‘Public money not corporate cushion’: Delhi court convicts 3 of Rs 8.5 crore TDS default

“The amount involved here is not trivial. Rs 8,51,54,265/- is a substantial public sum. The failure continued over a significant period. The explanation offered was internal liquidity stress. That explanation may be commercially understandable, but it is legally irrelevant. Public money cannot be used as a short-term corporate cushion. The offence therefore deserves conviction,” the court said on September 3.

“When a company deducts money from contractors, employees, or vendors as tax and then fails to deposit it, the public exchequer suffers, honest taxpayers are burdened, and the system of self-assessed compliance loses credibility. The harm is dispersed and therefore sometimes underappreciated, but it is real,” it added.

Rs 8.51 crore TDS deducted but not deposited

The case followed a December 20, 2013 survey, during which the Income Tax Department found that TDS of Rs 8,51,54,265 had been deducted from payments but not deposited with the central government within the prescribed period.

Formal charges were framed on January 15, 2018. The prosecution examined three witnesses, while the defence led extensive evidence, including from company personnel, accounts staff, auditors and other witnesses. The company later cited an “acute financial crisis and liquidity crunch” in its response to a show-cause notice. The court noted that the response did not dispute the deduction or the amount but sought to explain the failure to deposit the tax on the ground of financial difficulty.

The court said that explanation could not excuse the default. Once tax is deducted from payments to others, it cannot be treated as the company’s own money. Financial pressure, it held, does not turn TDS into operating capital.

Beyond job titles

The court said being a director or employee alone was not enough. What mattered was their actual responsibility for the company’s business and tax compliance. More than one person could share that responsibility.

Accused Amit Bharana, who was a director at the company during the relevant period, claimed he was a non-executive director with no role in finance. The court found no record showing he was excluded from financial or compliance matters. His resignation came after the relevant deductions, with no evidence of his complete detachment.

Alok Khanna, also an accused, claimed he was a technical director in the company with no role in finance or tax. The court pointed to his signature on the 2013-14 balance sheet, his name in Form 27A as responsible for tax deduction and collection, and his role as audit committee chairman. It held that these showed his involvement in the company’s financial and statutory affairs. The court also considered an earlier finding in his favour involving another group company but said the present case had to be decided on its own evidence.

Yet another accused, Nikhil Jain, said he worked for another company of the group and only handled technical TDS filings. The court, however, found evidence that he was involved in tax calculations and TDS returns for the company. It held that his actual role, rather than his formal employment, was what mattered.

Procedural objections failed to create doubt

Special Public Prosecutor Arpit Batra argued that the company had deducted Rs 8.51 crore in TDS but failed to deposit it within the prescribed time, and that the evidence showed that the three accused were responsible for the default.

The defence argued that the three were not responsible for depositing the TDS, and claimed that Bharana was a non-executive director, Khanna handled technical work, and Jain only handled TDS filings as an employee of another group company. The accused also challenged the service of notices and the evidentiary value of certain computer-generated records, including the absence of a certificate for some such material.

The court held that these objections did not create reasonable doubt about the core case. It said the deduction, non-deposit and responsibility of the accused were established through other evidence, including the company’s own reply, Form 27A (summary sheet), balance sheet and corporate records.

The court also rejected the argument that H S Bharana, described in the evidence as the central figure in the group’s financial decision-making, alone bore responsibility for the matter. It said the presence of a senior controlling figure did not automatically absolve others who were themselves part of the company’s operational or tax-compliance structure.

After examining the evidence, the court held that the prosecution had proved the case beyond reasonable doubt and that the three accused had failed to establish lack of knowledge or due diligence sufficient to avoid liability.

The court thus convicted Amit Bharana, Khanna and Jain of the charges. They will be heard separately on the point of sentencing.