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?
Not on these facts. The Delhi High Court held that a financial crunch, pending refunds and a delay of less than twelve months are ex facie factual matters which may constitute the defence of reasonable cause under s.278AA, but that the onus of proving reasonable cause lies on the person being prosecuted and the place to discharge it is the criminal trial, not a writ petition. A sanction under s.279(1) is open to judicial review only in a limited way, to see that the authority acted fairly and reasonably, and the court will not sit as an appellate forum over it.
Decided by the High Court (Sanjiv Khanna J and Chander Shekhar J) on 2018-03-12, reported as W.P.(C) No. 3964/2017 (Delhi High Court). It bears on section 276B, section 278B, section 278AA, section 279(1), section 200(1), section 143(1D) of the Income Tax Act 1961, in Prosecution and TDS Defaults matters.
This is the Revenue-side outcome that a reader must see alongside the Jharkhand and Patna decisions quashing s.276B prosecutions where the tax was paid before the complaint. The petitioner here had deposited more than Rs 3.53 crore of TDS late, had paid interest before the notice, and pleaded a genuine collapse in business — and still went to trial. Three points are worth carrying away. First, the court accepted expressly that s.278AA puts the onus on the accused; it is not for the Commissioner to disprove reasonable cause before sanctioning. Second, the necessity of sanction is to filter out frivolous, malafide and vindictive prosecutions, it is given on prima facie satisfaction, and technicalities and a hyper-technical approach are out of place where the sanction order reflects application of mind. Third, the validity of a sanction can itself be raised and decided before the criminal court, with evidence, so a writ petition is not the only route and is usually the wrong one. Note also what the Court did not do: it recorded in terms that it had merely noted what counsel for the Revenue said and had not pronounced on the merits of the writ petition or of the complaint, and it preserved every defence for the trial and for any challenge to the order taking cognizance.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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During financial year 2012-13, relevant to assessment year 2013-14, the petitioner company deducted tax at source of Rs 3,52,99,059 on salary and non-salary payments and failed to deposit it in the government treasury within the prescribed time; the delays ran from two to eleven months and the tax was deposited between 30 June 2013 and 16 September 2013. A show cause notice was issued in April 2016 asking why the company and its principal officers should not be prosecuted under s.276B and s.278B. The petitioners' representative said they would opt for compounding and the prosecution proceedings were kept in abeyance on that footing, but no compounding application was filed; a further show cause notice dated 25 January 2017 was issued to resume proceedings, and after adjournments a reply dated 3 March 2017 admitted the defaults and attributed them to a financial crunch caused by a sudden drop in business orders, adding that undisputed income tax refunds four to five times the shortfall were pending. By order dated 14 March 2017 the Commissioner of Income Tax (TDS) granted sanction under s.279(1), rejecting the explanation on the grounds that interest is merely compensatory, that shortage of funds is not a reasonable cause because the deductor is only a custodian of the deductees' tax, that the pending refunds were withheld under authority of law and were in any event the company's own money, and that a delay of two to eleven months was not condonable. A complaint followed, the Additional Chief Metropolitan Magistrate took cognizance and issued summons, and the petitioners came to the High Court seeking to quash the sanction, to restrain any step under it, and to compel release of refunds of about Rs 5.09 crore.
The writ petition was disposed of without interference with the sanction. The defaults were not disputed; the pleas of financial crunch, withheld refunds and a delay short of twelve months under the CBDT standard operating procedure are ex facie factual, may constitute the defence of reasonable cause under s.278AA, and are for the criminal court, the onus of proving reasonable cause lying on the person prosecuted. Grant of sanction is subject to judicial review only in a limited manner, to ensure the authority acted fairly and reasonably, and the writ court will not act as an appellate forum substituting its own opinion; questions relating to the grant of sanction may be raised and decided during trial. The refund grievance was not examined because the assessing officer and jurisdictional Commissioner were not impleaded, with liberty to file an appropriate petition.
The Court accepted that the grant of sanction can be judicially reviewed, but only within narrow limits: the necessity of sanction is to filter out frivolous, malafide and vindictive prosecution, it is given on prima facie reaching the result that the relevant facts constitute an offence, and technicalities and a hyper-technical approach should not be adopted where the sanction order indicates and reflects application of mind. On the petitioners' factual pleas the Court held these were matters of defence on which the onus lay on the accused under s.278AA, and observed that late deposit of TDS in gigantic proportions after the end of the financial year has consequences beyond non-payment, because deductees do not get credit, have to pay tax and interest, and must then file revised returns for refund. It applied The Director, CBI v. Ashok Kumar Aswal (2015) 16 SCC 163, that once grant of sanction by the competent authority is accepted the test is whether prejudice was caused to the accused, to be determined at trial, and that the legality of a sanction order is a matter for review before the criminal court even where the order is silent, evidence being admissible. It set out the principles culled in State of Maharashtra v. Mahesh G. Jain (2013) 8 SCC 119 — that the adequacy of the material placed before the sanctioning authority cannot be gone into because the court does not sit in appeal over the sanction order, that grant of sanction is an administrative function requiring only prima facie satisfaction, and that an order of sanction, while a safeguard against frivolous and vexatious litigants, should not be construed in a pedantic manner. It concluded that it would be neither fair nor proper for a writ court to decide the validity of the sanction on the merits of reasonable cause, as that would amount to a pre-trial adjudication.
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.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. The Delhi High Court held that a financial crunch, pending refunds and a delay of less than twelve months are ex facie factual matters which may constitute the defence of reasonable cause under s.278AA, but that the onus of proving reasonable cause lies on the person being prosecuted and the place to discharge it is the criminal trial, not a writ petition. A sanction under s.279(1) is open to judicial review only in a limited way, to see that the authority acted fairly and reasonably, and the court will not sit as an appellate forum over it. This was decided by the High Court (Sanjiv Khanna J and Chander Shekhar J) and bears on section 276B, section 278B, section 278AA, section 279(1), section 200(1), section 143(1D) of the Income Tax Act 1961. It is reported as W.P.(C) No. 3964/2017 (Delhi High Court). This is the Revenue-side outcome that a reader must see alongside the Jharkhand and Patna decisions quashing s.276B prosecutions where the tax was paid before the complaint. The petitioner here had deposited more than Rs 3.53 crore of TDS late, had paid interest before the notice, and pleaded a genuine collapse in business — and still went to trial. Three points are worth carrying away. First, the court accepted expressly that s.278AA puts the onus on the accused; it is not for the Commissioner to disprove reasonable cause before sanctioning. Second, the necessity of sanction is to filter out frivolous, malafide and vindictive prosecutions, it is given on prima facie satisfaction, and technicalities and a hyper-technical approach are out of place where the sanction order reflects application of mind. Third, the validity of a sanction can itself be raised and decided before the criminal court, with evidence, so a writ petition is not the only route and is usually the wrong one. Note also what the Court did not do: it recorded in terms that it had merely noted what counsel for the Revenue said and had not pronounced on the merits of the writ petition or of the complaint, and it preserved every defence for the trial and for any challenge to the order taking cognizance. If it applies to you, the first step is this: Do not spend a writ petition on the merits of reasonable cause; the court will call it a pre-trial adjudication and decline.
During financial year 2012-13, relevant to assessment year 2013-14, the petitioner company deducted tax at source of Rs 3,52,99,059 on salary and non-salary payments and failed to deposit it in the government treasury within the prescribed time; the delays ran from two to eleven months and the tax was deposited between 30 June 2013 and 16 September 2013. A show cause notice was issued in April 2016 asking why the company and its principal officers should not be prosecuted under s.276B and s.278B. The petitioners' representative said they would opt for compounding and the prosecution proceedings were kept in abeyance on that footing, but no compounding application was filed; a further show cause notice dated 25 January 2017 was issued to resume proceedings, and after adjournments a reply dated 3 March 2017 admitted the defaults and attributed them to a financial crunch caused by a sudden drop in business orders, adding that undisputed income tax refunds four to five times the shortfall were pending. By order dated 14 March 2017 the Commissioner of Income Tax (TDS) granted sanction under s.279(1), rejecting the explanation on the grounds that interest is merely compensatory, that shortage of funds is not a reasonable cause because the deductor is only a custodian of the deductees' tax, that the pending refunds were withheld under authority of law and were in any event the company's own money, and that a delay of two to eleven months was not condonable. A complaint followed, the Additional Chief Metropolitan Magistrate took cognizance and issued summons, and the petitioners came to the High Court seeking to quash the sanction, to restrain any step under it, and to compel release of refunds of about Rs 5.09 crore. The matter was decided on 2018-03-12 by the High Court (Sanjiv Khanna J and Chander Shekhar J). On those facts the High Court held as follows. The writ petition was disposed of without interference with the sanction. The defaults were not disputed; the pleas of financial crunch, withheld refunds and a delay short of twelve months under the CBDT standard operating procedure are ex facie factual, may constitute the defence of reasonable cause under s.278AA, and are for the criminal court, the onus of proving reasonable cause lying on the person prosecuted. Grant of sanction is subject to judicial review only in a limited manner, to ensure the authority acted fairly and reasonably, and the writ court will not act as an appellate forum substituting its own opinion; questions relating to the grant of sanction may be raised and decided during trial. The refund grievance was not examined because the assessing officer and jurisdictional Commissioner were not impleaded, with liberty to file an appropriate petition.
The Court accepted that the grant of sanction can be judicially reviewed, but only within narrow limits: the necessity of sanction is to filter out frivolous, malafide and vindictive prosecution, it is given on prima facie reaching the result that the relevant facts constitute an offence, and technicalities and a hyper-technical approach should not be adopted where the sanction order indicates and reflects application of mind. On the petitioners' factual pleas the Court held these were matters of defence on which the onus lay on the accused under s.278AA, and observed that late deposit of TDS in gigantic proportions after the end of the financial year has consequences beyond non-payment, because deductees do not get credit, have to pay tax and interest, and must then file revised returns for refund. It applied The Director, CBI v. Ashok Kumar Aswal (2015) 16 SCC 163, that once grant of sanction by the competent authority is accepted the test is whether prejudice was caused to the accused, to be determined at trial, and that the legality of a sanction order is a matter for review before the criminal court even where the order is silent, evidence being admissible. It set out the principles culled in State of Maharashtra v. Mahesh G. Jain (2013) 8 SCC 119 — that the adequacy of the material placed before the sanctioning authority cannot be gone into because the court does not sit in appeal over the sanction order, that grant of sanction is an administrative function requiring only prima facie satisfaction, and that an order of sanction, while a safeguard against frivolous and vexatious litigants, should not be construed in a pedantic manner. It concluded that it would be neither fair nor proper for a writ court to decide the validity of the sanction on the merits of reasonable cause, as that would amount to a pre-trial adjudication. In the words reproduced by the source cited on this page: "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." The decision followed or applied The Director, CBI and Others v. Ashok Kumar Aswal and Others (2015) 16 SCC 163 — applied; State of Maharashtra Through C.B.I. v. Mahesh G. Jain (2013) 8 SCC 119 — principles set out and applied; Prakash Singh Badal and Another v. State of Punjab and Others (2007) 1 SCC 1 — referred to.
It was decided by the High Court on 2018-03-12 and is reported as W.P.(C) No. 3964/2017 (Delhi High Court). 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 278AA, section 279(1), section 200(1), section 143(1D), 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The writ petition was disposed of without interference with the sanction. The defaults were not disputed; the pleas of financial crunch, withheld refunds and a delay short of twelve months under the CBDT standard operating procedure are ex facie factual, may constitute the defence of reasonable cause under s.278AA, and are for the criminal court, the onus of proving reasonable cause lying on the person prosecuted. Grant of sanction is subject to judicial review only in a limited manner, to ensure the authority acted fairly and reasonably, and the writ court will not act as an appellate forum substituting its own opinion; questions relating to the grant of sanction may be raised and decided during trial. The refund grievance was not examined because the assessing officer and jurisdictional Commissioner were not impleaded, with liberty to file an appropriate petition. It arises in Prosecution and TDS Defaults matters, on section 276B, section 278B, section 278AA, section 279(1), section 200(1), section 143(1D) of the Income Tax Act 1961, and was decided by Sanjiv Khanna J and Chander Shekhar J. 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. Raise the validity of the s.279(1) sanction before the criminal court instead, where evidence can be led on what material was placed before the sanctioning authority. Assemble the s.278AA case as evidence you will have to prove: bank statements, board minutes, orders showing refunds withheld, correspondence — the onus is yours. If you rely on the CBDT standard operating procedure or the Press Note of 6 August 2013 on delays not exceeding twelve months, be ready to argue it at trial; it was treated here as a matter for the criminal proceedings. If withheld refunds are part of your case, implead the jurisdictional Assessing Officer and Commissioner — the Court declined to examine the refund grievance because they were not parties. Where an offer to compound was made and the proceedings were kept in abeyance, actually file the compounding application; here the abeyance lapsed and a fresh show cause notice issued when none was filed.
Validity check could not be completed. Validity check could not be completed: no citator search for later treatment of this judgment was carried out in this pass. Readers should note the divergent line in the Jharkhand and Patna High Courts, of which SKS MC Joint Venture v. State of Jharkhand (8 May 2025) was read in full for this pass, quashing a s.276B prosecution where the tax and interest were paid before the complaint. Note also that the deductions here fell in financial year 2012-13, long before the proviso inserted into s.276B by the Finance (No. 2) Act 2024 with effect from 1 October 2024, and before the Guidelines for Compounding of Offences dated 17 October 2024 replaced the earlier compounding regime referred to in the judgment. No source could be cited for that finding. 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.
This is an oral judgment and its numbering is defective: after paragraph 11 the report carries paragraphs numbered 12, 13 and 14 which are part of the block quotation from State of Maharashtra v. Mahesh G. Jain, and the judgment's own numbering then resumes at 12. Paragraph references in this entry follow the judgment's own sequence. Paragraph 13 records that the Court had 'merely recorded what has been stated by the counsel for the revenue and not given our pronouncement or judgment' on the contentions in the writ petition or on the merits of the pending complaint, and paragraph 19 preserves all defences; the writ petition was disposed of rather than dismissed on merits. The long extract at paragraph 5 is the Commissioner's sanction order, not the Court's reasoning: the authorities cited inside it — Rishikesh Balkishandas v. I.D. Manchanda [1987] 167 ITR 49 (Delhi), Dy. CIT v. Modern Motor Works [1996] 220 ITR 415 (P&H) on mens rea not being required under s.276B, Madhumilan Syntex Ltd. v. UOI [2007] 290 ITR 199 (SC), ITO v. Delhi Iron Works (P) Ltd. and ITO v. Anil Batra — are the Department's citations. None of them was read in this pass and none should be treated as approved by the Court. The report also notes a discrepancy in the date of the show cause notice, giving '5th April, 2016 (sic. 6th April, 2016)'. 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 writ petition was disposed of without interference with the sanction. The defaults were not disputed; the pleas of financial crunch, withheld refunds and a delay short of twelve months under the CBDT standard operating procedure are ex facie factual, may constitute the defence of reasonable cause under s.278AA, and are for the criminal court, the onus of proving reasonable cause lying on the person prosecuted. Grant of sanction is subject to judicial review only in a limited manner, to ensure the authority acted fairly and reasonably, and the writ court will not act as an appellate forum substituting its own opinion; questions relating to the grant of sanction may be raised and decided during trial. The refund grievance was not examined because the assessing officer and jurisdictional Commissioner were not impleaded, with liberty to file an appropriate petition.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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