Serving a demand notice establishes necessary compliance knowledge, validating prosecution under Section 276B for wilful TDS default.

By | May 29, 2026
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Serving a demand notice establishes necessary compliance knowledge, validating prosecution under Section 276B for wilful TDS default.

Issue

Whether the criminal prosecution initiated under Section 276B of the Income-tax Act against the assessee-firm and its officers for failing to remit deducted TDS can be quashed under Section 482 of the Cr.P.C., when the service of the mandatory statutory demand notice is a disputed factual matter that is yet to be determined at trial.

Facts

  • The assessee-firm deducted Tax Deducted at Source (TDS) on interest payments under Section 194A but failed to remit the amount to the government account.

  • Following the default, the Revenue department issued compliance and demand notices to the applicants under Sections 221(1) and 201(1A).

  • The applicants failed to comply with the statutory requirements of the notices, prompting the Revenue to initiate penalty proceedings.

  • A formal criminal complaint was subsequently filed under Section 276B against the assessee-firm and its responsible officers for wilful default.

  • The applicants moved the High Court under Section 482 of the Cr.P.C., seeking to quash the complaint and the orders passed by the trial court, primarily raising the technical objection that the demand notice was never served upon them.

Decision

  • Held, that the service of a statutory notice of demand constitutes a mandatory condition precedent for fastening criminal liability and setting the prosecution machinery in motion under Section 276B.

  • Held, that the record indicates the notice of demand was duly served, establishing deemed knowledge; therefore, the non-compliance was deliberate and squarely fell within the definition of a “wilful default”.

  • Held, that while the offense under Section 276B is legally compoundable, the parties did not reach a mutual settlement to resolve the matter.

  • Held, that the applicants’ primary defense—the non-service of notice—presents a disputed question of fact that can only be properly adjudicated through evidence during the trial.

  • Held, that since disputed factual matters cannot be resolved in a summary manner under Section 482 of the Cr.P.C., the quashing petition is dismissed in favor of the Revenue.

Key Takeaways

  • Pre-requisite for Prosecution: Serving a formal notice of demand is an absolute jurisdictional necessity before initiating criminal prosecution for a TDS remittance failure.

  • Evidentiary Threshold at Pre-Trial: A petition under Section 482 of the Cr.P.C. cannot be used to bypass a trial when the primary defense rests on disputed factual grounds, such as the receipt or non-receipt of a statutory notice.

  • Wilful Default and Knowledge: Once a demand notice is legally served, any subsequent failure to pay or comply establishes a presumption of “deemed knowledge,” making the default deliberate and prosecutable.

HIGH COURT OF ALLAHABAD
Vrindavan Pathak
v.
Union of India*
Jai Prakash Tiwari, J.
APPLICATION U/S 482 No. 17496 of 2017
MAY  22, 2026
Asif Akhtar, Prakash Chandra Srivastava, Vishnu Prakash and Prakash Chandra Srivastav for the Applicant. Abhishek Shukla and Piyush Agrawal, S.s.c.i.t. Deptt for the Respondent.
ORDER
1. Heard Sri P.C. Srivastava, learned counsel for the applicants and Sri Abhishek Shukla, learned counsel for the opposite party.
2. The above two separate applications u/s 482 Cr.P.C. have been filed with the prayers to quash the common order dated 25.2.2017 passed in Complaint Case No. 1083 of 1997 (Union of India v. M/s Chandramani and sons and others), and Complaint Case No. 1084 of 1997 (Union of India v. M/s Chandramani and sons and others), under Section 276-B Income Tax Act, 1961, Police Station Line Bazar, District Jaunpur, pending before the court of learned Special Judicial Magistrate, Varanasi and the complaints (Case No. 1083 of 1997 as well as Case No. 1084 of 1997) and its proceedings under Section 276-B Income Tax Act, 1961, pending before the court of learned Special C.J.M., Varanasi.
3. Learned counsel for the applicants submitted that the present prosecution, instituted by the complainant/opposite party no. 2, namely the Income Tax Department, on 11.10.1985 and registered as Criminal Case No. 3682 of 1985 and Criminal Case No. 3681 of 1985 (subsequently renumbered as Case No. 1083 of 1997 and Case No. 1084 of 1997), pertains to an alleged contravention of Section 276-B of the Income Tax Act, 1961 on account of non-remittance of TDS amounting to Rs. 243/- on an interest credit of Rs. 2798.10/- for the financial year 197980 under Section 194A of the Income Tax Act, 1961. It is further submitted that the proceedings have remained pending for an inordinate period of about 36 years. The applicants entered appearance before the court concerned in the year 1990, however, the cases were subsequently transferred to Varanasi in the year 1997 without any information or notice to the applicants. Learned counsel submits that despite a direction issued by this Court in the year 2014, the application moved by the applicants under Section 258 Cr.P.C. was ultimately rejected by the learned Special C.J.M., Varanasi vide order dated 25.02.2017. Learned counsel for the applicants further contended that the continuation of the impugned criminal proceedings amounts to a gross abuse of the process of law. It is argued that the prosecution is ex facie barred by limitation as contemplated under Section 468 Cr.P.C. and is further vitiated on account of non-compliance of the mandatory provisions of Section 200 Cr.P.C. It is also submitted that the extraordinary and unexplained delay in conclusion of the proceedings has resulted in a serious violation of the applicants’ fundamental right to speedy trial guaranteed under Article 21 of the Constitution of India. Hence, the impugned proceedings as well as the order dated 25.02.2017 are liable to be quashed by this Court.
To substantiate his submissions, learned counsel for the applicants has placed reliance upon the judgments of the Hon’ble Supreme Court in the case of Mohan Wahi v. CIT 248 ITR 799 (SC)/[2001 LawSuit(SC) 582] and CCE v. Damodar Poly Fab (P) Ltd [Civil Appeal Nos. 1453-1458 of 2001, dated 30-8-2017] [Reference Para 11 read with Para 10], in which it has been stated that notice under Section 156 of the Act, is mandatory before taking steps of recovery.
4. Learned counsel for the opposite party no. 2 as well as learned AGA have opposed the prayer with the contention that there is no illegality or perversity in passing the impugned order.
At this stage, learned counsel for the opposite party no. 2 has placed reliance upon the judgment of the High Court of Rajasthan in University Supply Corporation v. State of Rajasthan [1994] 206 ITR 222 (Raj), in which it has been stated:-
“After the above discussions, the legal position can be summarised as under:
(i) The scope and purport of interest/penalty proceedings and prosecution under the Income-tax Act are separate and independent. The existence or the absence of the one or the other is no bar to any one of them;
(ii) simply charging of interest by the Department under section 20K1A) of the Act, for the delay in the payment of the amount to the Central Government, does not obliterate the prosecution;
(iii) the non-initiation of penalty proceedings does not lead to a presumption that the default in payment was for good and sufficient reasons or that the assessee was deprived to establish that there were good and sufficient reasons for the default in payment;
(iv) non-initiation of penalty proceedings in a case cannot be equated with a case where the penalty proceedings were initiated and a finding is recorded by the competent authority that there were good and sufficient reasons for the delay in payment;
(v) there is no statutory requirement either under section 279 or under any other provision of the Act to give a show-cause notice to the assessee before criminal proceedings are initiated against him. In other words, a notice or a right of being heard before launching criminal proceedings under the Income-tax Act for the offences mentioned under Chapter XXII is not mandatory and proceedings cannot be quashed on this ground. Though, if such notice is given by the Department, it may check frivolous and unnecessary criminal cases or such cases where the default in payment is technical or committed in good faith. The question of compounding the offence may also be considered by the concerned authority prior to the initiation of criminal proceedings if such notice is given by the assessee desirous to compound the offence.”
Further the judgment of High Court of Karnataka in Kingfisher Airlines Ltd. v. Income Tax Department [2014] 4(Kar), in paragraph ’10’ states that:-
“Chapter XXII of the I.T. Act relates to offences and prosecutions. Section 276B deals with failure to pay tax deducted at source. This section specifies that wherever a company is required to deduct tax at source and to pay to the account of the Central Government, failure on the part of the company in deducting or not paying such amount is an offence under the Act and has been made punishable. Chapter XVII of the I.T. Act specifies the collection and recovery of tax. Section 201 in Chapter XVII of the I.T. Act specifies the consequences of failure to deduct or pay tax deducted at source. Section 201(1A) of the IT Act specifies the levy of interest. From the above provisions it is clear that wherever a company fails to deduct the tax at source and remit the same to the account of the Central Government, attracts criminal prosecution and also recovery proceedings. The criminal proceedings are independent of recovery proceedings. The criminal proceedings are not dependent on the recovery proceedings. Therefore the pendency of proceedings initiated under Section 201(1) and Section 201(1A) of the I.T. Act is not a legal impediment to continue the criminal prosecution against the petitioners. The pendency of proceedings under Section 201(1) and 201(1A) of the I.T. Act cannot act as a bar to the institution and continuance of criminal prosecution for the offences punishable under Section 276B of the I.T. Act. Quantification of amount for the purpose of initiation of criminal proceedings is not necessary. Therefore I am of the considered opinion that the proceedings initiated against the petitioners cannot be quashed on the ground that the proceedings under Section 201(1) and Section 201(1A) of the I.T. Act are pending.”
As discussed above, the Income Tax Act, 1961 does not make it mandatory to serve a demand notice before filing criminal cases for offences under Chapter XXII. Therefore, the case cannot be quashed just because no notice was given.
5. I have considered the arguments advanced by the learned counsel for the parties and have gone through the entire record.
6. A notice dated 27.11.1984 was issued to the applicants under Sections 221(1) and 201(1A) of the Income Tax Act, 1961, calling upon them to show cause why interest and penalty should not be levied for noncompliance, and why the matter should not be referred to the Commissioner of Income Tax, Allahabad, under Section 276B for the initiation of prosecution.
7. Notwithstanding the notice, the applicants willfully failed to comply with its requirements. Consequently, a penalty under Section 221(1) was imposed for the failure to deduct Tax Deducted at Source (TDS) as mandated under Section 194A of the Act. As a result of this deliberate default, a prima facie offence under Section 276B of the Income Tax Act is made out against the applicants.
8. Here, it would be necessary to go through the relevant Sections 156, 201(1A), 221(1) of the Income Tax Act, 1961, which are quoted as under:-
“156. Notice of demand. —When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the 2 [Assessing Officer] shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable:
[Provided that where any sum is determined to be payable by the assessee or [the deductor or the collector under sub-section (1) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB], the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section.]
201. Consequences of failure to deduct or pay- (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,— (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of subsection (3) of section 200:
Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.
221. Penalty payable when tax in default.— (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the [Assessing Officer] may direct, and in the case of a continuing default, such further amount or amounts as the [Assessing Officer] may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears:
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard:
Provided further that where the assessee proves to the satisfaction of the [Assessing Officer] that the default was for good and sufficient reasons, no penalty shall be levied under this section.”
9. The show cause notice dated 27.11.1984 clearly stated that the applicants were required to appear before the competent authority, either personally or through a representative, on 20.12.1984. However, the applicants failed to appear on the said date. Subsequently, the Income Tax Officer, Jaunpur, passed an order under Section 201(1A) of the Income Tax Act, 1961 on 21.12.1984, imposing a penalty for the default committed by the assessee. The assessing officer in the impugned order has recorded that “I charge an interest under section 201(1A) of the Income Tax Act, 1961 of issue notice of demand and challan.”
10. As the applicants failed to deposit the penalty amount, the Commissioner of Income Tax, Allahabad, exercising powers under Section 279(1) of the Income Tax Act, 1961, passed an order dated 30.09.1985 directing the Income Tax Officer, Jaunpur to file a complaint under Section 276-B of the Act before the competent court. Accordingly, a complaint was filed on behalf of the Income Tax Officer.
11. Upon a prima facie consideration of the material on record, it is evident that the service of a notice of demand constitutes a condition precedent for fastening liability arising out of an order under the Act.
12. In the instant case, the notice dated 27.11.1984 was duly served upon the applicant, thereby setting the criminal law in motion for the purposes of prosecution under Section 276-B of the Income-tax Act, 1961, which penalizes the wilful failure to remit tax deducted at source.
13. In criminal jurisprudence, particularly in offences of statutory noncompliance, the element of mens rea is to be gathered from the conduct of the accused and the surrounding circumstances. Once due service of notice is established, the accused cannot be permitted to take refuge under a plea of ignorance, as ignorantia facti excusat, ignorantia juris non excusat (ignorance of fact may excuse, but ignorance of law does not). The doctrine of constructive or deemed notice imputes knowledge of the contents of the notice to the applicant, and consequently, awareness of the legal obligation cast upon him.
14. The continued failure of the applicant to comply with the statutory mandate, despite due service, gives rise to a legitimate presumption of wilful default. The omission, in the face of knowledge, is not a mere inadvertence but assumes the character of culpable neglect, attracting penal consequences under Section 276-B.
15. Thus, in view of the established service of notice and the consequent deemed knowledge, the non-compliance by the applicant is not only deliberate but falls squarely within the ambit of wilful default contemplated under Section 276-B, warranting prosecution in accordance with law.
16. It is pertinent to note that the offences under the Income-tax Act, 1961, including the offence alleged in the present proceedings, are compoundable in nature. The statute, read with the applicable guidelines, confers upon the applicant the liberty to seek compounding of the offence at any stage of the proceedings, even during the pendency of trial.
17. After perusing all the documents and hearing the arguments of both the sides, the court observed that under the Central Board of Direct Taxes’ revised guidelines dated 17.10.2024, the offence under Section 276-B of the Income Tax Act, 1961, is compoundable. However, compounding requires agreement from both sides, and in this case the parties do not agree to settle the matter. The applicants are also raising technical objections, mainly claiming that the notice was not served, which is a disputed factual issue that can only be decided during a trial.
18. Since there is no settlement and there are triable technical issues, the proceedings cannot be quashed at this stage.
19. The application is, accordingly, dismissed.