ROCKWOOD HOTELS AND RESORTS LIMITED vs. COMMISSIONER OF INCOME TAX (TDS)

The petitioners have preferred this writ petition claiming the following reliefs:- "It is therefore, most humbly and respectfully prayed that the Writ Petition may kindly be allowed and by an appropriate order or direction:- a. The impugned order dated 21.02.2024 (Annexure-13) may be quashed and set aside; b. It may be declared that the petitioners are entitled to conferred impunity from prosecution under Section 278AA for delayed deposit of TDS to the credit of Central Government corresponding to 2020-21. c. To pass any other writ, order or direction, as the Hon'ble High Court may deem fit in the facts and circumstances of the case."

Learned counsel for the petitioners submits that the hotel activities were suspended due to COVID-19 pandemic lockdown imposed by the Administration from March, 2020 to August, 2020. The activities were resumed by the Government in October, 2020 with partial restrictions on traveling and social gatherings. Learned counsel further submits that the second wave of COVID-19 started in mid months of the year 2021 and a limping start to the activities was given in July, 2021. In furtherance, learned counsel submits that it is a genuine cause and that the petitioners have paid all the necessary dues along with interest and late fee to the Government within three months from default.

Learned counsel submits that Section 278AA of the Income Tax Act, 1961 (hereinafter referred as ‘Act of 1961’) is being invoked against the present petitioners without considering the reasonable cause offered by the petitioners for their failure to pay the TDS amount. Section 278AA of Act of 1961 reads as follows:- "278AA. Punishment not to be imposed in certain cases.-Notwithstanding anything contained in the provisions of section 276A, section 276AB, 4[or section 276B,] no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure."

Learned counsel has also drawn attention of this Court towards Section 276B of the Act of 1961, which reads as follows:- “276B. Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.—If a person fails to pay to the credit of the Central Government,—

Learned counsel for the petitioners submits that the prospect of imprisonment itself is a harsh prospect in the given facts and circumstances. He has drawn the attention of this Court to the judgment passed by this Hon'ble Court in the Writ Petition No.232/1995, decided on 19.03.2001, the relevant portion of which reads as under:- “20. The principle was reiterated as late as in Mansukhlal Vithaldas Chauhan v. State of Gujarat [1997] 7 SCC 622, in which the question arose in connection with the sanction required for prosecution of a public servant under Section 197 of the Criminal Procedure Code, 1973. The court said (headnote) : "The validity of the sanction would, therefore depend upon the material placed before the sanctioning authority and the fact that all the relevant facts, material and evidence have been considered by the sanctioning authority. Consideration

Since the validity of the sanction depends on the application of mind by the sanctioning authority to the facts

Learned counsel submits that the sanctioning authority, while passing the order of sanction has dealt with the issue of COVID-19 pandemic, but has not considered it as a reasonable cause due to mechanical application of mind.

On the other hand, Mr. K.K. Bissa, learned counsel for the respondents opposes the above submissions made on behalf of the petitioners. Learned counsel that the petitioners have a remedy of getting the default compounded. Learned counsel also submits that proper application of mind is there in the impugned order, wherein the COVID-19 pandemic situation has been assessed and the order has been passed, while considering the dates of defaults. Learned counsel further submits that the collection was made at the instant of the petitioners and thus, it should have been lawfully passed on to the respondents without any default. Learned counsel submits that any sympathy towards the defaulter would result into serious issues of recovery of such tax and future

Heard learned counsel for the parties.

This Court observes that in para-8 of the impugned order, the authority while granting the sanction, has considered the defense of COVID-19 pandemic, but the same does not deal with the critical waves, which were in existence in the mid of the year 2020-21. The restrictions on the hotel industry, traveling as well as social gatherings and others were reasonable causes, which could have been deliberated more specifically by the respondents and while looking to the extraordinary situation of pandemic, a proper consideration ought to have been made before considering the harsh consequences of Section 276B of the Act of 1961, which warrants punishment of rigorous imprisonment from three months up to seven years with fine.

1 This Court is convinced that in the peculiar factual matrix, when the petitioners have made complete payment of TDS amount to the credit of the Central Government within three months of the prescribed time frame along with the interest and late fee and suffered intense wave of Covid-19 pandemic in the year 2020-21, then in such circumstances exposing them to the prosecution sanction while contemplating punishment up to seven years rigorous imprisonment, looks ill considered in the perspective of the default commensurating with the consequences of Covid-19 pandemic.

2 Moreover, the precedent law cited above also makes it clear that the validity of the sanction has to depend upon the material placed before the sanctioning authority, which includes relevant facts, material and the evidence to be considered to reflect application of mind of the sanctioning authority. It is not that the sanctioning authority has absolutely not deliberated upon the issue, but what seems lacking is that the sanctioning authority failed to apply its mind for generation of genuine satisfaction, whether the prosecution sanction has to be sanctioned or not. The analysis in question in the impugned order leaves us with an impression that the sanction was accorded in a mechanical manner without considering the evil consequences of the tragedy as humongous as COVID-19 pandemic.

In light of the aforesaid observations, the present writ petition is partly allowed and the impugned order dated 21.02.2024 (Annex.13) alongwith consequential proceedings is quashed and set-aside. The matter is remanded back to the sanctioning authority, which shall apply its mind and consider the reasonable cause all over again, after giving opportunity of hearing to the petitioners. Thereafter, the sanctioning authority shall be completely free to move ahead under Section 278AA of the Act of 1961, if the situation so warrants. (MUNNURI LAXMAN),J (DR.PUSHPENDRA SINGH BHATI),J 3-Nirmala/Devraj-