Income Tax Department has issued SOP for Prosecution in Cases of TDS / TCS Default

STANDARD OPERATING PROCEDURE FOR PROSECUTION IN CASES OF TDS/TCS DEFAULT — Cir­cu­lar — Dat­ed 2–2‑2015 — Income Tax

Intro­duc­tion:

1.1  As per the Income Tax Act, all cas­es where TDS/TCS is deduct­ed but not deposit­ed with­in the due date, as pre­scribed, are pun­ish­able u/s 276B/276BB or 278A. The selec­tion of cas­es & their pro­cess­ing is fur­ther gov­erned by Instruc­tion F.No. 285/90/2008-IT(Inv‑I)/05 dat­ed 24.04.2008 which has been mod­i­fied by the CBDT [vide F.No.285/90/2013-IT(Inv.)] dat­ed 07.02.2013. Present­ly, the mon­e­tary lim­it spec­i­fied for cas­es to be con­sid­ered for pros­e­cu­tion is as under:

(i) Cas­es, where amount of tax deduct­ed is ₹ 1,00,000 or more and the same is not deposit­ed by the due date pre­scribed under the Income Tax Act, 1961 read with the Income Tax Rules, 1962 shall manda­to­ri­ly be processed for pros­e­cu­tion in addi­tion to the recovery.

(ii) Cas­es, where the tax deduct­ed is between ₹ 25,000 and ₹ 1,00,000 and the same is not deposit­ed by the due date pre­scribed under the Income Tax Act, 1961 read with the Income Tax Rules, 1962 may be processed for pros­e­cu­tion depend­ing upon the facts and cir­cum­stances of the case, like where there are instances of repeat­ed defaults and/or tax has not been deposit­ed till detection.

1.2  Thus, the present Instruc­tions envis­age two cat­e­gories of cas­es for pros­e­cu­tion in TDS relat­ed offences; the first cat­e­go­ry is cas­es which are manda­to­ri­ly to be processed (TDS of more than ₹ 1,00,000 deduct­ed but not deposit­ed before due date) and the sec­ond cat­e­go­ry is defaults between ₹ 25,000/- to 1,00,000/- which may be processed depend­ing upon facts and cir­cum­stances of the cases.

Iden­ti­fi­ca­tion of cases:

2.1. CPC-TDS/TRACES will gen­er­ate a list of pros­e­cutable cas­es for manda­to­ry pro­cess­ing for pros­e­cu­tion (List‑A) in accor­dance with the cri­te­ria laid down by the CBDT vide it’s instruc­tion dat­ed 07.02.2013 or any oth­er mod­i­fied cri­te­ria, if the same is done in view of sug­ges­tions made in this regard. Such iden­ti­fi­ca­tion shall be done with­in one month of the fil­ing of the quar­ter­ly TDS state­ment. CPC — TDS fol­low­ing the Instruc­tion dat­ed 07.02.2013, adopt­ed fol­low­ing two para­me­ters for iden­ti­fy­ing pros­e­cutable case for manda­to­ry processing:-

(i) where Late Pay­ment Inter­est had not been paid completely/not paid at all till that date;

(ii) where deduc­tion had been made but no chal­lan was avail­able in the account of the deduc­tor i.e. the amount was not at all paid to the Gov­ern­ment account. (Vide F.No. CPC(TDS)/Prose_cases/2014–15 dat­ed 15.09.2014, lim­it of ₹ 1,00,000/- for the cas­es of Late Pay­ment Inter­est and for Short Pay­ment all the cas­es have been approved.)

2.2 CPC-TDS will gen­er­ate anoth­er list of cases(List‑B) involv­ing defaults of delay in pay­ment of ₹ 25,000 to ₹ 1,00,000/- along with default sheets for the year as well as pre­ced­ing year and sub­se­quent year ( if details are avail­able), with­in one month of the fil­ing of the quar­ter­ly TDS state­ment, to help AO(TDS) to iden­ti­fy cas­es fit for pros­e­cu­tion based on facts and cir­cum­stances of the case. The AO(TDS) can iden­ti­fy the cas­es from sec­ond list and also from the infor­ma­tion gath­ered from exter­nal sources to com­plete iden­ti­fi­ca­tion of sec­ond cat­e­go­ry of cas­es and enter them in pros­e­cu­tion reg­is­ter main­tained man­u­al­ly or on util­i­ty to be pro­vid­ed by CPC-TDS.

2.3 It may be not­ed that the TDS cas­es, oth­er­wise dealt by the Inter­na­tion­al Tax­a­tion Divi­sion, with respect to pay­ments made to non-res­i­dents also required to be dealt with in the same man­ner as oth­er cas­es under Chap­ter-XVII of the Income Tax Act, 1961.

2.4 In cas­es of default in fur­nish­ing the quar­ter­ly TDS state­ment, CPC-TDS shall gen­er­ate the list of such non-fil­ers with­in one month from due date and com­mu­ni­cate to the AO(TDS) for issue of notice and fur­ther pursuit.

Pro­ce­dure for launch­ing prosecution

3.1 After iden­ti­fi­ca­tion of poten­tial cas­es for pros­e­cu­tion by the CPC — TDS in case of manda­to­ry pro­cess­ing or oth­er­wise, it should be entered in the ‘Pros­e­cu­tion reg­is­ter’ main­tained in Form‑C (page 74 of the Pros­e­cu­tion Man­u­al) and to be report­ed to the CIT(TDS) who shall also main­tain the pros­e­cu­tion reg­is­ter in Form‑D (page 75 of the Pros­e­cu­tion Man­u­al). Till a spe­cif­ic mod­ule in CPC-TDS is made func­tion­al for hav­ing con­trol on pros­e­cu­tion pro­ceed­ings, the entries may be made in man­u­al register.

3.2 Fol­low­ing information/documents regard­ing the deduc­tor may be col­lect­ed by the AO(TDS) once the case is iden­ti­fied for processing :

(a) Details of the company/ firm/ individual

Name of the company/ firm/individual

Present address

PAN Num­ber

TAN Num­ber

(b) Details of its directors/ partners/ pro­pri­etor etc.

Name of Directors/ Partners/ Pro­pri­etor as applic­a­ble for the rel­e­vant year

Date of birth

PAN & res­i­den­tial address

© Accounts of the deduc­tor for the rel­e­vant year show­ing late payments.

(d) Copies of the TDS state­ment filed by assessee deductor.

(e) Copies of chal­lans of late deposit of TDS by the assessee deductor.

(f) Copies of the inti­ma­tions show­ing late pay­ment inter­est for all the quar­ters of the rel­e­vant assess­ment year, if it is available.

(g) Copies of Audit report, if they show default.

(h) While col­lect­ing above infor­ma­tion, AO(TDS) may also col­lect oth­er details that may help the CIT(TDS) take a con­sid­ered deci­sion as also assist sub­se­quent com­pound­ing pro­ceed­ings (if any) viz. (a) whether the default was only in one year and no defaults took place lat­er, (b) whether the deduc­tor has him­self rec­ti­fied the mis­take and deposit­ed the tax along with inter­est pri­or to issue of notice by the depart­ment, © whether the same offence has been com­pound­ed ear­li­er and if yes, how many time etc.

3.3 The AO(TDS) after col­lect­ing the above information/documents shall issue show cause notices to the per­son respon­si­ble for deduc­tion (directors/principal officers/partners/members/ kar­ta), with­in 45 days of receipt of the list of pros­e­cutable cas­es from CPC-TDS in accor­dance with Sec­tions 278B/278C r.w.s. u/s 276B/276BB of the Income Tax Act, 1961.

3.4 It may be ensured that the reply is fur­nished with­in 30 days of the issue of the show cause notice. In case no reply is fur­nished with­in 30 days, it shall be pre­sumed that the per­son respon­si­ble for deduc­tion has no cause to state and the mat­ter may be pur­sued further.

3.5 The AO(TDS) shall exam­ine the reasons/reply for non-com­pli­ance and will pre­pare the pro­pos­al in Form ‘F’ (as pre­scribed in Pros­e­cu­tion Man­u­al) and send it to the CIT(TDS) through prop­er chan­nel. Sep­a­rate pro­pos­al should be sub­mit­ted for sep­a­rate assess­ment years. The Form ‘F’ will indi­cate inter alia, the following:

(a) The facts indi­cat­ing the com­mis­sion of offence.

(b) Chronol­o­gy of events, pri­ma­ry & sec­ondary evi­dences to estab­lish the offence.

© Present stage of the pro­ceed­ings relat­ing to the com­mis­sion of offence.

(d) List of doc­u­men­tary evi­dences includ­ing depo­si­tions, sub­mis­sions to prove the offence.

(e) List of wit­ness­es on which the depart­men­tal case depends.

(f) Any oth­er facts or evi­dence to estab­lish the offence.

(g) It has to be clear­ly men­tioned in the pro­pos­al whether the offence is sec­ond or sub­se­quent offence in terms of Sec­tion 278A.

An entry can be made by the AO(TDS) in the Form ‘C’ (man­u­al reg­is­ter or the spe­cif­ic mod­ule for pros­e­cu­tion as and when devel­oped on TRACES) as soon as the pro­pos­al is moved.

3.6 While the AO(TDS) will manda­to­ri­ly refer all the cas­es of TDS default exceed­ing ₹ 1 lakh to CIT(TDS), cas­es of defaults between ₹ 25000-Rs.1lakh shall be referred to the CIT(TDS) only if he is sat­is­fied that it is a case fit for pros­e­cu­tion. The report to CIT(TDS) shall be sub­mit­ted with­in 60 days of the issue of show cause notice. Time grant­ed to fur­nish the reply may be exclud­ed from this time limit.

3.7 The CIT(TDS) is the com­pe­tent author­i­ty to accord sanc­tion u/s 279(1). He shall:

a. If he is of the opin­ion that the case is pri­ma facie fit for pros­e­cu­tion, then, issue show cause notice(s) to all pro­posed accused(s) u/s 276B/276BB r.w.s. 278B of the I.T. Act as to why sanc­tion for launch­ing of pros­e­cu­tion should not be accord­ed. The show cause notice can be gen­er­at­ed from the online mod­ule on TRACES, as and when the facil­i­ty is made available.

b. He shall after hear­ing the assessee and after prop­er appli­ca­tion of mind clear­ly enun­ci­ate that while pro­cess­ing the cas­es for pros­e­cu­tion u/s 276B/276BB r.w.s. 278B, a fair and judi­cious view has been tak­en in view of the pro­vi­sions of Sec­tion 278AA before fil­ing the complaint(s). This should get reflect­ed in both the sanc­tion orders passed by the Commissioners/Directors under Sec­tion 279(1) and the com­plaints filed with the com­pe­tent Courts:

i. There is no statu­to­ry require­ment for obtain­ing opin­ion of the Coun­sel before grant­i­ng sanc­tion for pros­e­cu­tion. How­ev­er, giv­en the fact that TDS offences are tech­ni­cal in nature, such ref­er­ence could be made in com­plex sit­u­a­tions like iden­ti­fi­ca­tion of accused(s) etc to avoid legal infir­mi­ties in pros­e­cu­tion proposals/complaints. In such cas­es, it should be ensured that the opin­ion should be obtained from the Coun­sel with­in 30 days. If after exam­in­ing the opin­ion of the Stand­ing Coun­sel, he is sat­is­fied that it is a fit case for pros­e­cu­tion, he shall pass a speak­ing order u/s 279(1) sep­a­rate­ly for each assess­ment year.

ii. In case he is not sat­is­fied after receiv­ing reply, he shall drop the proceedings.

An entry shall be made by the CIT(TDS) in the pros­e­cu­tion reg­is­ter or in the util­i­ty as and when avail­able in TRACES on pass­ing of such orders as men­tioned in para (b) above or as soon as the deci­sion to drop pro­ceed­ings is made. The CIT(TDS) shall com­plete the process and pass an orderu/s 279 sanc­tion­ing pros­e­cu­tion or drop­ping the show cause notice with­in 60 days of receipt of the proposal.

3.8 The assessee deduc­tor can at any stage of the pro­ceed­ings, file a com­pound­ing appli­ca­tion before the Pr. Chief Com­mis­sion­er of Income-tax/Chief Com­mis­sion­er of Income-tax. Instruc­tion vide F.No.285/35/2013-IT(Inv.V)/108  dt. 23.12.2014 should be fol­lowed in deal­ing with the com­pound­ing appli­ca­tions. If a per­son who has com­mit­ted an offence(s) under S.276B/276BB files an appli­ca­tion for com­pound­ing of the said offence(s), the appli­ca­tion should be processed on pri­or­i­ty basis and manda­to­ri­ly be dis­posed off with­in the time frame as pre­scribed by the Cen­tral Action Plan guide­lines. Dur­ing the pen­den­cy of the com­pound­ing appli­ca­tion, the CIT(TDS) shall keep the pros­e­cu­tion pro­pos­al pend­ing. How­ev­er, if the appli­ca­tion is not decid­ed with­in the pre­scribed time, the CIT(TDS) shall pro­ceed to file the com­plaint. As soon as an appli­ca­tion for com­pound­ing is moved, an entry should be made in the pros­e­cu­tion reg­is­ter main­tained man­u­al­ly or in the util­i­ty as and when avail­able in TRACES. Entries of sub­se­quent action on com­pound­ing appli­ca­tion shall also be made in such register.

3.9 The CIT(TDS) after accord­ing sanc­tion u/s 279(1) shall send back the records to the author­i­ty seek­ing sanc­tion with sanc­tion order in dupli­cate, one for fil­ing in the Court with com­plaint and oth­er for the record.

3.10 The AO(TDS) shall, after enter­ing receipt of the sanc­tion order in the pros­e­cu­tion reg­is­ter main­tained by him, ensure that the com­plaint is launched in the com­pe­tent Court hav­ing juris­dic­tion over the place where the offence is committed.

3.11 The CIT(TDS) & the AO(TDS) shall both make an entry in the respec­tive reg­is­ters main­tained man­u­al­ly or in the util­i­ty as and when avail­able in TRACES.

3.12 Sim­i­lar­ly, if any such pros­e­cutable offence comes to light dur­ing the pro­ceed­ings before the appel­late author­i­ties, revi­sion author­i­ties or any oth­er pro­ceed­ings, same shall also be treat­ed at par with oth­er pros­e­cutable cas­es as enu­mer­at­ed under Chap­ter-XVII of the Income Tax Act, 1961and action shall be ini­ti­at­ed in accor­dance with pro­ce­dure as laid vide this SOP.

TIME FRAME :-

4. The time peri­od for the entire process from iden­ti­fi­ca­tion to pass­ing of order u/s 279(1)/279(2)should be as under:

S. No.	Sec­tion	Time lim­it for sub­mit­ting pro­pos­al for sanc­tion u/s 279(1)	Time lim­it for accord­ing sanc­tion u/s 279(1)	Time lim­it for launch­ing Prosecution	Author­i­ty to sub­mit pro­pos­al & launch prosecution
1	276B	With­in 90 days of gen­er­a­tion of list on CPC-TDS detec­tion of offence or receipt of infor­ma­tion from any oth­er source/ income tax authority	With­in 60 days of receipt of infor­ma­tion from the AO(TDS)	With­in 30 days of receiv­ing approval u/s 279(1)	AO(TDS) hav­ing jurisdiction.
2	276BB	-do-	-do-	-do-	-do-

STANDARD OPERATING PROCEDURE DEFINING THE ROLES OF DIFFERENT TDS AUTHORITIES IN ADDRESSING THE ISSUE OF PROSECUTION AND COMPOUNDING OF TDS CASES

I. Role of Prin­ci­pal CCIT/CCIT(TDS):

(i) Tak­ing quar­ter­ly review meet­ing with CIT(TDS) mon­i­tor­ing progress in all cas­es iden­ti­fied for prosecution.

(ii) Appris­ing the Zon­al Mem­ber of the progress/ out­come made dur­ing the month through month­ly DO. Copy of such progress shall also be sent to Pr. DGIT(Admn.), New Del­hi for infor­ma­tion and monitoring.

(iii) Dis­pos­ing all com­pound­ing peti­tions received expe­di­tious­ly and with­in the time peri­od pre­scribed in the Cen­tral Action Plan. While dis­pos­ing off com­pound­ing peti­tions, speak­ing orders are expect­ed to con­tain those facts based on which a fair and judi­cious view has been tak­en in accor­dance with rel­e­vant pro­vi­sions of the Income Tax Act, 1961.

II. Role of CIT(TDS)

(i) Ensur­ing that the Guide­lines issued vide F.No.285/35/2013-IT(Inv.V)/108 dt. 23.12.2014are adhered to.

(ii) Mon­i­tor­ing the action in the cas­es of manda­to­ry pro­cess­ing for pros­e­cu­tion gen­er­at­ed by the CPC-TDS on a month­ly basis.

(iii) Guid­ing AO(TDS) to short­list the cas­es for pro­cess­ing of pros­e­cu­tion on the basis of list‑B and iden­ti­fied on the basis infor­ma­tion received from exter­nal sources such as spot verification/survey and mon­i­tor­ing action thereon.

(iv) Main­tain­ing a reg­is­ter in Form‑D or in online util­i­ty as and when made avail­able in TRACES where­in record of all cas­es iden­ti­fied for pros­e­cu­tion should be kept.

(v) Pro­cess­ing all the pro­pos­al received by him and if he is of the opin­ion that the case is pri­ma facie fit for pros­e­cu­tion, issue show cause notices to the accused(s) u/s 276B/276BBr.w.s. 278B or 278C as to why sanc­tion for launch­ing of pros­e­cu­tion should not be accorded.

(vi) Seek­ing opin­ion of the Pros­e­cu­tion or Stand­ing Coun­sel, as the case may be, about suit­abil­i­ty of the case for launch­ing of pros­e­cu­tion and as well as strength of the case against accused(s). Ensur­ing that the opin­ion is obtained from the Coun­sel with­in 30 days.

(vii) Exam­in­ing the opin­ion of the Stand­ing Coun­sel and on sat­is­fac­tion that it is a fit case for pros­e­cu­tion, pass­ing speak­ing orders u/s 279(1) in the case of accused(s) for each assess­ment year sep­a­rate­ly. In case he is not sat­is­fied, he shall drop the proceedings.

(viii) Com­plet­ing the process and pass­ing an order u/s 279 sanc­tion­ing pros­e­cu­tion or drop­ping the show cause notice with­in 60 days of receipt of the proposal.

(ix) Mak­ing an entry for the fol­low­ing events in the man­u­al reg­is­ter or in the util­i­ty cre­at­ed in TRACES:

a. On receipt of pro­pos­al from the AO(TDS).

b. On issue of show cause notice to the accused / co-accused.

c. On pass­ing of sanc­tion order u/s 279(1) or on drop­ping of the pro­ceed­ings as the case may be.

d. On receipt of com­pound­ing appli­ca­tion / report on the com­pound­ing application.

e. On fil­ing of com­plaint / launch­ing of pros­e­cu­tion before the com­pe­tent court.

f. On receipt of order of com­pe­tent Court

g. On appeal, if any appeal is filed.

III. Role of Addl.CIT(TDS)

(i) Dis­cussing cas­es of list‑B gen­er­at­ed by CPC-TDS and list pre­pared on the basis of infor­ma­tion received from exter­nal sources such as spot verification/survey with AO(TDS) and also guid­ing them in short list­ing the cas­es fit for prosecution.

(ii) Mon­i­tor­ing time­ly action in all the cas­es involv­ing manda­to­ry pro­cess­ing for pros­e­cu­tion or cas­es iden­ti­fied oth­er­wise and to report the progress to the CIT (TDS) in the month­ly DO.

IV. Role of AO(TDS)

(i) Down­load­ing list of cas­es iden­ti­fied by CPC-TDS for manda­to­ry pro­ceed­ing of cas­es (list‑A).

(ii) Down­load­ing list‑B of cas­es for iden­ti­fi­ca­tion of cas­es based on facts and cir­cum­stances of the cas­es and also to exam­ine cas­es on the basis of infor­ma­tion gath­ered from exter­nal sources such as spot ver­i­fi­ca­tion / sur­veys and short­list cas­es fit for pros­e­cu­tion amongst these cas­es after dis­cus­sion with Range Head and CIT(TDS).

(iii) Ini­ti­at­ing action and col­lect­ing infor­ma­tion in accor­dance with the pro­ce­dures laid down above.

(iv) Issu­ing show cause notice to all the accused(s) iden­ti­fied by him giv­ing due oppor­tu­ni­ty to the accused with­in 45 days of receipt of the list of pros­e­cutable cas­es from CPC-TDS.

(v) Send­ing the pro­pos­al pre­pared in Form ‘F’ along­with oth­er infor­ma­tion / doc­u­ments to the CIT(TDS) through prop­er channel.

(vi) Mak­ing an entry for the fol­low­ing events in the man­u­al reg­is­ter or as and when in the util­i­ty made avail­able in TRACES:

a. Ini­ti­a­tion of pro­ceed­ings for prosecution.

b. Send­ing the pro­pos­al to the CIT(TDS) for nec­es­sary action.

c. Date of receipt of sanc­tion u/s 279(1) of CIT(TDS).

d. Fil­ing of com­plaint / launch­ing of pros­e­cu­tion in the com­pe­tent court on receiv­ing order u/s 279(1).

e. In case report on the com­pound­ing appli­ca­tion is to be sent on fil­ing of com­pound­ing appli­ca­tion by the deduc­tor, date of the report as well as when order on such appli­ca­tion is received from the com­pe­tent authority.

f. On receiv­ing orders of the com­pe­tent Court in the case, date of fil­ing of appeal, if any filed.

V. Role of CIT(CPC-TDS), Ghaziabad:

(i) Gen­er­at­ing list‑A of default­ers along with their state­ment of defaults for manda­to­ry pro­cess­ing of cas­es for pros­e­cu­tion involv­ing delayed pay­ment of ₹ 1 lakhs or more as pre­scribed in the present Instruc­tion and make it avail­able to AO(TDS) as well as the CIT(TDS) with­in one month of the fil­ing of the quar­ter­ly TDS statement.

(ii) Gen­er­at­ing list‑B of cas­es involv­ing defaults of delay in pay­ment of ₹ 25,000/- to 1,00,000/- along­with default sheets for the year as well as pro­ceed­ing year and sub­se­quent year (if dates are avail­able), to help CIT(TDS) AO(TDS) to iden­ti­fy cas­es fit for pros­e­cu­tion based on facts & cir­cum­stances of the cas­es with­in one month of the fil­ing of the quar­ter­ly TDS statement.

(iii) Gen­er­at­ing a list of non-fil­ers of TDS state­ment with­in one month of the due date and com­mu­ni­cat­ing to the AO(TDS) with a copy to the CIT(TDS).

(iv) Devel­op­ing and main­tain­ing a spe­cif­ic module/utility in TRACES for iden­ti­fi­ca­tion and con­trol over pros­e­cu­tion pro­ceed­ings where all the details of each case of pros­e­cu­tion can be main­tained online.