Prosecution under Direct Taxes - casconline.org

1 Prosecution and Compounding under Direct AccountantIssues CoveredProsecution under Income Tax Act, 1961 Offence subject to Prosecution Procedure for Prosecution Prosecution in case of Company Relief / abatement provided under the Act Compounding of offenceProsecution under Black Money ActProsecution under Income Tax Act -BackgroundSections 275A to 280 of Income Tax Act ( IT Act ) deals with varioustypes of offences for which the Income Tax Department canprosecute an assessee in the Court of can be launched only at the instance of PrincipalCommissioner (or) Commissioner of Income Tax (or) Commissionerof Income Tax (Appeals) (or) Appropriate for Prosecution governed by provisions of the CriminalProcedure Code, 1973 unless specifically provided by the ITActProsecution under Income Tax Act -BackgroundSection OffencePunishment275 AContravention of any prohibitory order (1) or 132(3) issued during the search proceedings Any period up-to 2 years and fine275 BFailure to afford any facility to the Authorised Officer to inspect the books and other documents 132(iib) of the ActAny period up-to 2 years and fine276 Removal, concealment, transfer or delivery of property to thwart recovery of under Income Tax Act -BackgroundSection OffencePunishment276 AFailure to comply with provisions of sections 178(1) or section 178(3) ) by liquidator of a company:1.

2 Fails to give notice u/s 178(1)2. Fails to set aside the amount specified u/s 178(3)3. Parts with any of the properties of the company in contravention of section 178(3)Any period not less than 6 months in the absence of adequate treason to the contrary recorded in the judgment; May extend up-to 2 yearsProsecution under Income Tax Act -BackgroundSection OffencePunishment276 ABFailure to comply with provisions of section 269 UC, UE, UL relating to removal of immovableproperty*276 BFailure to pay the tax deducted at source under chapter XVII B or failure to tax payable u/s 115O(2) or second proviso to section 194B of the Act(Non-cognizable u/s 279A of the Act)Minimum : 3 months and fineMaximum: 7 years and fine *Section 269UC,UE,UL and other provisions of this chapter XXC are not applicable in respect of transfers on/after 01/07/2002 Prosecution under Income Tax Act -BackgroundSection OffencePunishment276 BBFailure to pay the tax collected at source u/s 206 CMinimum : 3 months and fineMaximum.

3 7 years and fine 276C(1) Wilful attempt to evade tax, penalty or interest imposable (or) under -reported income (Non-cognizable u/s 279A of the Act)(2) Wilful attempt to evade payment of tax, penalty or interest evaded </= 25 Lakhs(upto 30-06-2012 Lakh)Minimum : 3 months and fineMaximum: 2 years and fine (upto 30-06-2012 3 years and fine)B. Tax evaded > 25 LakhsMinimum : 6 months and fineMaximum: 7 years and fine Prosecution under Income Tax Act -BackgroundSectionOffencePunishment276 CCFailure to furnish the return of income u/s 139(1)/142(1)/148/153 ANo Prosecution if :1. Return filed before expiryof Assessment Year or 2. Tax payable Less: TDS / advance tax </= ,000 evaded </= 25 Lakhs(upto 30-06-2012 Lakh)Minimum : 3 months and fineMaximum: 2 years and fine (upto 30-06-2012 3 years and fine)B.

4 Tax evaded > 25 LakhsMinimum : 6 months and fineMaximum: 7 years and fine 276 CCCF ailure to furnish the return of income in search under Income Tax Act -BackgroundSectionOffencePunishment276 DFailure to produce account books and documents u/s 142(1) or failure to get accounts audited us 142(2A)Rigorous Imprisonment up-to 1 year and fine277 False statement in verification, etc.(Non-cognizable as per section 276A) evaded </= 25 Lakhs(upto 30-06-2012 Lakh)Minimum : 3 months and fineMaximum: 2 years and fine (upto 30-06-2012 3 years and fine)B. Tax evaded > 25 LakhsMinimum : 6 months and fineMaximum: 7 years and fine 278 Abatement of false returns under Income Tax Act -BackgroundSectionOffencePunishment277 AFalsification of books of account or documents, evade tax /penalty/interest imposableMinimum : 3 months and fineMaximum: 2 years and fine (up to 30-06-2012 3 years and fine)278 APunishment of second and subsequent offence u/s 276B,276C(1), 276CC, 277 and 278 Rigorous imprisonment:Minimum : 6 months and fineMaximum.

5 7 years and fine 280 Disclosure of particulars by public servant in contravention of section 138(2)( Prosecution with prior approval of CG)Up-to 6 months and Fine278AA Reasonable cause for failure is proved punishment shall not be imposed for offence u/s 276A, 276AB and 276 BProcedure for ProsecutionProcedure for Prosecution governed by provisions of the CriminalProcedure Code, 1973 unless specifically provided by the ITActSection 280A to 280D was inserted by Finance Act, 2012 under IT Act ,wherein:1. Central Government in consultation with Chief Justice ofHigh Courtare given powers to designate Magistrate Court of the respectivejurisdiction* as Special Court for offence punishable under this actwhich is punishable with imprisonment up to 2 years and/or with fine2.

6 All offence punishable under IT Act would be triable by such SpecialCourt unless circumstances provided u/s 280B of the Act*Jurisdiction for deciding the Magistrate Court is the place where the falsereturn is for ProsecutionSection 278E Culpable Mental StateIn general criminal jurisprudence, - Innocent until provenguilty beyond reasonable doubtUnder IT Act - existence of culpable mental state ispresumed and it shall be a defence for the accused toprove beyond reasonable doubt that he had no suchmental stateProcedure for Prosecution As per the Guidelines issued by CBDT:A. Procedure to be followed by Department while launchingProsecution: The Assessing Officer on the basis of the records of theassessee sends the proposal to the respective Commissioner.

7 The Commissioner issues the show cause notice to theassessees. If Commissioner is satisfied with the reply of the assesseehemay not grant sanction to the Assessing Officer to file complaintbefore the for Prosecution B. Procedure before Court: On receipt of complaint, the court summons the accused by sending the copy ofcomplaint If the accused is not present on the day of summon, a warrant against the accused canbe issued, wherein he may be arrested and produced before theCourt After hearing the accused, if the court feels that there is noapparent case, thecomplaint will be dismissed. In the presence of primary evidence, the court frames the charges ie, court chargesthe accused of the offence purported to be committed and and proceedings shallcontinue as per the Criminal Procedure Code ( CPC ).

8 If the Trial results in conviction, the appeal to the court session will lie under CPC to befiled within 30 days of from the date of orderProcedure for Prosecution - Competent Authority and requisite Sanction Competent authority to grant sanction for Prosecution isPrincipal Commissioner, Commissioner, Commissioner(Appeals), Chief Commissioner or the Director General. Prosecution , without a requisite sanction shall make theentire proceedings void ab initio The sanction must be in respect of each of the offencesin respect of which the accused is to be prosecuted(Champalal Girdharlal v. Emperior (1933) 1 ITR 384 (Nag) (HC))+sanction issued for offence under S. 277, wherein the accused was found guilty of an offence under S. 276CC, it was held that an offence under S.

9 276CC is different from , and hence the conviction was illegalProcedure for Prosecution - Opportunity of Being Heard before launching Act does not provide that the Commissioner has tonecessarily afford the assessee an opportunity to beheard before deciding to initiate proceedings. However, it is being observed that the commissionersare issuing a show cause notice before sanctioning theSanction for Prosecution based on the internal v. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) (567 to 569) Absence of an opportunity to be heard will not make the order of sanction void or illegal as held inProcedure for Prosecution - assessee to respond for notice u/s 276CC and 277 Krishnaswami Vijayakumar V. Principal Director ofIncome Tax [2017] 88 114 (Madras)Principal Director (Investigation) is one of the authorityenumerated u/s 279(1) of the Act and hence the Show causeissued by him cannot be be questioned in a writ petition andthe assessee has to respond to the show causeThe Madras HC in above case has distinguished the decision of Supreme Court in Babita Lila V.

10 Union of India in [2016] 73 32 (SC) on facts, wherein the same deals with jurisdiction after the criminal law was set in motion before the concerned criminal courts. In the present case of the Show cause stage is very pre-mature for challenging the jurisdictionProcedure for Prosecution -Assessee aged 70 Years and aboveAs per the instruction No. 5051 of 1991 dt. 7-2-1991 issuedby the Board: Prosecution need not normally be initiated against apersons who have attained the age of 70 years at the timeof commission of the offence .Delhi High Court in Pradip Burma v. ITO (2016) 382 ITR 418 (Delhi) (HC) +at the time of commission of offence the petitioner has not reached the age of 70 years, hence the circular was held to be not for Prosecution - Prosecution is independent of appeal proceedingsProsecution can be initiated before completion ofassessment or when the matter is pending in appeal sincethe assessment proceedings under Income Tax isindependent civil proceedings from that of Prosecution foroffences committed are tried before a competent courtP.