The main legal point established in the judgment is that the grant of sanction for prosecution under the Income Tax Act, 1961 is intended to filter out frivolous, malafide, and vindictive prosecution, and the legality or validity of the sanction order would be the subject matter of review before the Criminal Court.

SANJIV KHANNA, J.

M/s Indo Arya Central Transport Limited have filed the present writ petition praying for the following reliefs:-

"(a) Issue a writ of certiorari setting aside/quashing the impugned order dated 14.03.2017 passed by the Respondent No.1;

(b) Restrain the Respondent No.1 and the officers of the Respondents from carrying out any act in pursuance of the impugned order dated 14.03.2017 directing launching of criminal prosecution against the Petitioners; and,

(c) Direct the Respondents to release refunds due to the Petitioner No.1, amounting to approximately Rs.5,09,41,361/- (Rupees five crore, nine lac, forty one thousand, three hundred and sixty one only); and

(d) pass such other and/or further orders as this Hon’ble Court may deem fit and proper.”

2. Impugned order dated 14th March, 2017 passed by the first respondent namely the Commissioner of Income Tax (TDS) Delhi-1 is the sanction for prosecution issued under Section 279(1) of the Income Tax Act, 1961 (Act, for short).

3. Sanction records that during the financial year 2012-13 relevant to the Assessment Year 2013-14, amount of Rs.3,52,99,059/- was deducted by the petitioner company as tax at source (TDS), but was not deposited in the government treasury within the prescribed statutory time. These defaults were in respect of salary as well as non-salary TDS deductions.

4. Sanction order refers to due date for filing of e-statements in respect of salary or non-salary TDS deductions and the date of actual filing of the statement. Sanction order also refers to the show cause notice dated 5th April, 2016 (sic. 6th April, 2016) issued to the petitioners, as to why they should not be prosecuted under Section 276B and Section 278B of the Act. In response to the notices, authorised representative of the petitioners had appeared and submitted that the petitioner company and his principal officer would opt for compounding. Accordingly, the prosecution proceedings were kept in abeyance subject to the petitioners filing compounding petition. However, when no compounding application was filed, another show cause notice dated 25th January, 2017 was issued to resume the proceedings. Several adjournments were taken where after reply dated 3rd March, 2017 was filed accepting that there were defaults in the deposit of TDS on account of financial crunch due to sluggish business activity. Financial position of the petitioner company was adversely affected by sudden drop in business orders. It was alleged that undisputed income tax refunds constituting 4-5 times the amount of shortfall in TDS had also remained pending.

5. Commissioner of Income Tax (TDS) in the sanction order had observed :-

“3. The reply filed by the deductor company and its director is carefully considered. I am convinced that offence u/s 276B and u/s 278B of the Act have been committed. It is further observed that the explanation offered by the accused are neither tenable nor satisfactory as it is clear from the following facts:

(a) The assessee has a wrong impression that it has compensated the Government by paying interest on delayed deposit of TDS and hence not prosecutable. The utilization of Government money attracts prosecution and not even the penalty. Moreover, Interest is just compensatory in nature.

(b) Further non-deposit of TDS in time due to shortage of funds is not a reasonable and justifiable cause the deductor was just beholder of the tax payable by the deductee which should have deposited in time so that deductee may get the credit of such TDS.

(c) The deductor assessee has taken plea of pending refunds with Income Tax Department. However, it is silent on the pending scrutiny assessments or appeals, etc and then provisions of law u/s 143(1D) of the Act. Thus refunds if any were lying with the department were under some authority of law. Moreover, refund was its own money and TDS belonged to the Govt. to be deposited on behalf of the deductees. Hence it is not a justifiable ground.

(d) The plea taken