Service of Notice Can Establish Wilful Default Under S. 276-B: Allahabad High Court Refuses to Quash TDS Default Prosecution

The Allahabad High Court has refused to quash criminal proceedings initiated under Section 276-B of the Income Tax Act, 1961 against individuals accused of failure to remit Tax Deducted at Source (TDS), observing that once a statutory notice is duly served, continued non-compliance can give rise to a presumption of wilful default. The bench of Justice Jai Prakash Tiwari has observed that disputed questions regarding service of notice and other factual issues are matters to be examined during trial and cannot justify quashing proceedings at the preliminary stage. The matter arose from applications filed under Section 482 Cr.P.C. by Vrindavan Pathak and another, along with a connected matter involving M/s Chandramani and Sons. The applicants sought quashing of a common order dated February 25, 2017 and related criminal complaints pending before the Special Judicial Magistrate, Varanasi under Section 276-B of the Income Tax Act. The proceedings concerned alleged non-remittance of TDS amounting to only Rs. 243 deducted on an interest credit of Rs. 2,798.10 during the financial year 1979–80 under Section 194A of the Act. The applicants argued that the proceedings had continued for nearly 36 years and therefore constituted an abuse of process. They contended that the prosecution was barred by limitation under Section 468 Cr.P.C., suffered from non-compliance with Section 200 Cr.P.C., and violated their constitutional right to a speedy trial under Article 21. They further argued that the proceedings were defective because no mandatory demand notice under Section 156 of the Income Tax Act had been served before initiating prosecution. To support their challenge, the applicants relied upon decisions of the Supreme Court including Mohan Wahi v. Commissioner of Income Tax and Commissioner of Central Excise v. Damodar Poly Fab Pvt. Ltd., contending that issuance of a notice under Section 156 was a mandatory requirement before taking recovery steps. The Income Tax Department opposed the plea and relied upon judicial precedents emphasizing that prosecution proceedings under the Income Tax Act are independent of recovery or penalty proceedings. It argued that there was no legal requirement mandating a separate show-cause notice before launching prosecution under Chapter XXII of the Act and that criminal prosecution could continue independently of proceedings relating to interest or penalties. The High Court examined the factual background and noted that a notice dated November 27, 1984 had been issued to the applicants under Sections 221(1) and 201(1A) of the Income Tax Act requiring them to explain why interest and penalties should not be imposed and why the matter should not be referred for prosecution under Section 276-B. Despite receiving such notice, the applicants allegedly failed to comply. Penalty proceedings followed and subsequently the Commissioner of Income Tax authorized filing of a criminal complaint under Section 279(1) of the Act. The Court observed that a notice of demand serves as a condition precedent for fastening liability under the Act and found that the notice in the present case had been duly served. The Court held that once service of notice is established, the accused cannot subsequently claim ignorance of legal obligations. Significantly, the Court elaborated on the concept of mens rea in statutory offences and observed that criminal intent can be inferred from conduct and surrounding circumstances. The Court stated that where a person continues to ignore statutory obligations after receiving notice, the conduct can constitute culpable neglect and lead to a presumption of wilful default under Section 276-B. The Court further noted that offences under Section 276-B are compoundable under revised CBDT guidelines dated October 17, 2024. However, it pointed out that compounding requires agreement between parties and no such settlement existed in the present case. Since the applicants were raising factual and technical disputes such as non-service of notice, the Court held that such issues required evidentiary examination during trial. Accordingly, the Allahabad High Court dismissed the applications and refused to interfere with the ongoing criminal proceedings, reiterating that disputed factual questions and technical objections cannot become grounds for quashing prosecution at a preliminary stage. Case Details Case Title: Vrindavan Pathak and another Versus UOI Citation: JURISHOUR-1351-HC-2026(ALL) Case No.: Application U/S 482 No. - 17496 Of 2017 Date: 22/05/2026 Counsel For Petitioner: Asif Akhtar, Prakash Chandra Srivastav Counsel For Respondent: Abhishek Shukla, Piyush Agrawal Click Here To Read Order Read More: Supreme Court Examines Challenge to Section 16(2)(c) CGST

Service of Notice Can Establish Wilful Default Under S. 276-B: Allahabad High Court Refuses to Quash TDS Default Prosecution

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