Section 278AA

Section 278AA — the law in short

What the courts have decided on section 278AA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• ITO v MKY Constructions P Ltd High CourtHelps taxpayerNo later treatment found
  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.
• Income-Tax Department v Vishweshwara Rao Chava High CourtHelps departmentNo later treatment found
  The complaint under s.276B names me as a director and says nothing more than that I was in charge of the company. The trial court discharged me. Can the Department get that set aside?
  Yes, if the complaint carries the specific averment that the director was in charge of and responsible to the company for the conduct of its business, and the s.2(35) notices treating him as principal officer are on the record as exhibits. Whether he really was at the helm is a matter of evidence for the trial, not a ground for discharge, and non-production of the record behind the notices does not make the complaint bad at that stage.
• Binod Pattanayak v Union of India High CourtCuts both waysNo later treatment found
  My s.276B prosecution for late deposit of TDS is pending and the CBDT has issued fresh compounding guidelines dated 17 October 2024. Will the High Court still quash the complaint under s.482 CrPC?
  On this order, not as a matter of course. The Orissa High Court, having read clauses 4.6 and 8.3 of the CBDT's guidelines of 17 October 2024, took the view that the Department has now harmonised the procedure for compounding offences under the Act arising out of curable defects, and that in the present regime, where compounding of the offence is permissible, the inherent jurisdiction under s.482 CrPC need not necessarily be invoked. The petition was disposed of with liberty to seek compounding, and with a direction that the application be considered on its merits uninfluenced by the Court's observations.
• Sree Metaliks Limited v Union of India High CourtHelps taxpayer
  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?
  On this judgment, yes, where the delay is explained. The Orissa High Court quashed a s.276B read with s.278B prosecution for delays of between 15 and 394 days in FY 2019-20, holding the delay well explained by the company's insolvency resolution process and the COVID-19 restrictions, and noting that the prosecution had been launched only after the Department had received the TDS along with interest. It followed the Jharkhand High Court in Dev Multicom and its own earlier decision in D.N. Homes.
• Indo Arya Central Transport Ltd v CIT (TDS) High CourtHelps department
  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.
• Statutory position — s.278AB immunity from prosecution where a settlement application has abated CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My application to the Settlement Commission abated. Is there any route to immunity from prosecution left, and how long do I have?
  Section 278AB is that route. On the words of the section, a person may make an application to the Commissioner for granting immunity from prosecution if he has made an application for settlement under s.245C and the proceedings for settlement have abated under s.245HA — but the application cannot be made after institution of the prosecution proceedings after abatement.

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.