Orissa HC Upholds Assessee’s Right to Compounding for TDS Default under Section 276B of the Income-tax Act,1961

Introduction

In Binod Pattanayak v. Union of India[i], the Hon’ble Orissa High Court has, while adjudicating upon a quashing application filed under s. 482 of the Code of Criminal Procedure, 1973 (‘CrPC’) contemplated upon the sensitive interplay between compounding mechanisms and judicial intervention in tax-related offences. This ruling not only reinforces the significance of alternative remedies but also raises broader concerns about the efficiency of litigation in cases where curable defects have already been rectified.

Brief Facts

• A Complaint was filed against the Petitioner/Assessee, Binod Pattanayak, under s. 190 of the CrPC by the IT Department (‘Opposite Party’), alleging that the Petitioner had deducted TDS from the salaries that he paid out to his employees. However, he had failed to deposit such TDS into the account of the central government before the due date.
• In the present case, the responsibility of deducting TDS was bestowed upon the drawing and disbursing officer of M/s Indoo Ingots and Re-rollers Private Limited. The Petitioner was responsible for deducting the tax at source and depositing the same with the Government of India’s account on or before 07.05.2010. However, the Petitioner had deducted TDS under s. 192 of the Income-tax Act, 1961 (‘Act’) for the FY 2010-11, but he had failed to deposit the same within the stipulated timeline.
• Subsequently, the Trial Court took cognizance of the offence under s. 276B of the Act against the Petitioner, thereafter which he proceeded to file a discharge application on the ground that the TDS amount was submitted belatedly along with interest and the Petitioner had also provided an explanation for the delay, thus seeking the benefit provided under s. 278AA of the Act. However, the Trial Court rejected the discharge application.
• Aggrieved by the aforementioned dismissal, the Petitioner approached this Hon’ble High Court seeking quashing of the said order.

Held

In light of the submissions made by the Opposite Party regarding Circular[ii] issued by the CBDT, which specifically provides for the guidelines and a clear framework to compound offences arising from curable defects, the captioned petition was disposed of by the High Court. However, the Petitioner was granted the liberty to approach the Lower Court and seek relief thereof by pursuing the procedural remedy available under s. 320 of the CrPC to seek compounding of the alleged offences.

Our Analysis

This ruling underscores the growing acceptance of alternative remedies such as compounding of minor offences under the Act. By granting the Assessee permission to compound under s. 320 of CrPC, the Hon’ble High Court avoided the need for prolonged litigation and emphasized the importance of adhering to the guidelines laid down in the Circular. Through its observations, the High Court highlights that preference should be given to utilizing the statutory compounding mechanism already established rather than seeking judicial intervention under s. 482 of the CrPC.

A review of this ruling gives rise to an interesting yet less common perspective—seeking alternative remedies should be permitted, especially in residual cases where proceedings have attained finality either due to conscious efforts of one of the parties or due to the factual matrix of the case, especially if it prevents unnecessary duplication of work.

In this case, the High Court could have allowed the quashing application since the Petitioner had already paid the TDS along with penalty and interest, and the IT Department did not dispute this. Quashing the discharge rejection order would have saved significant time, effort, and resources for both the Petitioner and the judiciary, which operates under immense time constraints. Thus, following the script and/or the methods mentioned thereinunder might not always be the most viable solution for any and/or all the parties involved, especially considering how expansive and expensive litigation is, not only for a common man but also for the state. ?

End Notes

[i]?2025 SCC OnLine Ori 41 dated 07.01.2025.

[ii] CBDT Circular dated 17.10.2024.

Authored by Aishwarya Pawar , Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.