penalties & prosecution - (27)

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357 Applied Direct taxation PENALTIES Section Nature of Default Minimum Penalty Maximum Penalty 158BFA Undisclosed income determined by the Assessing Officer u/s.158BC(c) 100% of the tax on undisclosed income 300% of the tax on undisclosed income 221(1) Default in making a payment of tax within prescribed time Such amount as the Assessing Officer may impose Tax in arrears 271(1)(b) Failure to comply with a notice u/s. 142(1) or 143(2) or with a direction issued u/s.142(2A). Rs.10000 for each failure Rs. 25,000 for each failure. (upto 31.5.2001) 271(1)(c) Concealment of the particulars of income or furnishing inaccurate particulars of income. 100% of Tax sought to be evaded. 300% of Tax sought to be evaded. 271A Failure to keep or maintain books of A/c, document as required u/s.44AA. Rs.25000 Rs.1,00,000 271AA Failure to keep and maintain information and document in respect of international transaction. a sum equal to two per cent of the value of each international transaction entered into by such person. a sum equal to two per cent of the value of each international transaction entered into by such person. 271AAA Penalty where search has been initiated a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. STUDY NOTE - 27 PENALTIES & PROSECUTION This Study Note includes Different Defaults and Penalties related thereto

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Page 1: Penalties & Prosecution - (27)

357Applied Direct taxation

PENALTIES

Section Nature of Default Minimum Penalty Maximum Penalty

158BFA Undisclosed income determined by the Assessing Officer u/s.158BC(c)

100% of the tax on undisclosed income

300% of the tax on undisclosed income

221(1) Default in making a payment of tax within prescribed time

Such amount as the Assessing Officer may impose

Tax in arrears

271(1)(b) Failure to comply with a notice u/s. 142(1) or 143(2) or with a direction issued u/s.142(2A).

Rs.10000 for each failure

Rs. 25,000 for each failure. (upto 31.5.2001)

271(1)(c) Concealment of the particulars of income or furnishing inaccurate particulars of income.

100% of Tax sought to be evaded.

300% of Tax sought to be evaded.

271A Failure to keep or maintain books of A/c, document as required u/s.44AA.

Rs.25000 Rs.1,00,000

271AA Failure to keep and maintain information and document in respect of international transaction.

a sum equal to two per cent of the value of each international transaction entered into by such person.

a sum equal to two per cent of the value of each international transaction entered into by such person.

271AAA Penalty where search has been initiated

a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.

a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.

STUDY NOTE - 27

PENALTIES & PROSECUTION

This Study Note includes

• Different Defaults and Penalties related thereto

Page 2: Penalties & Prosecution - (27)

Applied Direct taxation358

Penalties & Prosecution

271

271

271

271

271

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359Applied Direct taxation

272A(1)(b) Refuses to sign any statement made by a person in course of I.T. Proceeding.

Rs.10,000 for each default

Rs. 10,000 for each default

272A(1)(c)

Failure to comply with summons issued u/s.131(1)

Rs.10,000 for each default

Rs. 10,000 for each default

272AA Failure to comply with provisions

of Sec. 133B.

Any amount upto

Rs. 1000

272B Failure to comply with the provisions of section 139A or for quoting or intimating a PAN which is false. [w.e.f. 1.6.2002]

Rs. 10,000 Rs. 10,000

272BB Failure to comply with the provisions of section 203A (i.e. failure to obtain TAN or after obtaining failure to quote TAN in all challans, certificates and returns etc.)

Rs. 10,000 Rs. 10,000

272BBB Failure to comply with the provisions of of sec. 206CA (i.e. failure to obtain TCAN or after obtaining failure to quote TCAN in all challans, certificates and returns etc.) (w.e.f. 1.6.2002)

Rs. 10,000 Rs. 10,000

Page 4: Penalties & Prosecution - (27)

Applied Direct taxation360

Penalties & Prosecution

276C(1) Wilful attempt to evade tax penalty or interest imposable under the Act (non-cognizable as per sec. 279A)

If tax evaded exceeds Rs. 1,000, 6 months; otherwise 3 months and fine.

If tax evaded exceeds Rs. 1,00,000, 7 years; otherwise 3 years and fine.

276C(2) Wilful attempt to evade the payment of any tax, penalty or interest (non-cognizable as per sec. 279A).

3 months and fine 3 years and fine

276CC Wilful failure to file return of income in time u/s. 139(1), or in response to notice u/s. 142(1) or sec. 148(Non-cognizable as per sec. 279A)

If tax evaded exceeds Rs. 1,00,000; 6 months and fine In any other case, 3 months and fine.

Note: No prosecution if : (i) the return is filed before the expiry of the assessment year ; or (ii) the tax payable on regular assessment, as reduced by TDS and advance tax does not exceed Rs. 3,000

If tax evaded exceeds Rs. 1,00,000, 7 years; otherwise 3 years and fine

276CCC Wilful failure to furnish in due time the return of total income which is required to be furnished u/s. 158BC.

3 months and fine 3 months and fine

276D Wilful failure to produce books of account and documents u/s. 142(1) or

Any period upto 1 year and fine of Rs. 4 for every day

1 year and fine of Rs. 10 every day during which

Page 5: Penalties & Prosecution - (27)

361Applied Direct taxation

Case Laws:

Section Case Laws

221 i) Burden is on Revenue: In the matter of penalty, read with section 201, an obligation is cast upon the Assessing Officer to be satisfied that default by assessee was without good and sufficient reason. The burden is upon the revenue to establish that the assessee has not deposited the tax at source without good and sufficient reasons. In other words, in absence of such finding, no negative terms for levying penalty can be made and the burden specifically lies on the revenue - CIT v. Munni Lal & Co. 157 Taxman 466 ii) Penalty is attracted the moment default has occurred - An assessee incurs a liability to penalty the moment default has occurred, notwithstanding the fact the default has ceased to exist by the time the authorities concerned take action to penalise the assessee for the said default - CIT v. Smt. Vijayanthimala

271C i)Levy of penalty is attracted only if there is no reasonable cause - Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider the explanation offered by the assessee or the person, as the case may be. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it found to be frivolous, without substance or foundation, the prescribed consequences follow - Woodward Governor India (P) Ltd. v. CIT 253 ITR 745

271(1)(c) The Supreme court in this case held that in force from 1st April 2003, there cannot be liability to penalty when there is no liability to tax especially because penalty has to be worked out with reference to the tax payable as contrasted with the income concealed. Virtual Soft Systems ltd vs CIT 289 ITR 83(SC).

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Applied Direct taxation362

Penalties & Prosecution

272A i.) If penalty has been levied under section 271C for failure to deduct tax at source, question of levying penalty under section 272A(2)(c) and 272A(2)(g) would also not arise - Once a person prescribed or concerned or the assessee has been subjected to a penalty under section 271C, for not deducting the tax at source, there would not arise any occasion for levying a penalty under section 272A(2)(c) and 272A(2)(g) for non-compliance of the provisions of sections 203 and 206. In other words, in case the tax has not been deducted at source, the question of issuing the certificate of tax under section 203 or that of filing of return under section 206 would not arise at all. That being so, the question of imposing penalty for violation of the aforesaid provisions, would also not arise - CIT v. Sri Ram Memorial Education Promotion Society 150 Taxman 58

276B i). Delayed payments are also covered - The wording of section 276B does not afford scope for treating the words ‘fails to pay’ as confined only to those cases where there is a total failure to pay the tax and not having application to those cases where there has been failure to pay within the prescribed time - Rayala Corporation (P.) Ltd. v. V.M. Muthuramalingam, ITO 129 ITR 675 ii) Merely because tax has been deposited to the credit of the Central Government before filing of the complaint, it will not absolve the assessee of the offence under section 276B - Rishikesh Balkishandas v. I.D. Manchanda, ITO 167 ITR 49 iii) Mens rea is not essential - Section 276B does not contain the word ‘knowingly’. Therefore, in a case under section 276B, read with section 194A, mens rea is not required - Rishikesh Balkishandas v. I.D. Manchanda, ITO/Dy. CIT v. Modern Motor Works 87 Taxman 182/220 ITR 415

276C i).Company, whether can be prosecuted- A company cannot be prosecuted for offences under sections 276C, 277 and 278, since each one of these sections requires imposition of a mandatory term of imprisonment coupled with a fine and leaves no choice to Court to impose only a fine - Asstt. Commissioner v. Velliappa Textiles Ltd. 132 Taxman 165/263 ITR 550.

ii).Though a company cannot be sentenced to imprisonment, for that reason only company cannot be given complete immunity from prose-cution for graver offences where mandatory punishment is impris-onment coupled with fine; Court has to resort to punishment of imposition of fine which is also a prescribed punishment - Standard Chartered Bank v. Directorate of Enforcement 145 Taxman 154/275 ITR 81. iii) Mens rea must be present - To bring an act under the provisions of section 276C, the action of the person concerned has to be a wilful attempt to evade any tax, penalty or interest chargeable or imposable

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363Applied Direct taxation

276C i).Company, whether can be prosecuted- A company cannot be prosecuted for offences under sections 276C, 277 and 278, since each one of these sections requires imposition of a mandatory term of imprisonment coupled with a fine and leaves no choice to Court to impose only a fine - Asstt. Commissioner v. Velliappa Textiles Ltd. 132 Taxman 165/263 ITR 550.

ii).Though a company cannot be sentenced to imprisonment, for that reason only company cannot be given complete immunity from prose-cution for graver offences where mandatory punishment is impris-onment coupled with fine; Court has to resort to punishment of imposition of fine which is also a prescribed punishment - Standard Chartered Bank v. Directorate of Enforcement 145 Taxman 154/275 ITR 81. iii) Mens rea must be present - To bring an act under the provisions of section 276C, the action of the person concerned has to be a wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act. The word ‘wilful’ imparts the concept of mens rea, and if mens rea is absent, no offence under this section is made out - Jarnail Singh v. ITO 179 ITR 426 /CIT v. Gangaram Chapolia 103 ITR 613 iv) If accused makes a full and complete disclosure, then prosecution under section 276C/277 should not be proceed - If accused makes a full and complete disclosure to get benefit of pardon under section 306 of the Code of Criminal Procedure, 1973, prosecution under section 276C/277 should not be allowed to proceed - Dipesh Chandak v. Union of India 270 ITR 85/140 Taxman 166.

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Penalties & Prosecution

276CC i). Mens rea is not an essential requirement - If section 276CC is read in isolation, the mens rea is an essential requirement of law and it would be for the prosecution to lead evidence to prove that the return was wilfully filed late. However, it is not so. Section 278E provides that in any prosecution for the offence under this Act which requires ‘culpable mental state’ on the part of the accused, the Court shall presume the existence of such mental state. The burden is shifted to the accused that he had no such mental state. As per the Explanation, the culpable state would include ‘intention’, ‘motive’ and ‘knowledge’. It further provides that the absence of such culpable mental state shall have to be proved by the accused in defence beyond reasonable doubt. The Act does not differentiate in any way between natural and juristic persons. As per the settled law, charge can be framed even on the basis of strong suspicion - V.P. Punj v. Asstt. CIT 119 Taxman 543 ii) Whether there is wilful failure to furnish return is a matter which is to be adjudicated factually by the Court which deals with the prosecution case. Section 278E is relevant for this purpose. There is a statutory presumption prescribed in section 278E. The Court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act of charged as an offence in the prosecution - Prakash Nath Khanna v. CIT 135 Taxman 327/266 ITR 1.

iii) Filing of voluntary return under section 139(4) will not absolve assessee from infraction of not filing return in time - One of the significant terms used in section 276CC is ‘in due time’. The time within which the return is to be furnished is indicated only in section 139(1) and not in section 139(4). That being so, even if a return is filed in terms of section 139(4), that would not dilute the infraction in not furnishing the return in due time as prescribed under section 139(1). Otherwise, the use of the expression ‘in due time’ would lose its relevance and it cannot be said that the said expression was used without any purpose. A person who had not filed a return within the due time as prescribed under sub-section (1) or (2) of section 139 would otherwise, get benefit by filing the return under section 139(4) much later. This cannot certainly be the legislative intent. Sub-section (4) of section 139 cannot by any stretch of imagination control operation of sub-section (1) wherein a fixed period for furnishing the return is stipulated - Prakash Nath Khanna v. CIT 135 Taxman 327 .

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365Applied Direct taxation

276DD i) Effect of omission of section - Prosecution under section 276DD could not have been launched or continued by invoking section 6 of General Clauses Act after omission of section 276DD with effect from 1-4-1989 - General Finance Co. v. Asstt. CIT 257 ITR 338/124 Taxman 432.

278B i) Meaning of ‘person in charge’ - A person in charge must mean that the person should be in overall control of the day-to-day business of the firm - State of Karnataka v. Pratap Chand 128 ITR 573. ii) A plain reading of section 278B goes to show that it is for the prosecution in the first instance to demonstrate by averments and proof that the person was in charge of and was responsible to the company for the conduct of the business of the company. Therefore, while the company may be deemed to be guilty of the offence, so far as the partners or directors are concerned, only those persons can be prosecuted who are in charge of and responsible to the company for the conduct of its business - Smt. Sitaben v. Union of India 120 CTR (MP) 444.