penalties and prosecution for it act

Pune Branch of WIRC of ICAI

Direct Tax Refresher Course on

20th 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 IncomeTax Act, 1961 (Act).

� Punishment; Suffering or loss imposed for breach of a law; afine or loss agreed upon in case of non-fulfilment of someundertaking; a fine

- Chambers 20th Century Dictionary, 1983 Edition

� Penalty is a liability composed as a punishment on the partycommitting the breach of contract. Agreement to pay atdefault interest at a higher rate does not amount to penalty.

- P Ramanatha Aiyar’s Law Lexicon , 2nd Reprint Edition 2009

3

Meaning contd…

� Punishment imposed on wrongdoer, usually in theform of imprisonment or fine; especially a sum ofmoney exacted as punishment for either a wrong to thestate or a civil wrong (as distinguished fromcompensation for the injured party’s loss). Thoughusually for crimes, penalties are also sometimesusually for crimes, penalties are also sometimesimposed for civil wrongs.

- Black’s Law Dictionary, 9th 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 Ali’s 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, theexpression "the amount of tax sought to be evaded",-

� in any case where the amount of income in respect of which particularshave been concealed or inaccurate particulars have been furnished has theeffect of reducing the loss declared in the return or converting that lossinto income, means the tax that would have been chargeable on theincome in respect of which particulars have been concealed or inaccurateparticulars 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 totalincome assessed as reduced by the amount of advance tax, tax deducted atsource, tax collected at source and self-assessment tax paid before theissue of notice under section 148 ;

� in any other case, means the difference between the tax on the totalincome assessed and the tax that would have been chargeable had suchtotal income been reduced by the amount of income in respect of whichparticulars have been concealed or inaccurate particulars have beenfurnished.

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 assethave been acquired by him utilising wholly or partly his income forprevious year; or

� Any income based on any entry in any books of account or otherdocuments or transactions and he claims that such entry represents hisincome wholly or partly for any previous year, ended before search dateincome wholly or partly for any previous year, ended before search dateand

� Where return of income has been furnished before the said datewithout declaring the said income;

� Where return of income has not been filed and due date hasexpired.

Notwithstanding that income has been declared by him, in returnfurnished on or before the date of search, he shall for the purpose of penaltyu/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 fideslack 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 ofincorrect 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 Shroff’s 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 timesparticulars 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 ismens 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 providesIn 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 imposedand penalty must be imposed

� M/s Siddhartha Enterprises –184 Taxmann 460–P&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 Manasvi’s 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 ITR705 –SC :

� From agreeing to additions, it does not follow that theamount agreed to be added was concealed income. Theremay 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 applicable3. 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


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


� 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

271DAcceptance of loans/deposits incontravention 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.

271ERepayment 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 section92D(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

271AFailure to keep, maintain or retain booksof 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 bonafidemanner 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 ofpenalty 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;


Sec 274– Procedures


� 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 CITWhichever 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 initiatedWhichever 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 ½ 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 ½ 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 maypenalty, 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 adefault 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 prescribedmore 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 company’s

properties in contravention of income-tax provision. [Section 276A]

57


� 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


� 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


� 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


� 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 anwell 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 beforepresumption 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 proceedinginstitution 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 Boardordinarily 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.

65


� 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

Commissioner’s discretion in this matter, it is

nevertheless necessary to have a uniform policy fornevertheless necessary to have a uniform policy for

exercising the discretion in a judicial manner.

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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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- 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

Board’s 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 specified276BB 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


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


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


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


278 Abetment if false return Evaded Tax exceeding No Limit specified278 Abetment if false return Evaded Tax exceeding


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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penalties and prosecution for it act

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