned that we cannot look into the adequacy or inadequacy of the material before the sanctioning authority and we cannot sit as a court of appeal over the sanction order. The order granting sanction shows that all the available materials were placed before the sanctioning authority who considered the same in great detail. Only because some of the said materials could not be proved, the same by itself, in our opinion, would not vitiate the order of sanction. In fact in this case there was abundant material before the sanctioning authority, and hence we do not agree that the sanction order was in any way vitiated.”

(xiv) In State of Karnataka v. Ameerjan [(2007) 11 SCC 273 : (2008) 1 SCC (Cri) 130] it has been opined that: (SCC p. 277, para 9)

“9. … an order of sanction should not be construed in a pedantic manner. But, it is also well settled that the purpose for which an order of sanction is required to be passed should always be borne in mind. Ordinarily, the sanctioning authority is the best person to judge as to whether the public servant concerned should receive the protection under the Act by refusing to accord sanction for his prosecution or not.”

(xv) In Kootha Perumal v. State [(2011) 1 SCC 491 : (2011) 1 SCC (Cri) 418 : (2011) 2 SCC (L&S) 657] it has been opined that the sanctioning authority when grants sanction on an examination of the statements of the witnesses as also the material on record, it can safely be concluded that the sanctioning authority has duly recorded its satisfaction and, therefore, the sanction order is valid.

(xvi) From the aforesaid authorities the following principles can be culled out:

(a) It is incumbent on the prosecution to prove that the valid sanction has been granted by the sanctioning authority after being satisfied that a case for sanction has been made out.

(b) The sanction order may expressly show that the sanctioning authority has perused the material placed before it and, after consideration of the circumstances, has granted sanction for prosecution.

(c) The prosecution may prove by adducing the evidence that the material was placed before the sanctioning authority and its satisfaction was arrived at upon perusal of the material placed before it.

(d) Grant of sanction is only an administrative function and the sanctioning authority is required to prima facie reach the satisfaction that relevant facts would constitute the offence.

(e) The adequacy of material placed before the sanctioning authority cannot be gone into by the court as it does not sit in appeal over the sanction order.

(f) If the sanctioning authority has perused all the materials placed before it and some of them have not been proved that would not vitiate the order of sanction.

(g) The order of sanction is a prerequisite as it is intended to provide a safeguard to a public servant against frivolous and vexatious litigants, but simultaneously an order of sanction should not be construed in a pedantic manner and there should not be a hyper-technical approach to test its validity.”

(xvii) At this stage, it will neither be fair nor proper for the writ court to question and decide the question of validity of Sanction Order on merits of reasonable cause etc. as it would amount to a pre trial adjudication. Questions and issues relating to grant and issue of sanction could be raised and decided during trial. We do not think it will be appropriate and proper for the writ Court while examining sanction, examine merits of allegations made in the criminal complaint and act as a fact finding authority.

(xviii) We have merely recorded what has been stated by the counsel for the revenue and not given our pronouncement or judgment in view of the contentions raised in the writ petition or on merits of the criminal complaint which is pending trial. These issues will have to be examined in accordance with law in the criminal proceedings. Of course, in case the petitioners are able to make out that cognizance was not justified and as per law they can challenge and question the summoning order by way of petition under Section 397 read with Section 401 of the Code of Criminal Procedure, 1973 (Code) or if permissible, by way of a petition under Section 482 of the Code.