Standard operating procedure for prosecution in cases of TDS/TCS default

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 Rs. 25,000 to Rs.
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.

(c)   
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, (c)
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. 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.

(c)   
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
Rs.1 lakh to CIT(TDS), cases of defaults between Rs.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 order u/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, 1961 and 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:

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. 23.12.2014 are 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/276BB r.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.