In a significant ruling on TDS compliance and prosecution under the Income-tax Act, the Delhi High Court in ITO (TDS) v. Delhi Iron & Steel Co. Pvt. Ltd. [[2025] 179 taxmann 643 (Delhi)] held that delay in depositing TDS without proof of genuine hardship constitutes an offence punishable under Section 276B. The Court reaffirmed that the obligation to deposit tax deducted at source is a fiduciary duty owed to the Government, and mere assertions of financial difficulty, without evidence, cannot absolve the deductor from prosecution. However, since the assessee had deposited the entire TDS along with interest before prosecution and there was no mala fide intent, the Court upheld the conviction but reduced the sentence to an admonition, emphasizing the need for strict compliance with statutory obligations.
Case Title:
ITO (TDS) v. Delhi Iron & Steel Co. Pvt. Ltd.
Court:
Delhi High Court
Citation:
[2025] 179 taxmann.com 643 (Delhi)
Date of Judgment: 16 October 2025
Date Published: 04 November 2025
Bench:
Justice Manmeet Pritam Singh Arora
Legal Provisions Involved:
- Section 276B, Income-tax Act, 1961 — Failure to pay TDS to the credit of the Central Government.
- Section 278AA — Reasonable cause as a defense against prosecution.
Facts of the Case:
- The assessee-company had deducted TDS from payments made to various parties but failed to deposit the same within the prescribed time.
- The default was subsequently rectified — the entire TDS amount along with interest was deposited before initiation of prosecution.
- The assessee pleaded financial hardship as a reason for delay, but no documentary evidence was furnished to substantiate the claim.
- The trial court convicted the company and its managing director under section 276B, but instead of imposing imprisonment, granted benefit of probation/admonition considering full payment of dues.
Issue:
Whether the delay in depositing TDS due to alleged financial hardship (without proof) constitutes a reasonable cause to avoid conviction under section 276B?
Held:
- Mere assertion of financial difficulty without proof does not amount to “reasonable cause” under section 278AA.
- The obligation to deposit TDS is statutory and fiduciary; deduction creates a trust relationship with the Government.
- Hence, conviction under section 276B was upheld.
- However, since the TDS dues with interest had been paid and there was no deliberate intent to evade, the sentence was reduced to an admonition, with a warning against repetition.
Key Takeaways:
- Delayed TDS deposit attracts criminal liability under section 276B.
- Absence of proof of hardship or crisis cannot shield the assessee from conviction.
-
Courts may, however, show leniency in sentencing if the dues are fully paid and the default is not willful.