Prosecution Provisions under Income Tax for Various Offences of Taxpayers
The Income-tax Act encompasses a comprehensive framework that allows authorities to initiate prosecution proceedings against taxpayers for a myriad of offenses. The Act delineates various offenses, ranging from wilful evasion of taxes to fraudulent misrepresentation of financial information.
Prosecution proceedings are typically initiated when a taxpayer is found in contravention of tax laws. The process involves meticulous examination and verification by tax authorities, ensuring a robust foundation for the prosecution. The Income-tax Act establishes specific thresholds and criteria that must be met before prosecution proceedings are initiated. This includes the quantum of tax evasion, intentional non-compliance, and the severity of the offense.
Upon conviction, taxpayers may face a spectrum of penalties, including fines and imprisonment. Understanding the potential consequences is vital for taxpayers to appreciate the gravity of non-compliance. The Income-tax Act also provides certain legal safeguards for taxpayers, ensuring due process and fair treatment during prosecution proceedings.
A thorough understanding of the prosecution provisions within the Income-tax Act is paramount for taxpayers aiming to stay on the right side of the law. This article has endeavoured to provide a comprehensive overview, emphasizing the need for compliance and the consequences of non-compliance. Let us discuss about the various provisions relating to prosecution which can be launched under the Income-tax Act and related punishment prescribed under the act for non-compliance of such provisions.
1. Violation of orders u/s. 132(1) or 132(3) in case of search and seizure
Section 132 empowers tax authorities to initiate search proceedings, providing them with the authority to seize assets found at the taxpayer’s premises. This includes money, bullion, jewelry, and other valuable articles.
In cases where the physical possession of seized assets is impractical due to volume, weight, or other characteristics, the second proviso to Section 132(1) allows tax authorities to seize assets by leaving them at the taxpayer’s premises. An order is served, restricting the owner from dealing with the asset without prior permission.
Section 132(3) comes into play when seizing books of account, documents, or other valuable articles is not feasible during a search. Authorities can issue orders preventing the removal or dealing with these assets without prior permission.
Section 275A holds significant consequences for taxpayers who contravene the provisions outlined in Sections 132(1) and 132(3). Those found guilty of contravention may face rigorous imprisonment for up to two years and fines.
2. Failure in Facilitating authorised officer to inspect Accounts or other documents u/s. 132(1) (ii b)
Section 132(1) (ii b) grants tax authorities the right to demand access to books of account or electronic records during a search. This is a vital measure to ensure transparency and thorough examination of financial documentation.
Individuals in possession or control of relevant documents are obligated to provide the authorized officer with the necessary facilities for inspection. This includes access to electronic records, fostering a cooperative environment during the search process. The consequences for failing to facilitate the inspection as per Section 132(1) (ii b) are severe. Offenders may face rigorous imprisonment for a period of up to two years, in addition to potential fines.
3. Removal, concealment, transfer or delivery of property to prevent tax recovery
When a taxpayer fails to meet their tax obligations, tax authorities possess the right to recover dues by attaching both movable and immovable properties. This serves as a mechanism to ensure compliance with tax liabilities.
Section 276 comes into play when an individual engages in fraudulent activities such as removing, concealing, transferring, or delivering any property with the intention of preventing attachment for tax recovery. This provision aims to deter unlawful efforts to evade tax obligations.
Individuals found guilty of fraudulent actions under Section 276 face prosecution proceedings. The consequences include rigorous imprisonment for a period of up to two years, emphasizing the gravity of such offenses. Additionally, fines may be imposed as part of the legal penalties.
4. Failure to comply with provisions of section 178(1) and (3) dealing with company-in -liquidation
Liquidators must notify the relevant tax authority of their appointment within 30 days as per section 178(1). Section 178(3) mandates that liquidators seek permission from tax authorities before parting with any company assets. Until notified by the Assessing Officer, liquidators must set aside an amount as specified. Exceptions are allowed for tax payments, secured creditor obligations, and reasonable winding-up expenses.
Failure to give notice or comply with asset handling regulations under Sections 178(1) and 178(3) can lead to prosecution under Section 276A. The amendment under the Finance Act 2023 introduces a sunset date of 01-04-2023 for initiating fresh prosecution proceedings under this provision.
Individuals failing to meet these obligations may face rigorous imprisonment for a minimum of 6 months, extendable up to 2 years.
5. Failure to Ensure payment of TDS or DDT to the credit of the Government
In the event that an individual neglects to remit the tax deducted at source (TDS) or fulfil the obligation of paying taxes to the credit of the Central Government under specific sections, including 115-O (2), 194B, 194R, 194S, or 194BA, severe legal consequences may follow. The defaulter could face rigorous imprisonment ranging from a minimum of 3 months to a maximum of 7 years, coupled with monetary fines.
6. Failure to pay the TCS under the provisions of section 206C
Under Section 206C, which oversees tax collection at source, individuals are obligated to remit the collected tax to the Government’s credit. Failure to fulfil this requirement carries substantial legal consequences outlined in Section 276BB. In such instances, the defaulter could face rigorous imprisonment for a duration not less than 3 months and extending up to 7 years, along with monetary fines.
7. Wilful attempt to evade tax, penalty or interest
Section 276C addresses the repercussions for deliberate attempts to evade tax, penalty, or interest, or for under-reporting income. Individuals engaging in such wilful evasion face varying degrees of punishment. If the tax evasion surpasses Rs. 25 lakhs, the perpetrator may be subject to imprisonment for a minimum of 6 months, extendable up to 7 years, in addition to a fine. In cases where the evasion amount is below Rs. 25 lakhs, the prescribed punishment includes imprisonment for no less than 3 months, up to 2 years, along with a monetary fine.
8. Wilful failure in filing ITR
Section 276CC outlines the consequences for individuals failing to file their income tax returns, encompassing specific defaults detailed under section 139(1) or in response to notices issued under sections 142(1)(i), 148, or 153A. The severity of the punishment depends on the extent of tax evasion.
If the evaded tax surpasses Rs. 25 lakhs, the defaulter may face rigorous imprisonment for a minimum of 6 months, extending up to seven years, along with a fine. For other cases, the prescribed punishment includes rigorous imprisonment for a minimum of 3 months, up to two years, coupled with a fine.
However, certain exemptions exist, such as if the return is filed before the end of the assessment year or if the tax payable (excluding companies) on the determined total income, net of advance tax and TDS, does not exceed Rs. 10,000.
It’s noteworthy that as of the Assessment Year 2022-23, amendments by the Finance Act, 2022 stipulate that no prosecution will be initiated under this provision for failure to furnish a return of income under section 139(1) if an updated return is submitted within the timeframe provided in Section 139(8A).
9. Wilful failure to produce Accounts/Documents u/s. 142(1) or complying directions u/s. 142(2A)
Section 142(1) of the Income-tax Act empowers the Assessing Officer to issue notices requiring taxpayers to file income tax returns or provide necessary accounts and documents. Failure to comply with this directive may lead to penalties under Section 276D, where individuals intentionally neglect to produce the required documents as per notices issued under Section 142(1) or fail to adhere to directives issued under Section 142(2A). Section 142(2A) enables the Assessing Officer to order a special audit by a nominated chartered accountant if the conditions warrant such an audit. Those found guilty of wilful non-compliance under Section 276D may face rigorous imprisonment for up to one year, along with fines.
10. False statement in verification or delivery of false account, etc.
Section 277 of the Income-tax Act pertains to prosecution for making false statements or presenting false accounts/documents. If a taxpayer knowingly provides false information in any verification under the Act or accompanying rules, or furnishes an account or statement known to be false or without belief in its truth, they may face severe penalties. The consequences vary based on the extent of tax evasion, with rigorous imprisonment ranging from a minimum of 6 months to a maximum of 7 years, along with fines when tax sought to be evaded exceeds 25 lakhs. In other cases, rigorous imprisonment which shall not be less than 3 months but which may extend to two years and with fine.
11. Falsification of Accounts/Documents to enable other person to evade any tax/penalty/interest
Section 277A of the Income-tax Act addresses the intentional facilitation of tax evasion by an individual. If someone deliberately and with the intent to assist another person in evading tax, interest, or penalties under the Act, creates or influences the creation of false entries or statements in relevant books of account or documents, they may face severe consequences. Penalties for such actions include rigorous imprisonment for a minimum of 3 months, extendable up to 2 years, in addition to fines.
12. Abetment to make a false return, etc.
Section 278 of the Income-tax Act addresses the act of abetting or inducing another person to submit a false account, statement, or declaration regarding taxable income, or to commit an offense under section 276C(1). Those found guilty of such actions may face significant penalties. The severity of the punishment is contingent on the extent of tax evasion, with rigorous imprisonment as given below:
(i) Where tax sought to be evaded exceeds Rs. 25 lakh, rigorous imprisonment which shall not be less than 6 months but which may extend to seven years and with fine;
(ii)In other cases, rigorous imprisonment which shall not be less than 3 months but which may extend to two years and with fine.
13. Offence by a companies
Section 278B of the Income-tax Act establishes liability for offences committed by a company, holding individuals in charge of the company’s business accountable. If an offence is committed by a company, those responsible for its conduct, including directors, managers, and officers, are deemed guilty unless they can prove lack of knowledge or demonstrate exercising due diligence to prevent the offence. If the offence is proven to be with the consent, connivance, or neglect of any director, manager, secretary, or officer, they will also be held accountable. Companies found guilty face fines, and individuals involved, including directors and officers, can be proceeded against and punished as per the Act.
For the application of this section, a “company” encompasses not only a body corporate but also a firm or an association of persons, whether incorporated or not. The term “director” extends to partners in a firm and members controlling the affairs of an association of persons or body of individuals.
14. Offence by Hindu Undivided Family
Section 278C of the Income-tax Act pertains to offences committed by a Hindu Undivided Family (HUF). According to this section, the karta of the HUF is deemed guilty of the offence and can be proceeded against and punished accordingly. However, the karta can avoid punishment by proving lack of knowledge or by demonstrating due diligence in preventing the offence. If the offence is proven to be with the consent, connivance, or neglect of any member of the HUF, that member is also deemed guilty and subject to proceedings and punishment under the Act.
15. Contravention in Disclosure of particulars by public servant
Section 138(2) of the Income-tax Act imposes restrictions on public servants from disclosing certain information. In cases where a public servant contravenes this provision, Section 280 provides for prosecution. If found guilty of disclosing restricted information, the public servant may face imprisonment for a maximum term of 6 months and be liable for a fine. It’s important to note that no prosecution can be initiated against a public servant under this section without the prior sanction of the Central Government, emphasizing the necessity of official authorization for legal proceedings in such matters.
To Access the provisions of Search & Seizure under Income Tax CLICK HERE
To Access the CBDT Notification No. 99/2023 CLICK HERE
Read More
Corrigendum to Notification No. 3 of 2021: Changes in SFT Reporting for Depository Transactions