Prosecution of Company’s directors over non-payment of TDS

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In the case of Brajesh Construction Pvt Ltd, a sessions court has upheld the conviction of two directors of a construction company for not depositing the tax deducted at source (TDS) with the govt within the stipulated period.

Earlier, a magistrate court had convicted Brajesh Construction Pvt Ltd, along with its directors, Premal Parekh and Neha Parekh to three months imprisonment and imposed a fine of Rs 5,000. The income tax department filed a complaint against the accused for deducting Rs.43.4 lakh as TDS but not depositing with the govt.

If they fail to pay the fine, they face an additional month of simple imprisonment.

“There is no concrete proof of ‘reasonable cause’ filed by the appellants/accused. Therefore, the reasonableness of the circumstances which prevented the accused from paying the TDS in time is not proved. In the absence of proof, the onus on the accused persons is not discharged,” sessions court held in the judgement.

Reasonable Cause as a defence against prosecution

It is imperative to note that the contention that reasonable cause is shown by the applicants/accused is to be decided on the basis of the evidence adduced by the parties before the competent court, sessions judge said.

Despite multiple notices and reminders, the company and its directors failed to provide adequate responses or evidence to justify these delays. An explanation offered by the accused, citing financial difficulties and halted business activities, was deemed unsatisfactory by the court, as no supporting documentation or witnesses were presented to corroborate their claims.

The prosecution presented evidence showing repeated delays in TDS payments by the company, to show non-compliance.

The defence, on the other hand, argued that the company’s financial struggles prevented timely payments. They contended that the entire TDS amount, along with interest, was eventually paid by securing a bank loan, but the court found this argument insufficient for exoneration.

The defence also questioned the credibility of the prosecution witnesses and claimed the case was built on flawed assumptions. However, the court noted that the accused failed to produce tangible evidence, such as official financial records or witness testimony, to substantiate their financial hardship claim.