Pune Branch of WIRC of ICAI

Direct Tax Refresher Course on

20
th
April, 2013
Penalties and prosecution under
the Income Tax Act, 1961
Issues and Landmark Judicial
the Income Tax Act, 1961
Issues and Landmark Judicial
Pronouncements
Kishor B. Phadke, FCA
Kirtane & Pandit
Chartered Accountants
PENALTIES
Meaning
The term Penalty has not been defined under the Income
Tax Act, 1961 (Act).
Punishment; Suffering or loss imposed for breach of a law; a
fine or loss agreed upon in case of non-fulfilment of some
undertaking; a fine
- Chambers 20
th
Century Dictionary, 1983 Edition
Penalty is a liability composed as a punishment on the party
committing the breach of contract. Agreement to pay at
default interest at a higher rate does not amount to penalty.
- P Ramanatha Aiyars Law Lexicon , 2
nd
Reprint Edition 2009
3
Meaning contd
Punishment imposed on wrongdoer, usually in the
form of imprisonment or fine; especially a sum of
money exacted as punishment for either a wrong to the
state or a civil wrong (as distinguished from
compensation for the injured partys loss). Though
usually for crimes, penalties are also sometimes usually for crimes, penalties are also sometimes
imposed for civil wrongs.
- Blacks Law Dictionary, 9
th
Edition
4
Contents
Section 271 Section 271F
Section 271(1B) Section 271G
Section 271A Section 27BB
Section 271AA Section 273
Section 271AAA Section 273AA
5
Section 271AAA Section 273AA
Section 271AAB Section 273B
Section 271B Section 274
Section 271BA Section 275
Section 271C
Section 271D
Section 271E
Sec 271 Failure to furnish returns, comply with
notices, concealment of income etc.
If the Assessing Officer or Commissioner (Appeals) or
Commissioner in the course of any proceedings under this
Act, is satisfied that any person
(a) ................
(b) has failed to comply with a notice
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income, or
(d) has concealed the particulars of the fringe benefits or
furnished inaccurate particulars of such fringe benefits
6
Observations of the Supreme Court in
Anwar Alis case, 76 ITR 696
Gist of the offence under section 28(1)(c) is that the
assessee has concealed the particulars of his income or
deliberately furnished inaccurate particulars of such
income and, therefore, the department must establish that
the receipt of the amount in dispute constitutes income of
the assessee. If there is no evidence on the record except the
explanation given by the assessee, which explanation has
been found to be false, it does not follow that the receipt
constitutes his taxable income.
7
Judgments Prior to Explanation to Sec 271
Hindustan Steel Ltd, 83 ITR 26- SC observed:
Penalty will not be imposed because it is lawful to do so. It
is a matter of discretion of the authority to be exercised
judicially
Anwar Ali 76 ITR 696 discussed earlier Anwar Ali 76 ITR 696 discussed earlier
Khoday Eswara & Sons, 83 ITR 369- SC :
It is clear that penalty proceedings being penal in character,
the department must establish that the receipt in dispute
constitutes income of the assessee
8
Explanation 4 to Section 271(1) (c)
Explanation 4.-For the purposes of clause (iii) of this sub-section, the
expression "the amount of tax sought to be evaded",-
in any case where the amount of income in respect of which particulars
have been concealed or inaccurate particulars have been furnished has the
effect of reducing the loss declared in the return or converting that loss
into income, means the tax that would have been chargeable on the
income in respect of which particulars have been concealed or inaccurate
particulars have been furnished had such income been the total income; particulars have been furnished had such income been the total income;
in any case to which Explanation 3 applies, means the tax on the total
income assessed as reduced by the amount of advance tax, tax deducted at
source, tax collected at source and self-assessment tax paid before the
issue of notice under section 148 ;
in any other case, means the difference between the tax on the total
income assessed and the tax that would have been chargeable had such
total income been reduced by the amount of income in respect of which
particulars have been concealed or inaccurate particulars have been
furnished.
9
Explanation 5A to section 271 (1) (c)
In the course of search initiated after 01.06.2007, assessee found to
be the owner of :
Any money, bullion, jewellery etc.. And assessee claims that such asset
have been acquired by him utilising wholly or partly his income for
previous year; or
Any income based on any entry in any books of account or other
documents or transactions and he claims that such entry represents his
income wholly or partly for any previous year, ended before search date income wholly or partly for any previous year, ended before search date
and
Where return of income has been furnished before the said date
without declaring the said income;
Where return of income has not been filed and due date has
expired.
Notwithstanding that income has been declared by him, in return
furnished on or before the date of search, he shall for the purpose of penalty
u/s 271(1)(c) be deemed to have concealed the particulars of income.
10
Judgments Post Explanation to Sec 271
Suresh Chandra Mittal, 251 ITR 9 SC :
It is well settled that initial burden lies on revenue to establish that the assessee
had concealed /furnished inaccurate particulars of income. Burden shifts to
assessee if he fails to offer any explanation. However, Expl 1 provides for
shifting of this burden again where the explanation offered by the assessee is
found to be bonafide. found to be bonafide.
K C Builders & Another , 265 ITR 562 SC :
The word "concealment" inherently carried with it the element of mens rea.
Therefore, the mere fact that some figure or some particulars have been
disclosed by itself, even if it takes out the case from the purview of non-
disclosure, it cannot by itself take out the case from the purview of furnishing
inaccurate particulars.
11
Contd
Virtual Soft Systems, 289 ITR 83 SC :
This court as well as the various High Courts of the country have consistently held that
the statute creating the penalty is the first and the last consideration and must be
construed within the term and language of the particular statute. In Bijaya Kumar
Agarwala v. State of Orissa [1996] 5 SCC 1 it has been held by this court in paragraphs
17 and 18 as under: 17 and 18 as under:
"17. Strict construction is the general rule of penal statutes. Justice Mahajan in Tolaram
Relumal v. State of Bombay, AIR 1954 SC 496, at pages 498-499, stated the rule in the following
words:
'If two possible and reasonable constructions can be put upon a penal provision, the
court must lean towards that construction which exempts the subject from penalty
rather than the one which imposes penalty. It is not competent to the court to stretch the
meaning of an expression used by the Legislature in order to carry out the intention of
the Legislature.'
12
contd
Gold Coin Health Food P Ltd , 304 ITR 308 -SC :
Whether the penalty was leviable even in a case where addition of
concealed income reduces the returned loss?
Finding: Yes.
The court has to analyse the nature of the amendment to come to
a conclusion whether it is in reality a clarificatory or declaratory
provision. Therefore, the date from which the amendment is made
operative does not conclusively decide the question. The court has
to examine the scheme of the statute prior to the amendment and
subsequent to the amendment to determine whether the
amendment is clarificatory or substantive.
13
Contd
T Ashok Pai ,292 ITR 11- SC :
It is not a case where penalty has been imposed for
breach or contravention of a commercial statute where
lack of intention to contravene or existence of bona fides lack of intention to contravene or existence of bona fides
may not be of much importance. It is also not a case
where penalty is mandatorily imposable. It was,
therefore, not a case where the enabling provision should
have been invoked.
14
CIT Vs. Reliance Pertroproducts Pvt. Ltd - 322 ITR
158 SC
Penalty Concealment of particulars of income
In order to be covered by section 271 (1)(c), there has to
be concealment of particulars by the assessee. Making
incorrect claim does not amount to concealment of incorrect claim does not amount to concealment of
particulars.
To attract penalty, the details furnished in return must
not be accurate or correct.
Mere making of claim which is not sustainable in law
will not amount to furnishing of inaccurate particulars.
15
Dilip Shroffs case 291 ITR 519 SC
The role of the Explanation having regard to the principle of
statutory interpretation must be borne in mind before interpreting
the aforementioned provisions.
Imposition of penalty is not automatic. Levy of penalty is not only
discretionary in nature but such discretion is required to be
exercised on the part of the Assessing Officer keeping the relevant
factors in mind. Some of those factors apart from being inherent in
the nature of penalty proceedings as has been noticed in some of
the decisions of this court, inheres on the face of the statutory
provisions.
16
Dilip Shroff contd
Section 271(1)(iii) again provides for a discretionary
jurisdiction upon the assessing authority inasmuch as the
amount of penalty may not be less than the amount of tax
sought to be evaded by reason of such concealment of
particulars of his income, but it may not exceed three times particulars of his income, but it may not exceed three times
thereof.
17
Dharmendra Textile Processors Case- 306 ITR
277 SC
The question which arises for determination in all these
appeals is whether section 11AC of the Central Excise Act,
1944 (in short "the Act") inserted by Finance Act, 1996,
with the intention of imposing mandatory penalty on
persons who evaded payment of tax should be read to contain
mens rea as an essential ingredient and whether there is mens rea as an essential ingredient and whether there is
scope for levying penalty below the prescribed minimum.
18
Contd
Conclusion :
It is pointed out that in Dilip N. Shroff's case, the
question relating to discretion was not the basic issue.
In fact, section 271(1)(c) of the Income-tax Act provides In fact, section 271(1)(c) of the Income-tax Act provides
for some discretion and, therefore, that decision has no
relevance. So far as the present dispute is concerned,
whether the discretion has been properly exercised is a
question of fact.
19
Contd
Dilip N. Shroff's case was not correctly decided but
Chairman, SEBI's case [2006] 5 SCC 361 has analysed the
legal position in the correct perspectives. The reference is
answered. answered.
20
Post Dharmendra Decision Cases
Rajasthan Spinning & Weaving Mills ,23 DTR 158 SC :
The decision in Dharmendra case must therefore, be understood
to mean that once the section is applicable ,the concerned
authority would have no discretion in quantifying the amount
and penalty must be imposed and penalty must be imposed
M/s Siddhartha Enterprises 184 Taxmann 460P&H
The judgment in Dharmendra Textile cannot be read as laying
down that in every case where particulars of income are
inaccurate, penalty must follow.
21
Contd
Kanbay Software India P Ltd, 22 DTR 481- Pune Tri.
The views expressed in Dharmendra case cannot be viewed
as an authority for the proposition that penalty u/s
271(1)(c) is an automatic consequence being made to
addition to the income . addition to the income .
Final conclusion :
By resorting to a process of interpretation, we must not
dilute the law laid down by their Lordships in
Dharmendra Textiles case.
22
Observations of the Supreme Court in D M
Manasvis case 86 ITR 557
at pages 561 & 562
Satisfaction in the very nature of things precedes the issue of notice and
it would not be correct to equate the satisfaction of the Income-tax
Officer or Appellate Assistant Commissioner with the actual issue of
notice. The issue of notice is a consequence of the satisfaction of the Income-tax
Officer or the Appellate Assistant Commissioner and it would, in our opinion, Officer or the Appellate Assistant Commissioner and it would, in our opinion,
be sufficient compliance with the provisions of the statute if the Income-tax
Officer or the Appellate Assistant Commissioner is satisfied about the matters
referred to in clauses (a) to (c) of sub-section (1) of section 271 during the
course of proceedings under the Act even though notice to the person proceeded
against in pursuance of that satisfaction is issued subsequently.
23
Independent proceedings
Bhadra Advancing Pvt Ltd vs ACIT, Karnataka HC
Madhushree Gupta vs Union of India and Another,
Delhi HC
CIT vs Atul Mohan Bindal, 317 ITR 1 SC
24
Agreed Additions
Sir Shadilal Sugar & General Mills Ltd, 168 ITR
705 SC :
From agreeing to additions, it does not follow that the
amount agreed to be added was concealed income. There
may be a hundred and one reasons for such admission
CIT vs. Saran Khandsari Sugar Works Allahbad HC
CIT vs Mansa Ram and Sons Allahabad HC
25
Contd
K P Madhusudhanan, 251 ITR 99 SC :
that the assessee had agreed to the additions to his income referred to
hereinabove to buy peace and it did not follow therefrom that the amount
that was agreed to be added was concealed income. That, it did not follow
that the amount agreed to be added was concealed income, is undoubtedly
what was laid down by this court in the case of Sir Shadilal Sugar and
General Mills Ltd and that, therefore, the Revenue was required to prove
the mens rea of a quasi-criminal offence. But it was because of the view
taken in this and other judgments that the Explanation to section 271
was added. By reason of the addition of that Explanation, the view taken
in this case can no longer be said to be applicable.
26
Penalty on Estimate Basis
Harigopal vs CIT P&H
CIT vs Sangrur Vanaspati Mills Ltd P&H
CIT vs Dhillon Rice Mills P&H
CIT vs Kailash Crockery House Patna
Teja Constructions vs ACIT Hyd.
27
Supreme Court in Rampal vs Rewa Coalfields Ltd, 1962
AIR 361 / 1962 SCR (3) 762 held that -
sufficient cause' receiving a liberal construction so as
to advance substantial justice when no negligence nor
Sufficient cause - SC says
inaction nor want of bona fide is imputable to the
appellant
28
Supreme Court in Price Waterhouse Coopers Pvt
Ltd vs CIT, 348 ITR 306
No penalty on inadvertent silly mistakes
Contd
29
Sec 271 Contd
The person may be directed to pay penalty :
Section Penalty
271(1)(b) Rs. 10,000
271(1)(c) 100- 300% of tax sought to be evaded
30
271(1)(c) 100- 300% of tax sought to be evaded
Sec 271 (1B) Satisfaction of AO for Initiation of
Penalty
Assessment order deemed to constitute satisfaction of
the Assessing Officer :
On addition or disallowance of any amount in
computing the total income in an assessment order;
and
The penalty proceedings have been initiated under
section 271(1)(c)
31
Search initiated after 1.06.2007 but before 01.07.12
Penalty at the rate of 10% of the undisclosed
income of the specified previous year
Sec 271AAA Penalty where Search has been
initiated
No penalty under section 271(1)(c) in respect of
undisclosed income
32
Search initiated after 1.06.2007 but before 01.07.12
Sec 271AAA Contd
Conditions
1. Assessee admits the undisclosed income
2. Assessee specifies and substantiates the
manner of deriving undisclosed income
33
Penalty not applicable
3. On or before the specified date-
Pays the tax together with interest on
undisclosed income
4. On or before the specified date-
Furnishes the return of income for the
specified year declaring such undisclosed
income
Search initiated after 01.07.12
Sec 271AAB Penalty where Search has been
initiated
Conditions Penalty
1. Admits the undisclosed income
2. specifies and substantiates the manner
of deriving undisclosed income
34
10% of undisclosed income
of deriving undisclosed income
3. On or before the specified date-
Pays the tax together with interest on
undisclosed income
4. On or before the specified date -
Furnishes the return of income for the
specified year declaring such
undisclosed income
Search initiated after 01.07.12
Sec 271AAB Contd
Conditions Penalty
1. Does not admit the undisclosed
income
2. On or before the specified date-
35
20% of undisclosed income
2. On or before the specified date-
Pays the tax together with interest on
undisclosed income
3. On or before the specified date
Declares such income in the return of
income furnished for the specified
year
Search initiated after 01.07.12
In any case not covered above, penalty shall not be
less than 30% and shall not exceed 90% of such
undisclosed income.
Sec 271AAB Contd
undisclosed income.
36
Section Conditions Penalty
271D
Acceptance of loans/deposits in
contravention to section 269SS
Shall be liable for penalty at
the rate of 100% of such loans
/ deposits that are
accepted/repaid.
Sec 271D and 271E - Failure to comply with the
provisions of section 269SS and 269T
accepted/repaid.
It shall be imposed by the
Joint Commissioner.
271E
Repayment of loans/deposits in
contravention to section 269T
37
If any person fails to
Deduct the whole or any part of tax as per Chapter XVII-B;
Pay the whole or any part of the tax a required by or under
Section 115-O(2); or
the second proviso to section 194B
Sec 271C Penalty for failure to deduct tax at source
the second proviso to section 194B
Attracts Penalty to the extent of tax to be deducted or paid
as aforesaid
Penalty shall be imposed by Joint Commissioner
38
Person in respect of International Transaction or specified
domestic transaction
Section 271AA :
Sec 271AA and Sec 271G
Particulars Conditions Penalty
Without prejudice to provisions of section 271 or 271BA
1. Fails to keep and maintain
39
Failure to keep,
maintain or retain
books of account,
documents, etc. in
respect of certain
transactions
1. Fails to keep and maintain
books as required by section
92D(1) or sec 92D(2)
2% of the value of
each international
transaction or
specific domestic
transaction
2. Fails to report such
transaction which he is
required to do so
3. Maintains or furnishes an
incorrect information or
document
Person in respect of International Transaction or specified
domestic transaction
Section 271G :
Sec 271AA and Sec 271G
Conditions Penalty
Failure to furnish information or document
within 30days from receipt of notice as
2% of the value of each
international transaction or
40
within 30days from receipt of notice as
required under section 92D
international transaction or
specific domestic transaction
Section Particulars Penalty
271A
Failure to keep, maintain or retain books
of accounts, documents etc.
Rs. 25,000
271B Failure to get accounts audited u/s 44AB
0.5% of total sales,
turnover or gross
receipts or Rs.
Others
271B Failure to get accounts audited u/s 44AB receipts or Rs.
1,50,000/-
Whichever is less
271BA Failure to furnish report u/s 92E Rs. 1,00,000
271F Failure to furnish return of income Rs. 5,000
41
Sec 273B Penalty not to be imposed in certain
cases
Notwithstanding anything contained in the provisions of
sections
271 (1)(b), 271A, 271AA, 271B, 271BA, 271BB, 271C,
271CA, 271D, 271E, 271F, 271FA, 271FB, 271G, 271H,
272A(1)( c), 272A(2)(d), 272AA(1), 272B, 272BB(1) & 272A(1)( c), 272A(2)(d), 272AA(1), 272B, 272BB(1) &
(1A), 272BBB(1),273(1) (b),273(2) (b),(c)
no penalty shall be imposable on the person or the assessee,
as the case may be, for any failure referred to in the said
provisions if he proves that there was reasonable cause for
the said failure.
42
Action based on CA certificate
The Punjab & High Court has held that no penalty
is leviable when the assessee has acted in a bonafide
manner based on the certificate issued by the
Chartered Accountant.
The CA was directed to be examined.
275 ITR 206 , S D Rice Mills;
274 ITR 603, Deep Tools Pvt Ltd
43
The Commissioner may, reduce or waive the amount of
penalty under section 271(1)(iii)
On disclosure of full particulars by the assessee of income,
prior to Assessing Officer detecting concealment of income
Sec 273A Power to reduce or waive penalty, etc., in
certain cases
Co-operation of assessee in all enquiries relating to the
assessment of his income
Payment or satisfactory arrangement to make payment of
any tax and interest
44
The Commissioner can waive or reduce penalty only with
prior approval of Chief Commissioner or Director General
in cases where the income on which the penalty is levied is
greater than Rs. 5,00,000
Sec 273A Contd
greater than Rs. 5,00,000
45
An Application may be made to Commissioner for granting
immunity from penalty, if:
Application is made for settlement u/s 245C and the
proceedings for settlement have been abated under section
245HA; and
Sec 273AA Power of Commissioner to grant
immunity from penalty
245HA; and
The penalty proceedings have been initiated under this Act.
Application for grant of immunity of penalty shall not be
made after imposition of penalty after abatement
46
The Commissioner may grant immunity from penalty if he is
satisfied that the assessee has given:
Full co-operation with income tax authorities in
proceedings before him
Made true disclosure of his income and the manner in
Sec 273AA Power of Commissioner to grant
immunity from penalty
Made true disclosure of his income and the manner in
which such income has been derived
Immunity granted stands withdrawn if the person fails to
comply with any condition subject to which the immunity
was granted
47
No order imposing penalty under this Chapter shall be made :
unless the assessee has been heard or has been given
reasonable opportunity of being heard;
No order imposing penalty under this Chapter shall be made :
Sec 274 Procedures
No order imposing penalty under this Chapter shall be made :
By the ITO, where the penalty exceeds ten thousand
rupees;
By the ACIT or DCIT, where the penalty exceeds twenty
thousand rupees except with prior approval of Joint
Commissioner
48
Limitation for passing the order of penalty
Sec 275 Bar of Limitations for imposing
penalties
Condition Limitation
1. Assessments/Revision of order u/s
263 or 264
Six months from the end of the month
in which the order is passed
Expiry of the FY in which penalty
proceedings are completed or six
49
2. In case of Appeal to
Commissioner(Appeals) or
Appellate Tribunal
proceedings are completed or six
months from the end of the month in
which the CIT(A)/ITAT order is
received by CCIT or CIT
Whichever is later
3. In any other case
Expiry of the FY in which penalty
proceedings are completed or six
months from the end of the month in
which penalty is initiated
Whichever is later
Wrong quoting of tax deduction account number or tax
collection account number or tax deduction and collection
account number in challans, certificates, statements or
documents referred to under section 203A(2)
Sec 272BB Failure to comply with provisions of
section 203A
Assessing Officer may direct a penalty of Rs. 10,000
50
Penalty in case of an assessee who furnished an advance tax
statement u/s 209A(1)(a) which he knew or had reasons to
believe to be untrue :
10% to 1 times of the amount by which the advance
tax paid falls short of :
Sec 273 False estimate of, or failure to pay, advance tax
tax paid falls short of :
(1) 75% of the assessed tax as per section 215(5), or
(2) the actual amount of advance tax, had the assessee
furnished a correct statement as per section 209A(1),
Whichever is less
51
Penalty when assessee fails to furnish advance tax statement
u/s 209 (1)(a)
10% to 1 times of 75% of the assessed tax as per
section 215(5)
Sec 273 Contd
In case of company assessees, the provisions of this
section shall have effect after substituting the word 75 %
with 83 1/3 wherever it occurs.
52
Section 221 - Penalty payable when tax in default
When an assessee is in default or is deemed to be in default
in making a payment of tax, he shall, in addition to the
amount of the arrears and the amount of interest payable
under sub-section (2) of section 220, be liable, by way of
penalty, to pay such amount as the Assessing Officer may penalty, to pay such amount as the Assessing Officer may
direct, and in the case of a continuing default, such further
amount or amounts as the Assessing Officer may, from time
to time, direct, so, however, that the total amount of penalty
does not exceed the amount of tax in arrears .
53
OFFENCES AND
PROSECUTION
Offences and Prosecution
While penalties may be imposed by the income-tax
authorities, the imposition of fine or the launching of any
offence under the ACT can be made only by a Magistrate of a
Court under Section 275A to 280. In respect of the same
default of an assessee, penalty may be imposed and a default of an assessee, penalty may be imposed and a
prosecution also may be launched against him.
55
Why is Prosecution necessary?
In the fight against tax evasion, the imposition of monetary penalty alone
is not sufficient. A calculating tax evader finds it profitable to evade tax
for years, if he knows that he may get away with it by paying penalty in
the year in which he is caught. However, the prospect of landing in jail is
a far more dreaded consequence and works as a deterrent. Further, for
more serious defaults, sometimes launching of prosecution is prescribed more serious defaults, sometimes launching of prosecution is prescribed
without prescribing monetary penalties.
The Parliament has, therefore, been enacting deterrent laws for effective
implementation of tax laws. The Income-tax Act contains a separate
chapter XXII wherein offences have been defined and punishment
provided.
56
Offences punishable under the income tax act
Removal, parting with or otherwise dealing with books of accounts,
documents, money, bullion, jewellery or other valuable article or thing
put under restraint during the search. [Section 275A]
Fraudulent removal, concealment, transfer or delivery of any property or
any interest in the property with the intention to thwart recovery of tax.
[Section 276]
Failure on the part of a liquidator or receiver of a company to give notice
of his appointment to the Assessing Officer or failure to set apart amount
notified by the Assessing Officer, or parting away of companys
properties in contravention of income-tax provision. [Section 276A]
57
Offences punishable under the income tax act
Failure to enter into written agreement or failure to furnish the statement
of immovable property intended to be transferred u/s.269UC, or failure to
surrender or deliver the property u/s.269UE, purchased by the
Appropriate Authority or doing or omitting to do anything u/s.269UL,
which will have the effect of transfer of property without the permission
of the Appropriate Authority (under the provisions of Chapter XX-C) of the Appropriate Authority (under the provisions of Chapter XX-C)
[Section 276AB]
Failure to pay to the credit of the Central Government the tax deducted at
source. [Section 276B]
Failure to pay the tax collected at source. [Section 276BB]
58
Offences punishable under the income tax act
Wilful attempt to evade any tax, penalty or interest [Section 276C(1)]
Wilful attempt to evade the payment of any tax, penalty or interest levied
under Income Tax Act. [Section 276C(2)]
Wilful failure to furnish in due time return of income. [Section 276CC)]
Failure to furnish return of income in Search Cases as required under
section 158BC [Section 276CCC]
Wilful failure to produce accounts and documents as directed by issue of
notice under section 142(1) [Section 276D]
59
Offences punishable under the income tax act
Wilful failure to get the accounts audited as directed by the Assessing
Officer under section 142(2A). [Section 276D]
Making of a statement in verification or delivery of an account or
statement which is false and which the concerned person knows or
believes to be false or does not believe to be true. [Section 277]
Abetting or inducing another person to make and deliver an account or
statement or declaration relating to any taxable income which is false and
which he either knows or believes to be false. [Section 278]
Punishment for 2nd & subsequent offences in cases of certain defaults.
[Section 278A]
60
Offences punishable under the income tax act
No person shall be punished for any failure if he proves that there is
reasonable cause failure. [Section 278AA]
61
Who is liable to be prosecuted?
Any person, committing the offence is liable to be prosecuted. In this
connection it is not necessary that the person should be an assessee under
the Income-tax Act. In the case of an offence committed by a Company,
Firm, Association of Persons or Body of Individuals, every person in
charge of or responsible for the conduct of the business of the concern as
well as the concern are deemed to be guilty. Similarly, in the case of an well as the concern are deemed to be guilty. Similarly, in the case of an
offence by a Hindu Undivided Family, the karta thereof, is deemed to be
guilty of the offence.
62
Is mens-rea or clupable mental state or guilty intention necessary?
In case of wilful act of omission or commission, the
court shall presume the existence of culpable mental
state. However, the accused can rebut this
presumption by producing necessary evidence before presumption by producing necessary evidence before
the court. (Section 278E).
63
Can the offence be compounded?
Section 279(2) of Income-tax Act empowers a Chief
Commissioner of Director General of Income-tax to
compound an offence either before or after the
institution of prosecution proceeding institution of prosecution proceeding
64
Points to be considered before compounding
It was emphasised that a prosecution should not
ordinarily be compounded if the prospects of success were
good. The Board desires that in such case, the request of
the assessee for having the offence compounded should not
ordinarily be recommended to the Board ordinarily be recommended to the Board
The provisions of section 279(2) give a discretion to the
Commissioner to compound any offence under the
Income-tax Act and this discretion is an unfettered one.
Even so it has to be exercised in a judicial manner.
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Points to be considered before compounding
Although it is neither possible to precisely lay down all
the circumstances in which an offence may be
compounded nor it is intended to fetter the
Commissioners discretion in this matter, it is
nevertheless necessary to have a uniform policy for nevertheless necessary to have a uniform policy for
exercising the discretion in a judicial manner.
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Points to be considered before compounding
Some of the other points which have to be considered before deciding to
compound an offence are indicated below:
- Compounding of an offence may be considered only in those cases in which
the assessee comes forward with a written request for compounding offence.
- Cases in which the prospects of a successful prosecution are good, should - Cases in which the prospects of a successful prosecution are good, should
not ordinarily be compounded.
- Bearing in mind the deterrent effect of a prosecution, it should be
considered whether the purpose will be more effectively served by making
the assessee pay a deterrent composition fee or by obtaining a
conviction.
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Points to be considered before compounding
- In case, where subsequent to the launching of prosecution fresh evidence
becomes available which may show that the case for the prosecution is weak
and the assessee is agreeable to have the offence compounded, it may be
advisable to compound the offence and not to proceed with the prosecution.
Ultimately the answer to the question whether the prosecution should be
compounded or not will depend on the facts of each case. The above aspects are
only intended to provide broad guidelines. The previous approval of the Board
should always be obtained before deciding to compound an offence. No
assurance of any kind should be given to the assessee before obtaining the
Boards approval.
Le tte r : F. No. 4/7/69-IT(INV.), dat ed 21-3-1969.
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When public servant liable to be prosecuted?
If a public servant furnishes any information in
contravention of the provisions of Section 138(2),
prosecution may be instituted against him with the
previous sanction of the Central Government. previous sanction of the Central Government.
(Section 280).
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Summary of Offences and Prosecution in brief
Section Nature of Default Rigorous Imprisonment Fine
275A Contravention of order made under the
second proviso 132(2)or 132(1) regarding
search and seizure
Upto 2 years No Limit specified
275B Failure to afford necessary facility to
inspect the books of accounts or other
documents 132(1)(iib)
Upto 2 years No Limit specified
276 B Failure to pay to CG TDS or the tax
payable by him as required by 115(O)(2) or
second proviso to sec 194B
3 months to 7 years No Limit specified
276BB Failure to Pay TCS 3 months to 7 years No Limit specified 276BB Failure to Pay TCS 3 months to 7 years No Limit specified
276C(1) Willful attempt to evade tax, penalty or
interest
Evaded Tax exceeding
25Lacks: 6 Months to 7
years other cases 3
months to 2 years
No Limit specified
276C(1) Willful attempt to evade tax, penalty or
interest
3 months to 2 years No Limit specified
276CC Willful failure to furnish in due time a ROI
u/s 139(1) or u/s 142(1) or 148 or 153A
Evaded Tax exceeding
25Lacks: 6 Months to 7
years other cases 3
months to 2 years(If less
than 3000 no prosecution)
No Limit specified
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Summary of Offences and Prosecution in brief
Section Nature of Default Rigorous Imprisonment Fine
276D Willful failure to produce books of
accounts u/s 142(1) or 142(2A)
Upto 1 year Rs. 4 to Rs. 10 for every
day default
277 False statement in verification Evaded Tax exceeding
25Lacks: 6 Months to 7
years other cases 3
months to 2 years(If less
than 3000 no prosecution)
No Limit specified
277A Falsification of books of accounts to
induce or abet any tax penalty interest
3 months to 2 years No Limit specified
278 Abetment if false return Evaded Tax exceeding No Limit specified 278 Abetment if false return Evaded Tax exceeding
25Lacks: 6 Months to 7
years other cases 3
months to 2 years
No Limit specified
278A Second and subsequent offences 6 months to 7 years for
every subsequent
No Limit specified
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Thank You
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