Sri . G.BaIa Reddy V. Union of India and 2 others

WP/7795/2021

AI Insights

The case involves Sri G. Bala Reddy, the Managing Director of a company, who faced prosecution for delayed payment of TDS (Tax Deducted at Source) amounting to Rs. 16,10,400 for the assessment year 2012-2013. The Income Tax Department initiated proceedings under Section 2768 of the Income Tax Act, 1961, after the company failed to credit the TDS to the government within the stipulated period, leading to a delay of twelve months. The company sought compounding of the offense, which was initially granted but later revoked due to non-payment of the compounding charges within the specified time. The court's decision allows the petitioner another opportunity to rectify the default by paying the outstanding amount with additional charges, emphasizing that the prosecution should not continue if the financial obligations are met.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 722052 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 13-03-2024
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K MAMATA CHOUDARY
• Assessee Lawyers: M SURENDER RAO
• Keywords: Compounding application; Economic offences; Income Tax; TDS default; Writ of Mandamus
• Section: 151; 226; 279(2); 2768; 2788(11); 2788(21)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE THIRTEENTH DAY OF MARCH TWO THOUSAND AND TWENTY FOUR PRESENT THE HON'BLE SRI JUSTICE P. SAM KOSHY ANO THE HON'BLE SRI JUSTICE N. TUKARAMJI WRIT PETITION NO:7795 OF 2021 [ 337s ] years, R/o Plot ...PETITIONER Between: Sri G.Bala Reddy, S/o Mr. G.lnna'Reddy, fge{ about 55 No.308, Vivekanahda Nagar Colony, Kukatpally, Hyderabad. AND 1. Union of lndia, Office of the Principal Chief Commissioner Of lncome Tax, Andhra Pradeih and Telangana, C Block, 9th Floor' l.T. Towers, 10-2-3, A.C.Guards, Hyderabad. 2. The Deputy Commissioner of lncome Tax, C Block, 9th Floor, I T. Towers, 10- 2-3, A.C.Guards, Hyderabad. g Mls tCSn (lndia) Limited, A company incorporated under-The-provisJons of the lndian bomfanies Act, having it6 registered office at Plot No.1091, Khanamet, Madhapur, Serilingampally, Hyderabad, .(profma respondent as the company is ln iiquidation and no relief is claimed) 4. Principai Chief Cominissioner of lncome Tax, Telanga-na State, Room No.1031, '1Oth Floor, C Block, lT. Tower, AC Guards, Masab Tank, Hyderabad, Telangana State. (Respondent No. 4 is impleaded as per Court Order dated 31'10'2023' Viae'tA.No. I ol 2023, in wP No.7795 ol 202 | ...REspoNDENrs Petition under Article 226 of trF- constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue an order, Direction, or writ more particularly one in the nature of writ of Mandamus declaring the action of the Respondents 'l and 2 in rejecting the compounding application of the petitioner vide order dated 8-3-2021, bearing DIN and Letter No. ITBA/COMtFt17l2O2O-2111031317993(1), as arbitrary, illegal, unconstitutional apart from being in contravention of the Judgment of this Honble court and setaside the same and consequently direct the Respondents 1 and 2 to accept and allow the compounding applications filed by the petitioner dated 16-9-2015, 5-10-2015, and request letter dated 2-3-2021 a lA NO: 1 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to grant stay of all further proceedings in C.C.No. 78 of 2O18, on the file of the Hon'ble Special Judge for Economic Offences, at Hyderabad, pending disposal of the present Writ Petition Counsel for the Petitioner: SRI M. SURENDER RAO, SENIOR COUNSEL FOR SRI V. RAMCHANDER GOUD Counsel for Respondent Nos. 1, 2 & 4: Ms. K MAMATA CHOUDARY, SENIOR COUNSEL FOR INCOME TAX The Court made the following: ORDER THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE N.TUI{ARAMJI WRIT PETITION No.7795 ol2O2L ORDER :(per Hon'ble Sn Justice P.1AM KosHY) The instant is a writ petition which has been filed assailing the order dated O8.O3.2O21 by which the respondent Nos'l and 2 have re-jected the application for compounding liled by the petitioner. The petitioner in addition has also made a further prayer for a direction to the respondent Nos. I and 2 to accept and allow the compounding application hled on 16.09.2015 and 05.10.2015 on any of the terms and conditions that the High Court may deem fit' 2. Heard Mr. M.Surender Rao, learned Senior Counsel for the petitioner and Ms. K.Mamata Choudary, learned Senior Standing Counsel for Income Tax Department appearing for the respondents. 3. The brief facts leading to filing of the instant writ petition are that the petitioner is the Managing Director of respondent No'3 Company incorporated under the Companies Act, 1956, engaged in the business of providing technolory soluLions for the enerry sector and is a market leader in software and technical services' For the assessment year 2Ol2-2O13, it was observed by the Income Tax Department that although TDS amount of Rs. 16, 1O,4OO/ - was 4,, +r-z:+tar,. I I PSK, J & NTR, W.P.No.7795 of 2O2l deducted, there was a default in crediting the same by respondent No.3 Company to the account of the Central Government within the stipulated period arrd which subsequently was deducted with a delay of twelve (12) months. For the said delay in crediting of the TDS amount, the respondent authorities initiated show cause proceedings on 14.03.2014 under Section 2768 of the Income Tax Act, 1961 (for short, 'the Act'). To the said show cause notice, respondent No.3 had responded by fi1ing a detailed reply admitting the delay and explaining the delay occurred because of certain administrative reasons, more particularly, because of the slump in the industry and the financial crisis being faced by tlem and as a result of the financial crisis respondent No.3 Company was already declared as a sick unit under the Board for Industrial and Financial Reconstruction (BIFR). 4. After the receipt of the explanation by respondent No.3, hnally a notice was issued to respondent No.3. At that stage, respondent No.3 Iiled an application for compounding of the issue/dispute vide application dated 16.09.2O15 and 05.10.2015. The application for compounding was accepted by respondent No.2 with a direction to the respondent No.3 to pay an amount of Rs.9,06,654/- within a period of thirty (3O) days as compounding charges at the rate of 57o per month on the deducted amount. Though the compounding application was allowed and an amount of Rs.9,O6,654/- was to be deposited within thirty (3O) days, however, the petitioner still could not honour the 2 t\" PSK,J&NTR,J W.P.No.?795 of 2O2t order passed on the compounding application but could make payment of only Rs.2,00,000/_ on 30.12.2025 out of the required amount of Rs.9,06,654/_. The respondent authorities thereafter rejected the compounding application upon the petitioner,s failure to remit the compounding charges as accepted by the petitioner and ordered for initiation of proceedings under Section 279(2) of the Act. Meanwhile, the petitioner made repeated requests to the respondent authorities seeking restoration of the earlier order passed on the compounding application and permitting the petitioner to pay the balance of amount and further requested the respondent authorities to drop the proceedings under Section 2768 of the Act. 5. Respondent No.2 meanwhile filed a complaint before the Special Judge for Economic Offences, Hyderabad, seeking for initiation of penal provisions under Sectio n 2768 and Section 2788(ll and (21 of the Act. The special Judge on receipt of the complaint from respondent No.2 took cognizance of the offence. The petitioner meanwhile has been repeatedly approaching tfre authorities concerned showing his willingrress to pay the entire amount. The subsequent application frled by the petitioner and respondent No.3 seeking compounding of the dispute once again stood rejected vide order dated Oa.O3.2O2I. Even after that tJle petitioner has been continuously approaching the respondent ./., PSK, J & NTR, W.P.No.7795 of 202l authorities concerned seeking for compounding of the whole issue and has shown their willingness to pay the entire amount and any additional charges which may be levied by the authorities concerned. It is in this factual backdrop that the petitioner has been seeking for the reliefs which is reflected in the initial part of this order. 6. lcarned Senior Counsel for the petitioner submits that now that the petitioner has shown his willingness to pay the entire compoundable charges in addition to whatever additional charges that is ordered to be paid. The prosecution case against the petitioner being only for the delayed payment of TDS amount, there is no reason why the authorities concerned should not accept compounding of the issue once again subject to any terms and conditions put by the authorities concerned. 7. It was also the contention of the learned Senior Counsel for the petitioner that no fruitful purpose would be served on one hand rejecting the application for compounding and by continuing with the prosecution case, particularly for the reason that the alleged default on the part of the petitioner was only that of delayed action. 8. Learned Senior Standing Counsel for Income Tax Department however submits that the petitioner seems to be a habitual defaulter for the reason that he had defaulted the flrst order of 4 PSK,J&NTR,J W.P.No.7795 of 2O2l compounding where he had agreed to pay an amount of Rs.9,06,654/- within thirty (30) days and in spite of honouring an order passed, he had paid only Rs.4,00,00O/- that two the first is Rs.2,O0,00O/- paid in December, 2015 and the next payment of Rs.2,00,O0O/- was paid in August, 2016 i.e. almost after eight (08) months thereafter. 9. It was further contended by the learned Senior Standing Counsel for the Income Tax Department that on an earlier occasion also vide order dated 08.02.2016 had extended the period for compounding of sixty (60) days up till 21.O3.2OL6, subject to payment of additional compounding charges at the rate of 2o/o per month on the unpaid compounding charges i.e. Rs.7,O6,654/-, as he had already paid Rs.2,OO,000/- on 30.12.2015. According to the learned Senior Standing Counsel for the Income Tax Department, the order of additional compounding charges by 21.03.2016 also was not honoured and it was in this context that the authorities concerned have refused to accede to his further request of compounding, also because of the conduct of the petitioner who repeatedly has been flouting the orders which have been passed by the authorities concerned. 10. Having heard the contentions put forth on either side and on perusal of records, the admitted factual matrix of the case is that 5 t PSK, J & NTR, W.P.tIo.7795 of 2O2l the default on the part of the petitioner was that of not depositing the TDS collected during the assessment year 2Ol2-2O13 with the respondent authorities within the stipulated period. The amount of TDS collected by the petitioner was Rs. 16,10,400 /- and the said amount was deposited with the respondent authorities with a delay of approximately twelve (12) months which means that the petitioner had made good the default though at a belated stage. 11. True it is that the action on the part of the petitioner was in contravention to the provisions of the Act. That a show cause notice under Section 2768 of the Act was initiated against the petitioner and respondent No.3. The petitioner did move an application for compounding of the matter which was accepted by the authorities concerned on the condition of payment of Rs.9,06,654/- within sixty (60) days. Vide correspondence dated 15.10.2015, the respondent authorities'have further extended the period within which the balance amount of compounding charges were to be made up till 21.O3.2016, subject to the petitioner paying an additional compounding charges at the rate of 2o/o per month, this also the petitioner could not honour. 12. Today when the matter is taken up for hearing, learned Senior Counsel for the petitioner undertakes that given a short duration of time, the petitioner shall pay whatever the 6 i; j;r.! PSK,J&NTR,J W.P.No.7795 of 2O2l compounding charges and the additional charges that is ordered to be paid and upon the payment being made the prosecution case may be dropped. 13. It is in this context, what is at this juncture required to be appreciated is that admittedly the petitioner is not being prosecuted for any criminal offence as such. Neither can the act on his part be said to be heinous or of very serious nature, nor the default on the part of the petitioner involves huge amount of money. As far as the Income Tax Department is concerned, they should be more concerned about the loss of revenue or the default so far as the delayed payment of TDS by the petitioner which in the opinion of this Bench can be easily remedied by additional charges and penalty. 14. Under the said circumstances, the petitioner may be given one more opportunity to make good the default subject to his paying certain additional compounding charges and penalty for his default that he had committed way back in the year 2O15, which by now is almost a decade old (roughly nine (09) years). In view of the same, we are of the considered opinion that ends of justice would meet if the petitioner is permitted to compound the said issue by payment of the balance of amount of Rs.7,O6,654/ - along with additional compounding charges of 2vo per month from 7 I ( U 8 PSK, J & W.P.No.779S ol 2O2 .1 3O.f 2.2015 till the date of this order and an additional 2oh on Rs.7,06,654/- per month as pena_lty charges. The amount paid by the petitioner in August, 2O16 shall be set off against the total due amount. The petitioner is directed to appear before respondent No.2 on 2O.O3.2O24 on which date the petitioner should be informed about the total amount payable by him *t i.t tt e petitioner should pay to respondent No.2 by 3O.O3.2O24. Subject to the petitioner honouring the said direction of this court, respondent Nos. 1 and 2 may take steps for dropping the prosecution case initiated against the petitioner and respondent No.3. However, in the event of the petitioner defaulting aly further, respondent Nos. 1 and 2 shall be at liberty to initiate appropriate strict action against the petitioner in accordance with law. 15. With the above observations, the writ petition stands allowed. However, there shall be no order as to costs. Consequently, miscellaneous petitions pending if any, shall stand closed. //TRUE COPY// SD/.A.V.S. PRASAD AR ASSISTANT REGIS To, 1 2 3 4. 5 6 MBC SR SECTION OFFICER +:Ei,afl ,+Utl.\":*ililiiiJ*iil,BIe*TilEHf iFl:H!.:.. U.Uiiig\"\"fl;J:k3[3,:]i?\"?*'lrft J,?tu1i'f,,i]',??1'#e'Room iI,:,[EJs.it'^*ffi *11%T\"??#3:\".'#\".8i#8.\",,se,rorrncome Two CD Coiies s l HIGH COURT DATED: 1310312024 --a: _..2-:. ,6E S 14 ,' (Os I4: r) 19 tlAB 20a t c (. ( I C, . { * * t) .:() r,I:,r rCH ORDER WP.No.7795 of 2021 ALLOWNG THE WRIT PETITION WITHOUT COSTS @-* ffi "