Law:

Section:

Section 201, read with section 276B, of the income-tax act, 1961-Deduction of tax at source-Consequences of failure to deduct-Petitioner-company failed to deposit income-tax deducted at source from interest paid to creditors, within prescribed time-Penalty levied by ito was quashed by commissioner (appeals) in view of company's financial stringency and fact that interest payments were not in cash but merely notional by way of credit entries-Whether criminal prosecution proceedings initiated under section 276B against petitioner were still sustainable-Held, on facts, no Facts The petitioner, a private limited company, credited interest to the accounts of certain parties who had effected deposits with the company or were its creditors. While doing so, income-tax deductions were made by the petitioner from the amount of interest credited. The said deductions were not deposited with the Central Government within one week of the payments as required but were effected much later. Criminal complaint cases were, therefore, filed with regard to the said creditors under section 276B. The ITO levied penalty under sections 201(1) and 221. On appeal, the Commissioner (Appeals) quashed the penalty on the grounds : (i) that there was good and sufficient reason for non-payment of the tax on account of the financial stringency of the company ; and (ii) that the interest payments were not in cash but merely notional by way of credit entries in their accounts. Accordingly, the petitioners sought that the criminal prosecutions could no longer be sustained and they should be quashed but their claim was rejected. Meanwhile, the Tribunal rejected the ITO's appeal against the deletion of the penalty. On writ: Held The penalties had been quashed on merits after acceptance of the case of the assessee that there was good and sufficient reason for not depositing the tax with the revenue within time. It had, therefore, to be taken that the milder proof of reasonable cause was established and in the circumstances, it was a sheer exercise in futility and harassment of the accused to allow criminal prosecution. The prosecution had, therefore, to be quashed. Case review P. Jayappan v. S.K.…

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