By CA Pankaj Shah

1. PENALTIES AND PROSECUTION
ON TDS DEFAULTS
CA. Pankaj G. Shah
B.B.A., L.L.B.(Hons.), C.S., F.C.A., DISA(ICA)

2. Limbs
TDS
Interest
Penalty
Prosecution

3. Defaults
Non deduction
Short deduction
• Grossing up
• Deduction at lower rate
Late deduction
Non deposit
Late deposit

4. Assessee in Default
No notice of demand required in case of TDS
default
Automatic liability on default/failure
Penalty u/s 221
Statutory charge on all assets of defaulter in
created

5. Interest

6. Interest u/s 201(1A)
Payment of interest u/s 201(1A) is mandatory,
Cannot be waived
Rate cannot be reduced.
Interest is leviable even if recipient is loss
making company

7. Penalty

8. Such an amount as the Assessing Officer may
impose but not exceeding the amount of tax.
Penalty u/s 221 is leviable irrespective of any
problem of the payer & payment of interest -
Jubilee Investments & Industries Ltd. v/s
ACIT(1999) 238 ITR 648 (Cal)
Penalty u/s 221 on Assessee in Default

9. Section 271C and 271CA
Failure to deduct tax at source, wholly or partly or
failure to pay wholly or partly tax
An amount equal to tax not deducted
Leviable even if tax paid by Recipient
• Hindustan Coca Cola (SC)
Unless Reasonable cause

10. Simultaneous Penalty u/s 221 versus 271C
ITO v/s Titagargh Steels Ltd.(2001) 79
ITD 532 (Kolkata Bench)
IDBI v/s ITO(2006) 104 TTJ 230
(Mumbai Bench)

11. Reliance’s case Bom HC
Failure to deposit TDS within the
prescribed time
Deposited TDS along with interest
before notice of demand was issued
HC Rejected stand of ‘financial
difficulties’
Upheld penalty and directed for
prosecution u/s 276B

12. Section 271 – H
Failure to file the
TDS/TCS return
Not less than Rs.10,000
and upto Rs. 1,00,000

13. Penalty
Other Defaults

14. Section 271 FA
Failure to furnish statement of financial
transaction or reportable account (previously
called as Annual Information Return) as
required under section 285BA(1)
Rs. 100 or Rs.500, as the case may be, per
day of default

15. Section 271-I
Foreign Remittances
An amount equal to
Rs. 1,00,000

16. Section 272A(1)
Failure to co-operate with the tax
authorities, i.e., not answering any
question, not signing statements, etc.
Rs. 10,000 for each failure/default

17. Section 272A(2)
Failure to furnish in due time
prescribed
• returns
• statements
• declarations
Rs.100 per day subject to tax
amount

18. 272A(2)
Clause Default
(c) Failure to furnish in due time prescribed returns/statements
(f) Failure to deliver in due time a copy of declaration of non-
deduction of tax at source u/s.197A
(g) Failure to furnish a certificate of tax deducted at source to the
person on whose behalf tax has been deducted or collected as
required by Section 203 or Section 206C
(h) Failure to deduct and pay tax from salary payable to an employee
as directed by the Assessing Officer or the Tax Recovery Officer
as required by Section 226(2).
(i) To furnish statement under 192(2C)
(j) Deliver declaration u/s 206C(1A)
(k) Statement u/s 200(3) and 206C(3)
(l) Statement within time u/s 206A(1)
(m) Statement u/s 200(2A) or 206C(3A)

19. Section 272BB
Failure to comply with the provisions
of section 203a dealing with Tax
Deduction Account Number
Rs.10,000

20. Section 271 FAA
Failure to furnish an accurate
statement of financial transaction
or reportable account
Rs. 50,000

21. Prosecution

22. भय बिन होय न प्रीती

23. Punishments
Monetary Punishments
• Interest
• Penalty
Prosecution
• ‘Noxiae poena par esto’
• Rare and Harsh on Repetitive tax dodgers
• Increasing tax evasions
• Wanchoo Committee – Rigorous prosecution
policy
• Impact on other Assessee’s too

24. Mens rea
Dharmendra Textiles(SC)
Mens rea must for prosecution
Presumption of ‘mes rea’ 278E
Code of Criminal Procedures

25. Section 276B and 276BB(TCS)
Offence
• Tax deducted but not paid
• Non deduction of tax u/s 194B on Lottery Winnings
• DDT not paid
Rigorous Imprisonment 3 months to 7
years
Stern action on Second and Subsequent
offences

26. Seriousness of offence
Interest on TDS paid after 1 year
Amount was Rs. 64000
Prosecution Launched
• Immediate Bail should be applied
• Compounding Interest @ 5% per month
• Processing fees
• Fees of Department advocate
Assessee borne Rs. 5 Lakh against interest saving of
Rs.7,680 apart from mental agony

27. Penalty and Prosecution
PENALTY DELETED
PENALTY NOT LEVIED
PENALTY NOT INITIATED

28. Reasonable cause 278AA
Quashing of penalty is sufficient ground for
quashing prosecution proceedings
• Harkawat and Co. vs. UOI, 302 ITR 7 (MP)].
However absence of levy of penalty cannot
obliterate prosecution
• Universal Supply Corporation 206 ITR 222(Raj.)
Prosecution can be launched even after long
time
• Gupta Builders P. Ltd. [297 ITR 310 (Bom.)].

29. LIMITATION
Code of Criminal
Procedures
• Limitation on Prosecution
Economic offences
(Inapplicability of
Limitation) Act, 1974
• Limitation on Prosection not
applicable on Income tax Act

30. Deducted but not paid
After 31.03.1989 non deduction is not prosecutable
Late payment of tax attracts 276B
• Madhumilan Syntex Ltd.vs. UOI [290 ITR 199(SC)].
Amount is insignificant – Not sustainable
• Gee Motors & Tractors vs. ITO, 218 ITR 155(P&H)
• Hanuman Rice & Oil Mills 96 Taxman 69 (Patna)
• Change in recent trends
Not substantial delay – no prosecution
• Vijaysingh vs. Union of India (278 ITR 467)
CBDT Press release 06.08.13
• minimum retention period of 12 months dispensed
• Even 1 day delay calls for prosecution

31. Reasonable cause 278AA
Mens rea to be proved
• Dharmendra Textile Processors [295 ITR 244](SC)
278E presumes mens rea and onus on accused
Paucity of funds and Financial stringency are considered
as reasonable
• Roshni Cold Storage (P.) Ltd. 245 ITR 322 (Mad.)].
Non-availability of Director to sign the cheque
• Rayala Corpn (P.) Ltd. 206 ITR 381 (Mad.)

32. SOP for Prosecution
Late Deposit
Prosecution
Mandatory
Exceeding
Rs.1 Lakh
Discretionary
Between
25000 to 1
Lakh
Based on facts
like repetition
of default, etc.

33. Criteria of listing Prosecutable cases
CPC TDS/Traces
Late Payment Interest not
paid in full or part till listing
date
Tax Not at all paid to the
Government account (Limit of
Rs.1 Lakh)

34. Offences by Companies
Person Incharge and
Responsible for offence
Even Accountant responsible
for default and prosecutable

35. Kingfisher’s case
Deducted tax at source of Rs.400 Crore
Failed to remit the same to the Government.
Vijay Mallya Held as Assessee in Default and Prosecuted
Defense of Assessee in Writ before HC
• No quantification of the amount on which TDS defaulted
• 279(1) -Sanction of CIT not on directions of CCIT or DGIT
• Vijay Mallya was not looking day to day affairs and separate office was
appointed for taxation matters.

36. Anil Batra’s Case
AB Pvt. Ltd. failed to deduct tax at source
ACMM convicted the Directors of ABPL
Notices issued to Company
non-issuance of separate notices treating
Directors as ‘principal officers’

37. FORM NO. 15G & 15H
Consequences of Giving False Statement
Prosecution u/s 277
Tax evaded Minimum RI Maximum RI
>2.5 Lakh 6 months 7 years
Any other case 3 months 2 years

38. Compounding 279(2)
CCIT or DGIT empower to compound
Either before or after institution
Discretionary
Conditions
• Written request from the assessee.
• Undisputed tax, interest and penalties paid
• Express willingness to pay prescribed compounding fees as
well as establishment expenses.
5 percent per month or part

39. CBDT Circular
Notice to be given
Normally not on persons > 70 years
• Age at the time of offence
F.No.285/160/90-IT(Inv) 7-2-1991

40. Disallowance Of Expenditure
U/s
40(a)(i)(100%) and (ia) (30%)

41. THANKS FOR YOUR
TEDIOUS LEARNING
CA. Pankaj G. Shah