Belated TDS Deposit and Inter-Director Blame Are “Triable Defences”: No Pre‑Trial Quashing for Managing Director Under Sections 276B/278B/278E

Case: DR MANOJ KHANNA v. INCOME TAX OFFICE
Citation: 2025 DHC 10864
Court: Delhi High Court
Date: 02-12-2025
Coram: Amit Mahajan, J. (Oral)

1. Introduction

The Delhi High Court considered a petition seeking quashing (at the pre-trial stage) of a complaint and summoning order for alleged non-compliance with tax deducted at source (TDS) deposit obligations. The prosecution was initiated under Section 276B read with Sections 278B and 278E of the Income Tax Act, 1961.

The petitioner, Dr Manoj Khanna, was the Managing Director of the accused company (M/s Enhance Aesthetic & Cosmetics Studio Pvt. Ltd.). The Income Tax Department alleged that during FY 2017–18 the company deducted TDS amounting to Rs. 2,09,13,002/- but failed to deposit it within the statutory time. The petitioner’s core defence was that another director/CEO (Accused No. 2) was solely responsible for TDS compliance and had effectively admitted such responsibility in contemporaneous replies.

The key issues before the Court were:

  • Whether, at the summoning/pre-trial stage, the High Court should quash proceedings by accepting the petitioner’s factual defence that another director was solely responsible.
  • Whether subsequent (belated) deposit of TDS can extinguish criminal liability under Section 276B.
  • How Sections 278B (company/officer liability) and 278E (presumption of culpable mental state) shape the threshold for quashing.

2. Summary of the Judgment

The High Court refused to quash the complaint and the summoning order. It held that:

  • At the pre-trial stage, quashing is justified only when the accused produces sterling, unimpeachable material that demolishes the complaint allegations.
  • The petitioner being the Managing Director during the relevant period, coupled with findings in the sanction/order treating him as a Principal/Responsible Officer, created at least a prima facie case under Section 278B.
  • Inter-se allegations between directors as to “who was responsible” are disputed questions of fact requiring trial.
  • Belated payment of TDS does not, by itself, wipe out criminal liability unless the statute provides so.
  • Given Section 278E’s presumption, issues such as “reasonable cause”/financial difficulty are generally matters of evidence to be tested at trial.

3. Analysis

3.1 Precedents Cited

The Court relied on the Supreme Court decision in Rajiv Thapar and Ors. Vs. Madan Lal Kapoor, (2013) 3 SCC 330 to delineate the narrow scope of inherent powers to quash criminal proceedings at the pre-trial stage.

How it influenced the decision: The High Court applied the “Rajiv Thapar” threshold: quashing is appropriate only when defence material is of such “sterling and impeccable quality” that it:

  • is based on “sound, reasonable, and indubitable facts”,
  • displaces the complaint allegations, and
  • makes it unnecessary to record evidence.

In the present case, the petitioner’s reliance on the co-director’s replies did not meet that standard, because the record also contained material indicating the petitioner’s role (Managing Director status; being treated as Principal/Responsible Officer; and the co-director’s counter-allegation that the petitioner controlled financial affairs). The Court therefore treated the defence as triable, not dispositive.

3.2 Legal Reasoning

(a) Scope of quashing under Section 528 BNSS / Section 482 CrPC

The Court reiterated that inherent jurisdiction (invoked here under Section 528 of BNSS, read with Section 482 CrPC) is not meant to conduct a “mini-trial”. At the summoning/cognizance stage, the enquiry is limited to whether the complaint discloses prima facie ingredients of the offence, not whether conviction is likely.

(b) Foundational facts under Section 276B were not disputed

The Court noted that Section 276B criminalises failure to pay to the Central Government the tax deducted at source. It recorded that:

  • TDS was deducted, and
  • it was not deposited within time.

These “foundational facts” were not disputed by the petitioner; the dispute was about who was responsible within the company—an issue which, given the statutory scheme of Section 278B, is ordinarily decided on evidence.

(c) Vicarious liability under Section 278B and the “in charge and responsible” inquiry

The Court emphasised Section 278B, which deems not only the company but also every person who, at the time of the offence, was “in charge of, and responsible to, the company for the conduct of its business” to be guilty.

Here, the petitioner’s admitted designation as Managing Director, along with the sanction/order material treating him as a responsible officer, was sufficient to proceed. The petitioner’s attempt to shift exclusive responsibility to the CEO/director was held to be an evidentiary contest, especially since the other director alleged the opposite.

(d) Presumption of culpable mental state under Section 278E: rebuttal is typically a trial issue

The Court referenced Section 278E, which introduces a presumption of culpable mental state. It held that rebuttal—whether by “reasonable cause” or other explanations (including financial difficulty)—would generally require evidence and therefore should be examined at trial, not in quashing proceedings.

(e) Belated deposit does not erase liability

The Court held that subsequent deposit of TDS after default does not, by itself, extinguish criminal liability “unless the statute so provides”. Thus, even if the TDS was eventually deposited, the alleged default period could still attract prosecution under Section 276B.

3.3 Impact

  • Higher bar for pre-trial quashing in TDS-prosecution matters: Directors/Managing Directors will find it difficult to secure quashing merely by pointing to internal role allocation or correspondence suggesting another officer handled TDS.
  • Strengthening prosecutions under Section 276B: The decision reinforces that “eventual payment” is not an automatic shield; prosecutions may proceed despite later compliance.
  • Practical effect of Sections 278B/278E: Accused officers should expect that “in charge and responsible” and “reasonable cause” defences will typically be tested through trial evidence rather than resolved at threshold.
  • Corporate governance and documentation: Companies and key managerial personnel may need clearer, contemporaneous compliance documentation (board resolutions, delegation matrices, internal controls) if they intend to argue that a particular officer was not “in charge and responsible”. Even then, quashing will depend on whether such material is truly unimpeachable.

4. Complex Concepts Simplified

  • “Quashing at the pre-trial stage” (Section 528 BNSS / Section 482 CrPC): The High Court can stop a criminal case early only in exceptional situations. It will not decide disputed facts or evaluate competing versions like a trial court.
  • Section 276B (TDS default offence): If tax is deducted at source but not deposited to the Government within the prescribed time, criminal prosecution can be initiated.
  • Section 278B (company/officer liability): Not only the company, but also persons running the company’s business at the relevant time can be prosecuted. Whether someone was “in charge and responsible” is often fact-specific.
  • Section 278E (presumption of culpable mental state): The law presumes the required guilty intent/state of mind for certain tax offences; the accused must rebut it, commonly by leading evidence (hence usually at trial).
  • “Sterling and unimpeachable material” (from Rajiv Thapar): Defence material must be so strong and uncontroversial that it clearly disproves the complaint without needing witness examination or cross-examination.

5. Conclusion

The judgment reaffirms a clear procedural and substantive principle: where a company’s TDS default is admitted and the accused is a Managing Director/treated as a responsible officer, disputes about internal responsibility, reasonable cause, or belated compliance are ordinarily matters for trial and do not justify threshold quashing. Anchored in Rajiv Thapar and Ors. Vs. Madan Lal Kapoor, the decision cautions High Courts against pre-empting prosecutions by resolving contested facts at the summoning stage, particularly in the statutory framework of Sections 276B, 278B, and 278E.