I paid the TDS with interest before sanction and no penalty was ever levied. Can they prosecute?
On this combination of facts, no. The High Court quashed the s.276B/278B prosecution because the tax with interest had been deposited before sanction under s.279(1), no penalty proceedings had ever been initiated, and the delay was explained. If a cancelled penalty destroys the basis of a prosecution, the position is stronger where no penalty was ever adjudicated at all.
Decided by the High Court (Jharkhand High Court - Sanjay Kumar Dwivedi, J., W.P.(Cr.) No. 577 of 2022) on 2023-08-22, reported as [2023] 156 taxmann.com 151 (Jhar.)(HC); W.P.(Cr.) No. 577 of 2022; 2023 LiveLaw (Jha) 33. It bears on section 276B, section 278B, section 279(1), section 271C of the Income Tax Act 1961, in Prosecution and TDS Defaults matters.
Useful where the department has gone straight to prosecution for a TDS default without ever initiating penalty proceedings. But it is a High Court decision resting on three facts together, and it sits in obvious tension with the Supreme Court line that later deposit with interest is no defence — so it only works if all three features are on the record.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner firm began trading in January 2016 and did not know of the tax deduction obligations for the last quarter of financial year 2015-16. It had deducted Rs. 2,02,117 for that year, assessment year 2016-17, and had not deposited it in time. On learning of the obligation the partner consulted a chartered accountant, took a TAN, and deposited the tax with interest on 11 May 2016. When the department issued a notice he replied on 22 February 2017 setting out the honest mistake and recording that the amount with interest had already been paid. The Commissioner of Income-tax (TDS), Patna nevertheless sanctioned prosecution under s.279(1) on 14 February 2018; the complaint under s.276B read with s.278B was filed on 13 April 2018 as Economic Offence Complaint Case No. 17 of 2018 in the Special Court (Economic Offence), Ranchi, naming the firm and the partner; and the court took cognizance on 2 May 2018. No penalty proceeding was ever initiated. The department's answer was that once the statutory obligation was not met the complaint was properly lodged and the later deposit had nothing to do with the prosecution.
The whole criminal proceeding, including the order taking cognizance dated 2 May 2018 in Economic Offence Complaint Case No. 17 of 2018, was quashed and the writ petition allowed. The Court found that the tax with interest had been deposited on 11 May 2016, long before the sanction of 14 February 2018 and the complaint of 13 April 2018; that this was not a case where the prosecution came first and the deposit followed; that no penalty proceeding had been initiated; and that the petitioner had succeeded in proving full and sufficient reasons for the failure by his reply to the notice. On that combination there was no occasion to proceed under s.276B, and to let the prosecution continue would be an abuse of the process of law.
The Court did not reason only from the deposit. It began from wilfulness, quoting paragraph 10 of the Andhra Pradesh High Court's decision in ITO v. Autofill, which holds that wilfulness contemplates an element of evil motive and want of justification, cites the Punjab and Haryana Full Bench in CIT v. Patram Dass Raja Ram Beri for the proposition that wilfulness brings in the element of guilt and so a requirement of mens rea, and records the Supreme Court's observation in Gujarat Travancore Agency that a penalty is meant to serve as a deterrent. It then treated the sequence of events as decisive: the deposit with interest came first and the sanction and complaint came nearly two years later, so this was not a prosecution answered by a belated payment. To that it added the absence of any penalty proceeding and the finding that the reply to the notice established full and sufficient reasons for the failure. Finally it read K.C. Builders, where the criminal case did not survive because the penalty had been struck down, and reasoned that the present case was stronger because no penalty proceeding had even been initiated. On all that, continuing the prosecution would be an abuse of the process of law.
In the case of K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461/265 ITR 562 (SC), the criminal case was held to be not survived in view of the fact that the penalty is struck down and in the case in hand even the penalty proceeding has not been initiated against the petitioner. ... The Court finds that in such a situation to allow the present proceeding to continue further will amount to abuse of process of law.
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Handle my notice → Ask a CA on WhatsAppOn this combination of facts, no. The High Court quashed the s.276B/278B prosecution because the tax with interest had been deposited before sanction under s.279(1), no penalty proceedings had ever been initiated, and the delay was explained. If a cancelled penalty destroys the basis of a prosecution, the position is stronger where no penalty was ever adjudicated at all. This was decided by the High Court (Jharkhand High Court - Sanjay Kumar Dwivedi, J., W.P.(Cr.) No. 577 of 2022) and bears on section 276B, section 278B, section 279(1), section 271C of the Income Tax Act 1961. It is reported as [2023] 156 taxmann.com 151 (Jhar.)(HC); W.P.(Cr.) No. 577 of 2022; 2023 LiveLaw (Jha) 33. Useful where the department has gone straight to prosecution for a TDS default without ever initiating penalty proceedings. But it is a High Court decision resting on three facts together, and it sits in obvious tension with the Supreme Court line that later deposit with interest is no defence — so it only works if all three features are on the record. If it applies to you, the first step is this: Establish on the record the date the tax and interest were deposited and the date of the s.279(1) sanction, and show the deposit came first.
The petitioner firm began trading in January 2016 and did not know of the tax deduction obligations for the last quarter of financial year 2015-16. It had deducted Rs. 2,02,117 for that year, assessment year 2016-17, and had not deposited it in time. On learning of the obligation the partner consulted a chartered accountant, took a TAN, and deposited the tax with interest on 11 May 2016. When the department issued a notice he replied on 22 February 2017 setting out the honest mistake and recording that the amount with interest had already been paid. The Commissioner of Income-tax (TDS), Patna nevertheless sanctioned prosecution under s.279(1) on 14 February 2018; the complaint under s.276B read with s.278B was filed on 13 April 2018 as Economic Offence Complaint Case No. 17 of 2018 in the Special Court (Economic Offence), Ranchi, naming the firm and the partner; and the court took cognizance on 2 May 2018. No penalty proceeding was ever initiated. The department's answer was that once the statutory obligation was not met the complaint was properly lodged and the later deposit had nothing to do with the prosecution. The matter was decided on 2023-08-22 by the High Court (Jharkhand High Court - Sanjay Kumar Dwivedi, J., W.P.(Cr.) No. 577 of 2022). On those facts the High Court held as follows. The whole criminal proceeding, including the order taking cognizance dated 2 May 2018 in Economic Offence Complaint Case No. 17 of 2018, was quashed and the writ petition allowed. The Court found that the tax with interest had been deposited on 11 May 2016, long before the sanction of 14 February 2018 and the complaint of 13 April 2018; that this was not a case where the prosecution came first and the deposit followed; that no penalty proceeding had been initiated; and that the petitioner had succeeded in proving full and sufficient reasons for the failure by his reply to the notice. On that combination there was no occasion to proceed under s.276B, and to let the prosecution continue would be an abuse of the process of law.
The Court did not reason only from the deposit. It began from wilfulness, quoting paragraph 10 of the Andhra Pradesh High Court's decision in ITO v. Autofill, which holds that wilfulness contemplates an element of evil motive and want of justification, cites the Punjab and Haryana Full Bench in CIT v. Patram Dass Raja Ram Beri for the proposition that wilfulness brings in the element of guilt and so a requirement of mens rea, and records the Supreme Court's observation in Gujarat Travancore Agency that a penalty is meant to serve as a deterrent. It then treated the sequence of events as decisive: the deposit with interest came first and the sanction and complaint came nearly two years later, so this was not a prosecution answered by a belated payment. To that it added the absence of any penalty proceeding and the finding that the reply to the notice established full and sufficient reasons for the failure. Finally it read K.C. Builders, where the criminal case did not survive because the penalty had been struck down, and reasoned that the present case was stronger because no penalty proceeding had even been initiated. On all that, continuing the prosecution would be an abuse of the process of law. In the words reproduced by the source cited on this page: "In the case of K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461/265 ITR 562 (SC), the criminal case was held to be not survived in view of the fact that the penalty is struck down and in the case in hand even the penalty proceeding has not been initiated against the petitioner. ... The Court finds that in such a situation to allow the present proceeding to continue further will amount to abuse of process of law." The decision followed or applied ITO v. Autofill [1990] 52 Taxman 343 / 184 ITR 47 (A.P.) - paragraph 10 quoted, on wilfulness and mens rea (para 6); K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461 / 265 ITR 562 (SC) (para 7).
It was decided by the High Court on 2023-08-22 and is reported as [2023] 156 taxmann.com 151 (Jhar.)(HC); W.P.(Cr.) No. 577 of 2022; 2023 LiveLaw (Jha) 33. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 276B, section 278B, section 279(1), section 271C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The whole criminal proceeding, including the order taking cognizance dated 2 May 2018 in Economic Offence Complaint Case No. 17 of 2018, was quashed and the writ petition allowed. The Court found that the tax with interest had been deposited on 11 May 2016, long before the sanction of 14 February 2018 and the complaint of 13 April 2018; that this was not a case where the prosecution came first and the deposit followed; that no penalty proceeding had been initiated; and that the petitioner had succeeded in proving full and sufficient reasons for the failure by his reply to the notice. On that combination there was no occasion to proceed under s.276B, and to let the prosecution continue would be an abuse of the process of law. It arises in Prosecution and TDS Defaults matters, on section 276B, section 278B, section 279(1), section 271C of the Income Tax Act 1961, and was decided by Jharkhand High Court - Sanjay Kumar Dwivedi, J., W.P.(Cr.) No. 577 of 2022. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Confirm from the file whether any penalty proceedings were ever initiated, and state expressly that none were if that is the position. Put the explanation for the delay in writing rather than relying on the deposit alone.
Superseded by amendment. The provision this judgment construes has been changed since it was delivered. The taxtmi highlight cited as source records that 'Section 276B of the Income Tax Act is being amended to provide exemption from prosecution for failure to pay tax deducted at source (TDS) if the payment is made by the due date for filing the TDS statement for that quarter' and that 'the amendment takes effect from October 1, 2024'. Two limits on that support: the highlight is a budget-stage summary and does not name the amending enactment (the change came in the Finance (No. 2) Act 2024 package, which no page fetched confirms), and the department's own consolidated page for section 276B (https://www.incometaxindia.gov.in/w/section-276b) is a stale snapshot - it shows amendment history only to the Finance Act 1997 and does not carry the new proviso at all. The successor provision under the Income-tax Act 2025 was not verified: the department's /w/section-476 URL serves section 476 of the Code of Criminal Procedure 1973, so nothing is asserted here about the position from 1 April 2026. What survives is the narrower case: where the deposit is made after the quarterly-statement due date but before sanction under s.279(1), the reasoning here (deposit with interest before sanction, no penalty proceedings initiated, sufficient justification for the delay) is still the argument to run. No later decision following or doubting this judgment was found on the pages fetched. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order has now been read in full in a law report and the dates it turns on are established: the tax with interest was deposited on 11 May 2016, the sanction under s.279(1) was given by the Commissioner of Income-tax (TDS), Patna on 14 February 2018, the complaint was filed on 13 April 2018 and cognizance was taken on 2 May 2018. The order is dated 22 August 2023 and is by Sanjay Kumar Dwivedi, J. The sentence that previously stood as the key quote was a commercial website's paraphrase of K.C. Builders and not the language of this Court; the Court's own words are quoted instead. The reasoning also has a first limb the entry did not carry: the Court began from wilfulness, quoting ITO v. Autofill on evil motive and mens rea, before it came to the deposit and to K.C. Builders. The caution about the contrary line still stands - Madhumilan Syntex (SC) and the Karnataka High Court in Golden Gate Properties treat a deposit with interest beyond the stipulated period as no answer, with reasonable cause under s.278AA the defence - so the features that distinguish this case, that the deposit preceded the sanction by almost two years, that no penalty proceeding was ever initiated, and that sufficient cause was proved on the reply to the notice, have to be pleaded expressly. No later judicial treatment of this order was found and the report carries no later-treatment banner. The order turns on its combination of facts and does not lay down a rule. It does not say which of the three features is necessary - whether a deposit before sanction would be enough on its own where a penalty had been imposed, or whether the absence of penalty proceedings would be enough where the deposit came after the complaint. It does not discuss s.278AA or reasonable cause in terms, although the finding of full and sufficient reasons occupies the same ground. It says nothing about the position of the firm as distinct from the partner arraigned under s.278B, both having been quashed together. And it was decided on the pre-amendment s.276B, so it does not address the exemption for payment made by the due date of the quarterly statement. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The whole criminal proceeding, including the order taking cognizance dated 2 May 2018 in Economic Offence Complaint Case No. 17 of 2018, was quashed and the writ petition allowed. The Court found that the tax with interest had been deposited on 11 May 2016, long before the sanction of 14 February 2018 and the complaint of 13 April 2018; that this was not a case where the prosecution came first and the deposit followed; that no penalty proceeding had been initiated; and that the petitioner had succeeded in proving full and sufficient reasons for the failure by his reply to the notice. On that combination there was no occasion to proceed under s.276B, and to let the prosecution continue would be an abuse of the process of law.
TaxSphere, “A.M. Enterprises v State of Jharkhand”, https://taxnotice.vittsphere.com/caselaw/case/am-enterprises-v-state-of-jharkhand-276b/ (validity last checked 2026-08-25)
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I am a non-executive director. The complaint under s.276B read with s.278B says only that I was in charge of and responsible to the company for the conduct of its business. Is that enough to put me on trial?
The Commissioner has sanctioned my prosecution under s.276B without dealing with my explanation that a cash crunch and the department's own withheld refunds caused the delay. Can I have the sanction quashed in a writ petition?
We paid the whole TDS default with interest before the complaint was filed. Can we still be prosecuted under s.276B?
We deposited the TDS late, with interest, and the Department accepted it — then launched a s.276B prosecution against the company and its directors. Can the complaint be quashed?
