Section 276B

What a section 276B notice is

TDS — Prosecution. Criminal prosecution proposed for failure to deposit TDS. It is a critical-severity notice in the tds family under the Income Tax Act 1961.

If you ignore it: Prosecution proceedings.

Time to reply: this notice type carries no standard period. The date is printed on the notice itself and you must read it off the document. THIS IS CRIMINAL. The product must not draft this alone. Escalate to the CA immediately and recommend counsel. Hard-stop in the engine.

Section 276B — the law in short

What the courts have decided on section 276B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• US Technologies International Pvt Ltd v CIT Supreme CourtHelps taxpayer
  You deducted the TDS but paid it late. Is penalty under s.271C leviable?
  No. Section 271C(1)(a) is attracted by a failure to deduct, not by late payment of tax already deducted. But interest under s.201(1A) still runs, and prosecution under s.276B remains available — this is not an amnesty.
• Madhumilan Syntex Ltd v Union of India Supreme CourtHelps department
  I deposited the TDS late but with interest. Can the company and its directors still be prosecuted?
  Yes. The offence under s.276B is complete once deducted tax is not credited to the Government within the prescribed time; depositing it later with interest is a civil consequence and does not wipe out the default. Directors identified as principal officers under s.2(35) were properly arrayed with the company under s.278B.
• Associated Cement Company Ltd v CIT Supreme CourtHelps department
  My contract is only for loading bags, not a works contract, and much of what I pay is reimbursement of the contractor's wage bill. Must I still deduct under section 194C on the whole sum?
  Yes. The Supreme Court held that any work in section 194C(1) means any work, not a works contract, which is a term with a special connotation in tax law. The sub-clause itself includes supply of labour, which shows the wider intention. The deduction is of a percentage of the sum credited or paid, not of the contractor's income component; the words on income comprised therein show only that what is deducted is tax at source. And nothing in the sub-section allows the payer to exclude amounts paid to the contractor by way of reimbursement of wages he has paid his workers.
• Dr. Manoj Khanna v ITO High CourtHelps departmentValidity unconfirmed
  You have now paid the TDS. Does that end the prosecution under s.276B?
  Not by itself. Belated deposit does not extinguish criminal liability unless the statute says so. The s.278E presumption of a culpable mental state attaches to a person in managerial charge and can only be rebutted at trial.
• ITO v MKY Constructions P Ltd High CourtHelps taxpayerValidity unconfirmed
  We paid the whole TDS default with interest before the complaint was filed. Can we still be prosecuted under s.276B?
  Not where a reasonable cause for the failure is made out. The Delhi High Court refused the department leave to appeal against an acquittal in three prosecutions under section 276B read with section 278B. Section 278AA carves out an express exception to penal liability under section 276B where the accused establishes a reasonable cause for the failure to deposit. The trial court had found that the company's default was driven by a liquidity crisis caused by legally recoverable payments withheld by contracting parties, that the entire defaulted tax had been deposited with interest under section 201(1A) and late fee under section 234E, and that the default was not deliberate. The High Court held that finding neither perverse nor legally infirm, and declined to disturb it.
• ITO v MKY Constructions Private Limited High CourtHelps taxpayer
  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.
• A.M. Enterprises v State of Jharkhand High CourtHelps taxpayerSuperseded by amendment
  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.
• CBDT Compounding Guidelines 2024 CBDT Circulars & InstructionsHelps taxpayer
  I want to compound my income tax offence. What do the current guidelines let me do?
  Considerably more than the old ones. The guidelines of 17 October 2024 abolish the Category A/B classification, remove the cap on the number of applications and the 36-month outer time limit, extend compounding to ss.275A and 276B, allow a co-accused to apply for a company or HUF, and set TDS compounding charges at a single 1.5% per month with no interest on delayed payment of the charge.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.