I deducted tax at source but could not deposit it on time because my own contract payments were stuck. I have since paid it with interest. Can I still be prosecuted?
Not where reasonable cause is proved. The Delhi High Court refused leave to appeal against acquittals under section 276B read with section 278B. Section 278AA opens with a non obstante clause and means that the existence of a reasonable cause operates as a statutory defence to prosecution. The company was a sub-sub-contractor whose large receivables from the main contractor, and refunds from the Department, were stuck, and it deposited the whole of the tax with interest and late fee before the complaints were filed, a fact the Income Tax Officer admitted in cross-examination. That showed the absence of the culpable mental state and the trial court's finding was neither perverse nor legally infirm.
Decided by the High Court (High Court of Delhi at New Delhi; Amit Mahajan J) on 2025-05-26, reported as CRL.L.P. 288 of 2022, CRL.L.P. 289 of 2022 and CRL.L.P. 290 of 2022, Delhi High Court. It bears on section 276B, section 278AA, section 278B, section 278E of the Income Tax Act 1961, in Prosecution and TDS Defaults matters.
Prosecutions under section 276B follow almost automatically from a late deposit, and this judgment sets out how the statutory defence is actually made good. It adopts the test in Sonali Autos, that a reasonable cause is one which would prevent a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. It shows what evidence carries that burden: correspondence with banks, letters to the Department seeking adjustment of refunds, ledgers of unpaid receivables, an arbitration award in favour of the main contractor, and proof that the tax with interest and late fee went in before the complaint. It records the significance of the officer's admission in cross-examination that the whole amount had been deposited before the show cause notice. And it is pointed about the sanction, noting that the sanctioning order recorded the plea of financial crisis and unintentional delay and yet granted sanction. On appeal against acquittal, the standard is perversity, not a different view.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
Three complaints were filed against the company and its director for failing to deposit tax deducted at source within the prescribed time, each relating to a different year: Rs 68,78,256 for 2015-16, Rs 1,59,72,437 for 2014-15 and Rs 2,01,34,235 for 2013-14. In line with departmental policy each quarterly default was treated as a distinct offence. The defaults were remedied by depositing the tax with interest, but the Department pressed on with prosecution for the original failure. Charges under sections 276B read with 278B and 278E were framed on 28 February 2019. In defence the company showed that it was a sub-sub-contractor to public sector contractors, that as at 31 March 2014, 2015 and 2016 large sums were due from its debtors, that Rs 13,14,37,120 was due from the main contractor for road work executed for a Haryana state corporation, that the main contractor had obtained an arbitral award of Rs 14,79,36,410 on 16 October 2017 which had still not been realised, and that the Department itself had delayed refunds. It produced the sub-contract and its addendum, ledgers, bank correspondence and letters to the Department, and showed that the tax with interest under section 201(1A) and late fee under section 234E had been paid, funds having been borrowed for the purpose. The trial court, by judgment of 28 October 2021, held reasonable cause under section 278AA established and acquitted both accused. The Department sought leave to appeal.
Leave to appeal was refused and the three petitions dismissed. Section 278AA begins with a non obstante clause and shows the legislative intent that no person shall be punished for a failure under section 276B if it is established that the failure occurred due to a reasonable cause, so that reasonable cause operates as a statutory defence against prosecution. Applying the meaning given in Sonali Autos P. Ltd. v State of Bihar, a reasonable cause is one which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. The respondents had set out the financial crunch in their reply of 19 December 2017 to the show cause notice of 7 December 2017; the trial court had examined the letters to the Department, the bank correspondence and the documents showing receivables from government entities; and the entire defaulted amount, with interest and late fee, had been remitted before the prosecution began. The Income Tax Officer admitted in cross-examination that the whole amount had been deposited even before the show cause notice under section 279 issued, which undermined the case of wilful default and evidenced the absence of mens rea. The trial court's conclusion that the default was compelled by external financial constraints was neither perverse nor legally infirm, and interference under section 378(4) of the Code of Criminal Procedure is warranted only where findings are perverse, manifestly illegal or cause a miscarriage of justice, not merely because another view is possible.
The Court proceeded in three steps. First, the standard on a petition for leave to appeal against acquittal: following Maharashtra v Sujay Mangesh Poyarekar, the High Court sees whether a prima facie case or arguable points meriting interference are made out, and it must exercise caution, interfering only for substantial and compelling reasons. Second, the construction of section 278AA. Its opening words override sections 276A, 276AB and 276B, and it withholds punishment from a person who proves reasonable cause. That makes it an express exception to penal liability, resting on the principle that punishment ought not to follow a breach which, though technical, is unaccompanied by a culpable mental state and is otherwise explained bona fide. Whether the exception is made out is a finding of fact, reached here after appreciation of oral and documentary evidence. Third, the application. The root cause of the delay was that substantial, legally recoverable payments from contracting parties had not been received, a matter substantiated by the documents, and it was aggravated by the Department's own delay in issuing refunds. The company had acknowledged the default and regularised it before prosecution began, which the trial court rightly read as a responsible and remedial disposition negativing mens rea. The Department's answer, that the documents were unauthenticated or insufficient, had been considered and rejected below, the trial court having looked at the totality of circumstances including the financial disclosures, the pending refunds and the absence of any attempt to conceal. The presumption of culpable mental state under section 278E was held to be neutralised by the substantiated defence under section 278AA, the prosecution case resting on the fact of default rather than on the mental element.
the existence of a reasonable cause operates as a statutory defence against prosecution
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNot where reasonable cause is proved. The Delhi High Court refused leave to appeal against acquittals under section 276B read with section 278B. Section 278AA opens with a non obstante clause and means that the existence of a reasonable cause operates as a statutory defence to prosecution. The company was a sub-sub-contractor whose large receivables from the main contractor, and refunds from the Department, were stuck, and it deposited the whole of the tax with interest and late fee before the complaints were filed, a fact the Income Tax Officer admitted in cross-examination. That showed the absence of the culpable mental state and the trial court's finding was neither perverse nor legally infirm. This was decided by the High Court (High Court of Delhi at New Delhi; Amit Mahajan J) and bears on section 276B, section 278AA, section 278B, section 278E of the Income Tax Act 1961. It is reported as CRL.L.P. 288 of 2022, CRL.L.P. 289 of 2022 and CRL.L.P. 290 of 2022, Delhi High Court. Prosecutions under section 276B follow almost automatically from a late deposit, and this judgment sets out how the statutory defence is actually made good. It adopts the test in Sonali Autos, that a reasonable cause is one which would prevent a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. It shows what evidence carries that burden: correspondence with banks, letters to the Department seeking adjustment of refunds, ledgers of unpaid receivables, an arbitration award in favour of the main contractor, and proof that the tax with interest and late fee went in before the complaint. It records the significance of the officer's admission in cross-examination that the whole amount had been deposited before the show cause notice. And it is pointed about the sanction, noting that the sanctioning order recorded the plea of financial crisis and unintentional delay and yet granted sanction. On appeal against acquittal, the standard is perversity, not a different view. If it applies to you, the first step is this: Deposit the tax with interest and any late fee as early as possible and certainly before the complaint; that sequence did most of the work here and it goes directly to mens rea.
Three complaints were filed against the company and its director for failing to deposit tax deducted at source within the prescribed time, each relating to a different year: Rs 68,78,256 for 2015-16, Rs 1,59,72,437 for 2014-15 and Rs 2,01,34,235 for 2013-14. In line with departmental policy each quarterly default was treated as a distinct offence. The defaults were remedied by depositing the tax with interest, but the Department pressed on with prosecution for the original failure. Charges under sections 276B read with 278B and 278E were framed on 28 February 2019. In defence the company showed that it was a sub-sub-contractor to public sector contractors, that as at 31 March 2014, 2015 and 2016 large sums were due from its debtors, that Rs 13,14,37,120 was due from the main contractor for road work executed for a Haryana state corporation, that the main contractor had obtained an arbitral award of Rs 14,79,36,410 on 16 October 2017 which had still not been realised, and that the Department itself had delayed refunds. It produced the sub-contract and its addendum, ledgers, bank correspondence and letters to the Department, and showed that the tax with interest under section 201(1A) and late fee under section 234E had been paid, funds having been borrowed for the purpose. The trial court, by judgment of 28 October 2021, held reasonable cause under section 278AA established and acquitted both accused. The Department sought leave to appeal. The matter was decided on 2025-05-26 by the High Court (High Court of Delhi at New Delhi; Amit Mahajan J). On those facts the High Court held as follows. Leave to appeal was refused and the three petitions dismissed. Section 278AA begins with a non obstante clause and shows the legislative intent that no person shall be punished for a failure under section 276B if it is established that the failure occurred due to a reasonable cause, so that reasonable cause operates as a statutory defence against prosecution. Applying the meaning given in Sonali Autos P. Ltd. v State of Bihar, a reasonable cause is one which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. The respondents had set out the financial crunch in their reply of 19 December 2017 to the show cause notice of 7 December 2017; the trial court had examined the letters to the Department, the bank correspondence and the documents showing receivables from government entities; and the entire defaulted amount, with interest and late fee, had been remitted before the prosecution began. The Income Tax Officer admitted in cross-examination that the whole amount had been deposited even before the show cause notice under section 279 issued, which undermined the case of wilful default and evidenced the absence of mens rea. The trial court's conclusion that the default was compelled by external financial constraints was neither perverse nor legally infirm, and interference under section 378(4) of the Code of Criminal Procedure is warranted only where findings are perverse, manifestly illegal or cause a miscarriage of justice, not merely because another view is possible.
The Court proceeded in three steps. First, the standard on a petition for leave to appeal against acquittal: following Maharashtra v Sujay Mangesh Poyarekar, the High Court sees whether a prima facie case or arguable points meriting interference are made out, and it must exercise caution, interfering only for substantial and compelling reasons. Second, the construction of section 278AA. Its opening words override sections 276A, 276AB and 276B, and it withholds punishment from a person who proves reasonable cause. That makes it an express exception to penal liability, resting on the principle that punishment ought not to follow a breach which, though technical, is unaccompanied by a culpable mental state and is otherwise explained bona fide. Whether the exception is made out is a finding of fact, reached here after appreciation of oral and documentary evidence. Third, the application. The root cause of the delay was that substantial, legally recoverable payments from contracting parties had not been received, a matter substantiated by the documents, and it was aggravated by the Department's own delay in issuing refunds. The company had acknowledged the default and regularised it before prosecution began, which the trial court rightly read as a responsible and remedial disposition negativing mens rea. The Department's answer, that the documents were unauthenticated or insufficient, had been considered and rejected below, the trial court having looked at the totality of circumstances including the financial disclosures, the pending refunds and the absence of any attempt to conceal. The presumption of culpable mental state under section 278E was held to be neutralised by the substantiated defence under section 278AA, the prosecution case resting on the fact of default rather than on the mental element. In the words reproduced by the source cited on this page: "the existence of a reasonable cause operates as a statutory defence against prosecution"
It was decided by the High Court on 2025-05-26 and is reported as CRL.L.P. 288 of 2022, CRL.L.P. 289 of 2022 and CRL.L.P. 290 of 2022, 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 278AA, section 278B, section 278E, 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. Leave to appeal was refused and the three petitions dismissed. Section 278AA begins with a non obstante clause and shows the legislative intent that no person shall be punished for a failure under section 276B if it is established that the failure occurred due to a reasonable cause, so that reasonable cause operates as a statutory defence against prosecution. Applying the meaning given in Sonali Autos P. Ltd. v State of Bihar, a reasonable cause is one which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. The respondents had set out the financial crunch in their reply of 19 December 2017 to the show cause notice of 7 December 2017; the trial court had examined the letters to the Department, the bank correspondence and the documents showing receivables from government entities; and the entire defaulted amount, with interest and late fee, had been remitted before the prosecution began. The Income Tax Officer admitted in cross-examination that the whole amount had been deposited even before the show cause notice under section 279 issued, which undermined the case of wilful default and evidenced the absence of mens rea. The trial court's conclusion that the default was compelled by external financial constraints was neither perverse nor legally infirm, and interference under section 378(4) of the Code of Criminal Procedure is warranted only where findings are perverse, manifestly illegal or cause a miscarriage of justice, not merely because another view is possible. It arises in Prosecution and TDS Defaults matters, on section 276B, section 278AA, section 278B, section 278E of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi; Amit Mahajan 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. Build the reasonable cause file at the show cause stage, not at trial: the ledgers of unpaid receivables, correspondence with banks, letters to the Department about refunds and the contracts showing where the money was stuck. Answer the show cause notice under section 279 in detail and keep it, since the Court read the sanction order against the Department for recording the plea and granting sanction anyway. At trial, put to the officer in cross-examination when the tax was in fact deposited relative to the notice and the complaint. Where an acquittal is challenged, argue the standard as well as the merits: leave to appeal requires perversity or manifest illegality, not merely another possible view.
Still good law. A judgment of 26 May 2025 refusing leave to appeal against acquittal, so it concludes those prosecutions. It applies the Supreme Court's approach in Maharashtra v Sujay Mangesh Poyarekar, (2008) 9 SCC 475, on leave against acquittal, and adopts the construction of reasonable cause in Sonali Autos P. Ltd. v State of Bihar, (2017) 396 ITR 636 (Patna). The source page records no later citation of it, and whether it has been carried further was not checked in this session. Its force is partly tied to the standard of review on an acquittal, so it is stronger authority on that footing than as a general statement of what always amounts to reasonable cause. 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.
The judgment decides only whether leave to appeal should be granted, so its findings on reasonable cause are expressed as an approval of the trial court's findings rather than as an independent adjudication. It does not lay down whether financial hardship is by itself reasonable cause, and expressly treats the question as one of fact on the evidence. Nothing is decided about the correctness of the departmental policy of treating each quarterly default as a distinct offence, which the judgment records without comment. The batch line gave the sections as 276B, 278AA, 278E, 201(1A), 234E and 279(1); sections 201(1A) and 234E appear only as the provisions under which interest and late fee were paid, and section 279(1) only as the source of the sanction, neither being construed. The judgment does not state the dates of the deposits or of the complaints, so the precise sequence has to be taken from its statement that the whole amount was paid before the show cause notice. The company is described in the cause title under both its present and former names and the trial court's order names the accused company by the former name. 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.
Leave to appeal was refused and the three petitions dismissed. Section 278AA begins with a non obstante clause and shows the legislative intent that no person shall be punished for a failure under section 276B if it is established that the failure occurred due to a reasonable cause, so that reasonable cause operates as a statutory defence against prosecution. Applying the meaning given in Sonali Autos P. Ltd. v State of Bihar, a reasonable cause is one which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. The respondents had set out the financial crunch in their reply of 19 December 2017 to the show cause notice of 7 December 2017; the trial court had examined the letters to the Department, the bank correspondence and the documents showing receivables from government entities; and the entire defaulted amount, with interest and late fee, had been remitted before the prosecution began. The Income Tax Officer admitted in cross-examination that the whole amount had been deposited even before the show cause notice under section 279 issued, which undermined the case of wilful default and evidenced the absence of mens rea. The trial court's conclusion that the default was compelled by external financial constraints was neither perverse nor legally infirm, and interference under section 378(4) of the Code of Criminal Procedure is warranted only where findings are perverse, manifestly illegal or cause a miscarriage of justice, not merely because another view is possible.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The Tribunal cancelled my concealment penalty. Can the 276C prosecution still continue?
I deposited the TDS late but with interest. Can the company and its directors still be prosecuted?
You deducted the TDS but paid it late. Is penalty under s.271C leviable?
I paid the TDS with interest before sanction and no penalty was ever levied. Can they prosecute?