Offences under Sections 276B, 278B and 278E – Delhi High Court Declines Quashing at Pre-Trial Stage

 

Dr. Manoj Khanna v. Income Tax Officer, CRL.M.C. 7461/2025 (Delhi High Court, 2 December 2025)

 

In a significant decision concerning prosecution for failure to deposit tax deducted at source, the Delhi High Court in Dr. Manoj Khanna v. Income Tax Officer has reaffirmed the narrow scope of judicial interference at the stage of issuing process under the criminal jurisdiction. The Court declined to quash prosecution proceedings initiated under Sections 276B, 278B and 278E of the Income-tax Act, 1961, observing that the defences raised were purely factual and could only be adjudicated at trial.

 

Background

 

The complaint arose from alleged defaults by M/s Enhance Aesthetic and Cosmetics Studio Pvt Ltd during the financial year 2017-18. According to the sanctioning authority, the company had deducted TDS aggregating to Rs 2.09 crore but failed to deposit the amount within the statutory time. Show cause notices were issued, replies were submitted by one of the directors, and a formal sanction order under Section 279 was passed in May 2022 for launching prosecution.

 

Dr Manoj Khanna, the Managing Director and majority shareholder, was summoned as an accused along with the company and other directors. He approached the High Court seeking quashing of the complaint and the summoning order, contending that he was not responsible for deduction or deposit of TDS and that another director had admitted responsibility.

 

Scope of Interference Under Section 482 CrPC / Section 528 BNSS

 

The High Court reiterated the principles laid down by the Supreme Court in Rajiv Thapar v. Madan Lal Kapoor (2013) 3 SCC 330, emphasising that at the pre-trial stage the Court does not evaluate disputed questions of fact, assess sufficiency of evidence, or conduct a mini-trial. Quashing is warranted only where the accused produces unimpeachable and incontrovertible material that completely demolishes the foundation of the complaint.

 

Prima Facie Ingredients of the Offence Established

 

The Court noted:

                •              TDS was admittedly deducted by the company.

                •              The deposit was admittedly delayed.

                •              The petitioner was the Managing Director and held nearly 99 percent of the shares.

                •              The sanctioning authority had applied its mind and recorded satisfaction under Section 279.

                •              Both directors had blamed each other, but the core factual disputes required trial.

 

Given these foundational facts, a prima facie case under Section 276B was clearly made out.

 

Significance of Sections 278B and 278E

 

The Court referred to the statutory presumption of culpable mental state under Section 278E and the vicarious liability created by Section 278B for persons in charge of the company at the time of the default. These presumptions, according to the Court, can be rebutted only at trial and not through affidavits or untested claims.

 

Subsequent Deposit Does Not Extinguish Criminal Liability

 

The Court reaffirmed that payment of TDS after default does not wipe out the offence unless the statute grants immunity. Subsequent deposit may be relevant for sentencing or compounding but does not prevent prosecution.

 

Conclusion

 

Holding that the petition raised triable questions of fact which required evidence, the Court refused to quash the proceedings. The petitioner was left free to raise all factual defences during trial.

 

This judgment reinforces the principle that criminal prosecution under Section 276B—particularly where TDS is deducted but not deposited—is treated as a serious statutory offence in which courts show limited indulgence at the pre-trial stage

 

 

Practical Implication:

Directors, particularly Managing Directors and principal officers, may face prosecution for TDS defaults even where another officer claims responsibility. Quashing at the pre-trial stage is unlikely unless unimpeachable evidence shows the accused was not responsible for conduct of the business.

AI Generarted Precautions to Be Taken by Professionals (Summary)

  1. Ensure timely deposit of TDS; delays trigger statutory prosecution regardless of later payment.

  2. Maintain clear internal responsibility mapping for TDS deduction, deposit, and compliance.

  3. Document authorisations, role assignments, and internal communications to rebut vicarious liability if needed.

  4. File replies to notices with complete facts; inaccurate or shifting stands weaken defences.

  5. Preserve evidence showing lack of responsibility or control over TDS operations, to be used at trial.

  6. Monitor sanctions under Section 279 and respond promptly with factual submissions.

  7. Educate directors and key managerial personnel on statutory presumptions under Section 278E.

  8. Implement strong internal controls to prevent defaults and detect lapses early.

  9. Maintain contemporaneous financial records showing cash flow constraints, if relied upon as defence.

  10. Engage in compounding at the earliest stage, where appropriate, to avoid prolonged prosecution.

  11. Avoid relying on pre-trial quashing unless unimpeachable evidence conclusively negates responsibility.