Delhi High Court
Income Tax Officer Ward 73(2) New Delhi vs Mky Constructions Private Limited And … on 26 May, 2025
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on:26.05.2025
+ CRL.L.P. 288/2022
INCOME TAX OFFICER WARD 73(2) NEW DELHI
.....Petitioner
versus
MKY CONSTRUCTIONS PRIVATE LIMITED AND
ANR. FORMERLY KNOWN AS ACTION BRIDGE GAP
CONSTRUCTIONS PVT. LTD. & ANR.
.....Respondents
+ CRL.L.P. 289/2022
INCOME TAX OFFICER WARD 73(2) NEW DELHI
…..Petitioner
versus
MKY CONSTRUCTIONS PRIVATE LIMITED AND
ANR. FORMERLY KNOWN AS ACTION BRIDGE GAP
CONSTRUCTIONS PVT. LTD. & ANR.
…..Respondents
+ CRL.L.P. 290/2022
INCOME TAX OFFICER WARD 73.2 NEW DELHI
…..Petitioner
versus
MKY CONSTRUCTIONS PRIVATE LIMITED AND
ANR. FORMERLY KNOWN AS ACTION BRIDGE GAP
CONSTRUCTIONS PVT. LTD. & ANR.
…..Respondents
Advocates who appeared in this case:
For the Petitioner : Mr. Puneet Rai, Sr. SC along with Mr.
Ashvini Kumar & Mr. Rishabh Nangia,
JSC.
For the Respondents : Mr. Sanjay Kumar, Adv. for R-2.
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CORAM:
HON’BLE MR. JUSTICE AMIT MAHAJAN
1. The present leave to appeal petitions are filed challenging
the judgment dated 28.10.2021 (hereafter ‘the impugned
judgment’) passed by the learned Trial Court in CC Nos.
6212/2018, 6214/2018, 6215/2018, whereby the respondents were
acquitted of the offences under Sections 276B read with Section
278B of the Income Tax Act, 1961 (‘IT Act‘).
2. Since the factual matrix and legal issues involved in all
three petitions are common, the petitions are being disposed of by
this common order.
3. The petitioner is the Income Tax Officer, New Delhi. The
complaints relate to failure to deposit Tax Deducted at Source
(TDS) within the time prescribed under law. Each complaint
pertains to a distinct financial quarter.
4. The petitioner alleged that the respondent company had
deducted TDS but failed to deposit the same with the Central
Government within the prescribed period.
5. CRL.L.P. 288/2022 relates to Complaint Case No.
6215/2018, which alleged that for the financial year 2015-16, the
respondent company had made payment to various persons and
had deducted Tax Deducted at Source (TDS) amounting to
₹68,78,256/- but failed to deposit the same to the credit of the
Government Treasury, within the stipulated time as required under
the IT Act.
6. CRL.L.P. 289/2022 relates to Complaint Case No.
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6214/2018, concerning financial year 2014-15. In this instance,
the respondent allegedly deducted TDS amounting to
₹1,59,72,437/- and did not deposit on time.
7. CRL.L.P. 290/2022 relates to Complaint Case No.
6212/2018, concerning financial year 2013-14, where the default
amount was ₹2,01,34,235/-.
8. The delay in deposit of the tax led the petitioner to initiate a
separate prosecution in line with departmental policy treating
every quarterly default as a distinct offence.
9. Admittedly, the defaults were later remedied by depositing
the amount which was deducted as Tax Deducted at Source with
interest in the Government Treasury; however, the department
proceeded with prosecution on the ground of initial failure.
10. By order dated 28.02.2019, the learned Trial Court framed
charges for offence under Sections 276B read with Section 278B
and 278E of the IT Act.
11. After considering the evidence and the material on record,
the learned Trial Court dismissed all three complaints and
acquitted the respondents. The operative part of the impugned
judgment is reproduced hereunder :
“26. Further, again Section 278 AA of the Income Tax Act
casts the burden on the accused to prove that there exists a
reasonable cause for delayed payment. In statement u/s 313
Cr.P.C., it has been specifically pointed out by the accused
who is representing the company also that there was financial
crisis due to non-payment of money by the principal
contractors and refund from income tax department. The same
is also clarified by the accused in his defence evidence lead by
him as DW-2. DW-2 Tarun Aggarwal in his defence evidence
has specifically deposed that assessee i.e. accused is sub sub
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Structurals Limited. Dinesh Chandra R. Agrawal Infracon Pvt.
Ltd.. ARSS Infrastructure Projects Ltd. And Bhopal Sanchi
Highways Pvt. Ltd. and on the account of dues from the sundry
debtors as on 31.03.2014, 31.03.2015 and 31.03.2016, accused
company had suffered financial hardships. DW-2 has also
relied upon the ledger copies of the various payments which
was due towards accused company from the parent companies.
It has been specifically pointed out by the accused while,
deposing before the Court that M/s Niraj Cement Structurals
Limited entered into an agreement with Governmnet of
Haryana and the accused no.1 is a sub sub contractor of Niraj
Cement Structurals Limited. It is deposed that the money was
not paid by the M/s Niraj Cement Structurals Limited to the
accused no.1 company to complete the contract in time,
though, accused had to purchase the raw material and made
payment to various contractors. The copy of agreement
dt.15.04.2009 between the Haryana State Roads and Bridges
Development Corporation Ltd. and Niraj J.M. Mhatre and the
subcontractor was entered into between Niraj Cement
Structurals Limited with the Accused no.1 Company and the
Addendum of Sub-Contractor dt.21.08.2009 between the Niraj
Cement Structurals Limited and the Accused no.1 Company
was also relied upon.
27. It is also pointed out that accused company had to
receive a sum of Rs.13,14,37,120/- from Neeraj Cement
Structurals Ltd., being the ultimate client/debtor for the road
construction work executed by the accused company for the
project of Haryana State Roads & Bridges Development
Corporation Ltd. But the said payment has not been released to
the accused company by Neeraj Cement Structurals Ltd. It is
also pointed out that main contractor has initiated an
Arbitration Proceedings before the Ld. Arbitrator as Haryana
and the Arbitrator has passed an Award dated 16.10.2017 in
favour of the main contracting Company and against the
Haryana State Roads & Bridges Development Corporation
Ltd. For a sum of Rs.14,79,36,410/- despite that the said
amount was also not released. It is therefore point out that
legally recoverable payments had not been released to the
accused company which is the root cause for making the
delayed payment of TDS by the accused company. It has also
been pointed out that the income tax department itself has
failed to refund for the financial year 2014-15 to the accused
company on time, further in the year 2015-16 payment was
received very late and for the year 2016-17, again it was
received only in part. Accused no. 1 & 2 deposited the TDS
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funds from its personal resources. By going through all the
facts it is clear that due to non-payment of the funds by those
companies there was financial hardships faced by the
company.
28. It needs to be mentioned that these reasons, may be
considered as reasonable cause as found stated in Section
278AA of Income Tax Act. Therefore, keeping in view the
abovementioned discussions and from the evidence on record,
it is clear that the assessee / accused has been able to show
reasonable and sufficient cause that there were financial
exigencies beyond its control which further got aggravated due
to non-refund of the TDS amount leas to an unavoidable delay
in payment of TDS. The facts shows that the aforesaid financial
constraints could have prevented any other company to fulfill
financial obligations in normal circumstances without
negligence or inaction or for want of bonafides. Accordingly,
the ingredients of Section 278 AA of the Income Tax Act stands
satisfied and the accused no. 1 company M/s Action Bridge
Gap Construction Ltd. as well as accused no. 2 Mr. Tarun
Aggrawal are able to prove the existence of reasonable cause
for non-payment of tax within the stipulated statutory period
and are acquitted for the offences punishable u/s 276 B read
with Section 278 B of the Income Tax Act.
29. Compliance of Section 437-A Cr.P.C. is made in the
order-sheet.”
12. The learned Senior Standing Counsel appearing for the
petitioner-Income Tax Department submitted that the
respondents, being a company and its principal officer, were under
a statutory obligation to deposit TDS deducted from payments
made to third parties within the prescribed period.
13. He submitted that in each of the three cases, substantial
TDS amounts–₹68,78,256/-, ₹1,59,72,437/-, and ₹2,01,34,235/-
respectively–were deducted by the respondents but not deposited
with the Government treasury within the stipulated time.
14. He submitted that the prosecution was sanctioned after due
consideration of the respondents’ replies, which sought to justify
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the delay on the ground of financial hardship and pending income
tax refunds. However, these reasons were specifically rejected in
the sanction order as untenable and not amounting to ‘reasonable
cause’.
15. He submitted that the learned Trial Court erroneously
accepted photocopies and vague justifications as sufficient
evidence to acquit the respondents, holding that they had
demonstrated a ‘reasonable cause’ under Section 278AA of the IT
Act. It is contended that this interpretation dilutes the mandatory
nature of TDS compliance and sets a precedent for evading
statutory obligations.
16. He emphasized that once TDS is deducted, it becomes
government property and cannot be withheld on the plea of
financial difficulty. The deductor acts as a trustee of public
revenue, and failure to deposit deducted TDS constitutes a serious
economic offence.
17. Per Contra, the learned counsel for respondents submitted
that the respondents had not disputed the fact of delay in
depositing the TDS, but the entire case of the defence rested on
the existence of a reasonable cause as contemplated under Section
278AA of the IT Act.
18. The learned counsel emphasized that the respondents were
facing severe financial stress during the relevant financial years
due to non-receipt of contract payments and outstanding
receivables from government agencies, which led to an acute
liquidity crunch. Despite these constraints, the respondents
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eventually deposited the entire TDS amounts, albeit belatedly,
along with applicable interest and late fees, even prior to the filing
of the complaint.
19. He submitted that the learned Trial Court rightly
appreciated the nature of evidence led by the defence, including
correspondence with banks, letters to tax authorities seeking
adjustment of refunds, and efforts to raise funds for TDS
compliance.
20. The learned counsel pointed out that the complainant
department failed to rebut or discredit the financial constraints
pleaded by the respondents and did not produce any evidence to
show that the delay was deliberate or with mala fide intent.
21. He contended that Section 278AA of the IT Act provides a
statutory exception where genuine hardship is demonstrated, and
the respondents had clearly discharged that burden.
22. Lastly, the learned counsel argued that interference with a
well-reasoned order of acquittal is not warranted unless the
findings are shown to be perverse or manifestly illegal, which is
not the case here. Hence, the petitions seeking leave to appeal
deserve to be dismissed.
23. It is trite law that this Court must exercise caution and
should only interfere in an appeal against acquittal where there are
substantial and compelling reasons to do so. At the stage of grant
of leave to appeal, the High Court has to see whether a prima
facie case is made out in favour of the appellant or if such
arguable points have been raised which would merit interference.
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The Hon’ble Apex Court in the case of Maharashtra v. Sujay
Mangesh Poyarekar: (2008) 9 SCC 475 held as under:
“19. Now, Section 378 of the Code provides for filing of
appeal by the State in case of acquittal. Sub-section (3)
declares that no appeal “shall be entertained except with the
leave of the High Court”. It is, therefore, necessary for the
State where it is aggrieved by an order of acquittal recorded
by a Court of Session to file an application for leave to appeal
as required by sub-section (3) of Section 378 of the Code. It is
also true that an appeal can be registered and heard on merits
by the High Court only after the High Court grants leave by
allowing the application filed under sub-section (3) of Section
378 of the Code.
20. In our opinion, however, in deciding the question
whether requisite leave should or should not be granted, the
High Court must apply its mind, consider whether a prima
facie case has been made out or arguable points have been
raised and not whether the order of acquittal would or would
not be set aside.
21. It cannot be laid down as an abstract proposition of law
of universal application that each and every petition seeking
leave to prefer an appeal against an order of acquittal
recorded by a trial court must be allowed by the appellate
court and every appeal must be admitted and decided on
merits. But it also cannot be overlooked that at that stage, the
court would not enter into minute details of the prosecution
evidence and refuse leave observing that the judgment of
acquittal recorded by the trial court could not be said to be
“perverse” and, hence, no leave should be granted.”
(emphasis supplied)
24. The Hon’ble Apex Court in the case of Babu Sahebagouda
Rudragoudar and Others v. State of Karnataka : 2024 INSC 320
discussed the scope of interference by an Appellate Court for
reversing the judgment of acquittal. The relevant portion of the
judgment is reproduced hereunder:
“38. Further, in the case of H.D. Sundara & Ors. v. State of
Karnataka [(2023) 9 SCC 581] this Court summarized the
principles governing the exercise of appellate jurisdiction
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378 of CrPC as follows: –
“8.1. The acquittal of the accused further strengthens
the presumption of innocence;
8.2. The appellate court, while hearing an appeal
against acquittal, is entitled to reappreciate the oral
and documentary evidence;
8.3. The appellate court, while deciding an appeal
against acquittal, after reappreciating the evidence, is
required to consider whether the view taken by the trial
court is a possible view which could have been taken on
the basis of the evidence on record;
8.4. If the view taken is a possible view, the appellate
court cannot overturn the order of acquittal on the
ground that another view was also possible; and
8.5. The appellate court can interfere with the order of
acquittal only if it comes to a finding that the only
conclusion which can be recorded on the basis of the
evidence on record was that the guilt of the accused
was proved beyond a reasonable doubt and no other
conclusion was possible.”
39. Thus, it is beyond the pale of doubt that the scope of
interference by an appellate Court for reversing the
judgment of acquittal recorded by the trial Court in favour
of the accused has to be exercised within the four corners of
the following principles:-
(a) That the judgment of acquittal suffers from patent
perversity;
(b) That the same is based on a misreading/omission to
consider material evidence on record;
(c) That no two reasonable views are possible and only the
view consistent with the guilt of the accused is possible
from the evidence available on record.
40. The appellate Court, in order to interfere with the
judgment of acquittal would have to record pertinent findings
on the above factors if it is inclined to reverse the judgment of
acquittal rendered by the trial Court.”
25. A perusal of the record discloses that in all three complaint
cases–C.C. Nos. 6212/2018, 6214/2018, and 6215/2018–the
learned Trial Court passed a common judgment dated 28.10.2021
acquitting the respondents primarily on the ground that the
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respondents had satisfactorily demonstrated the existence of a
‘reasonable cause’ for the delay in depositing tax deducted at
source (TDS), within the meaning of Section 278AA of the IT
Act. The defence advanced by the respondents was that during the
relevant assessment years, the company was undergoing an acute
financial crisis, including non-receipt of substantial dues from
clients, particularly government agencies, which led to a severe
cash flow shortage and hindered timely TDS compliance.
26. At this juncture, it is relevant to extract Sections 276B and
278 AA of the IT Act, which read as under :
Section 276 B :- If a person fails to pay to the credit of the
Central Government within the prescribed time, as above, the
tax deducted at source by him, he shall be punishable with
rigorous imprisonment for a term which shall be between 3
months and 7 years alongwith fine.
Section 278 AA:- Notwithstanding anything contained in the
provisions of Section 276 A, Section 276 AB, or Section 276 B,
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.
27. It is germane to note that Section 278AA of the IT Act
begins with a non-obstante clause, which specifically provides the
intent of the Legislature that no person shall be punished for
failure to comply with Section 276B if it is established that the
failure occurred due to a reasonable cause. In effect, the existence
of a reasonable cause operates as a statutory defence against
prosecution.
28. In Sonali Autos P. Ltd. v. State of Bihar : (2017) 396 ITR
636, the Hon’ble Patna High Court interpreted the scope of
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‘reasonable cause’ under Section 278AA of the IT Act and
observed as under:
“26. The petitioners have stated in the petition that the
aforesaid tax could not be deposited within time due to
oversight on the part of the Accountant, who was appointed to
deal with the Accounts and Income Tax matters. This mistake
was detected at the time of audit of Books of Accounts by the
Statutory Auditors of the petitioner company in August, 2010.
Thereafter, the petitioner immediately deposited the amount of
tax along with interest in the year 2010 itself. Section 278 AA
of the Act specifically says that no person shall be punished
for any failure referred to under the said provisions if the
assessee proves that there was reasonable cause for such
failure. Reasonable cause would mean a cause which
prevents a reasonable man of ordinary prudence acting
under normal circumstances, without negligence or inaction
or want of bonafides.”
(emphasis supplied)
29. It is relevant to note that the respondents in their detailed
reply dated 19.12.2017 (Ex. CW1/11) to the show cause notice
dated 07.12.2017 (Ex.CW1/10) issued to them for non-depositing
of TDS at the appropriate time had specified the financial
crunches faced by them because of non-receiving of payments.
The Trial Court meticulously examined the evidence presented,
including letters addressed to the Income Tax Department,
correspondences with banks, and documents suggesting
outstanding payments receivable from government entities. These
documents were adduced by the respondents to establish that the
delay was not wilful or with an intent to defraud the revenue but
was occasioned by bonafide financial hardship. Notably, it was
also brought on record that the entire defaulted TDS amount,
along with applicable interest and late fee under Sections 201(1A)
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and 234E of the IT Act, had been remitted prior to the initiation of
prosecution. However, after submission of the reply dated
19.12.2017, sanctioning order dated 27.12.2017 was passed by the
petitioner authorities. It is abysmal to note that though para 3 of
the sanctioning order recorded the submissions of the respondent
company that it was facing financial crisis and delay in deposit of
TDS was unintentional, yet the sanction to prosecute the
respondent company and its Director was granted under Section
279 (1) of the IT Act.
30. Further, the testimony of CW-1, the Income Tax Officer,
during cross-examination at the post-charge stage, is of
considerable significance. He candidly admitted that the entire
amount constituting the alleged TDS default had been deposited
by the assessee even prior to the issuance of the show cause notice
under Section 279 of the IT Act, 1961. This admission
undermines the prosecution’s narrative of wilful default and
supports the respondents’ claim that the delay in deposit was not
motivated by any dishonest intent, but arose from circumstantial
financial hardship.
31. The learned Trial Court, after carefully weighing this
material fact, rightly concluded in the impugned judgment that the
respondents’ conduct reflected a responsible and remedial
disposition. The respondents not only acknowledged the default
but also took proactive steps to regularize it before the initiation of
prosecution, thereby evidencing the absence of mens rea–a
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critical ingredient in sustaining criminal liability under Section
276B of the IT Act.
32. The learned Trial Court further rightly observed that the
financial difficulty stemmed from the fact that substantial, legally
recoverable payments due to the respondent company from
contracting parties had remained unpaid, resulting in a liquidity
crunch. This root cause was adequately substantiated by the
documents and explanations placed on record, and provided the
reasonable cause envisaged under Section 278AA of the IT Act.
33. In this context, the learned Trial Court’s finding that the
default was not deliberate but compelled by external financial
constraints is neither perverse nor legally infirm. Rather, it reflects
a balanced application of the statutory framework that
distinguishes between culpable inaction and excusable delay
backed by bona fide efforts at compliance.
34. As noted above, Section 278AA of the IT Act carves out an
express exception to penal liability under Section 276B of the IT
Act, where the accused can establish a ‘reasonable cause’ for the
failure to deposit TDS. The law recognises that punishment ought
not to be imposed in circumstances where the breach, though
technical, is not accompanied by culpable mental state and is
otherwise explained with bona fide justification. The finding that
the accused fell within this exception is a finding of fact rendered
by the learned Trial Court after due appreciation of the evidence,
both oral and documentary.
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35. The petitioner authority has assailed the acquittal of the
respondents on the ground that the documents relied upon by the
respondents were unauthenticated or insufficient to discharge the
burden under Section 278AA of the IT Act. However, the learned
Trial Court did not accept this argument and instead looked at the
totality of circumstances, including the company’s financial
disclosures, the pendency of income tax refunds, and the absence
of any attempt to conceal the default.
36. It is well-settled that in a petition seeking leave to appeal
against acquittal under Section 378(4) of the CrPC, interference is
not warranted merely because the appellate court may have
arrived at a different conclusion. The jurisdiction under Section
378(4) of the CrPC is invoked only where the findings of the
learned Trial Court are perverse, manifestly illegal, or result in
miscarriage of justice. Where two views are possible and the Trial
Court has chosen one based on plausible reasoning and
appreciation of facts, the appellate court ought not to interfere.
37. In the present case, the learned Trial Court has adopted a
legally tenable interpretation of Section 278AA of the IT Act and
rendered findings which are not only supported by the record but
also resonate with the underlying objective of the provision–
namely, to shield individuals from criminal prosecution where
non-compliance is neither wilful nor mala fide. No perversity or
material irregularity has been demonstrated by the petitioner.
38. The prosecution’s case hinges more on the occurrence of
default than on the requisite mental element necessary to sustain
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conviction under Section 276B, read with Section 278E of the IT
Act. However, the latter stands neutralized by the substantiated
defence under Section 278AA of the IT Act.
39. Accordingly, this Court is not persuaded to interfere with
the order of acquittal passed by the learned Trial Court. The
present leave to appeal petitions are dismissed in the aforesaid
terms.
40. A copy of this order be placed in all the matters.
AMIT MAHAJAN, J
MAY 26, 2025
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