OFFENCES AND PROSECUTION UNDER INCOME TAX ACT, 1961 – AN INTRODUCTION

Introduction

The Income Tax Act, 1961 (‘Act’ for short) provides the provisions relating to levy of income tax, payment of tax etc.  The income tax is the main resource for the exchequer of the Government.  The tax payers are expected to pay their tax dues on their own assessments.  If any taxpayer fails to pay tax or file the required returns, the  department will initiate proceedings against the assessee by issuing show cause notice.  In addition to tax interest is levied.  Penalties are also imposed.  Imposition of penalty has not been found to be adequate deterrent to check tax evasion and in enforcing tax laws. There may also be occasions to initiate prosecution proceedings under various sections of Indian Penal Code independently or in addition to prosecution under the Act.

Prosecution sections

The following sections of the Act provide for launching of prosecution against the assessees or the persons concerned-

• Section 275A – Contravention of order made under second proviso to Section 132 or section 132 (3) in case of search and seizure.
• Section 275B – Failure to comply with the provisions of Section 132 (1) (iib) by giving necessary facilities to authorized officers to inspect the account or other documents.
• Section 276 – Removal, concealment, transfer or delivery of property to escape or thwart tax recovery.
• Section 276A – Failure to comply with the provisions of Section 178 (1) and (2) by the liquidator in winding up proceedings of a company.
• Section 276B – Failure to pay tax to the credit of Central Government under Chapter XII – D or XVII – B (deduction of tax at source).  Rs.25 Lakhs or below, and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution.
• Section 276BB – Failure to pay the tax deducted at source - Rs.25 Lakhs or below, and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution.
• Section 276C – Wilful attempt to evade tax.  Cases where the amount sought to be evaded or tax on under-reported income is Rs.25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two Chief Commissioner of Income Tax (‘CCIT’ for short)/Director General of Income Tax (‘DGIT’ for short) rank officers.  The prosecution under this section shall be launched only after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal.
• Section 276 CC – Failure to furnish returns of income. Cases where the amount of tax, which would have been evaded if the failure had not been discovered, is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers.
• Section 276D – Failure to produce accounts and documents.
• Section 277 – False statement in verification.
• Section 277A – Falsification of books of account or documents etc.
• Section 278 - Abetment of false return etc.
• Section 278A – Punishment for second and subsequent offences. This section mandates harsher penalties for repeat offences, even if they are under different sections.
• Section 278AA – Punishment not to be imposed for certain offences.  This section shifts the burden of proving reasonable cause to the accused for specific offences.
• Section 278 B – Offences by companies.
• Section 278C – Offences by Hindu Undivided Families.
• Section 280 (1) – Disclosure of particulars by public servants.

Prosecution sanctioning authority

Section 279 of the Act provides that the sanctioning authority for prosecution of offences under the Act is Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. For proper examination of facts and circumstances of a case, and to ensure that only deserving cases below the threshold limit get selected for filing of prosecution complaint, such sanctioning authority shall seek the prior administrative approval of a collegium of two CCIT/DGIT rank officers, including the CCIT/DGIT in whose jurisdiction the case lies. The Principal CCIT(CCA) concerned may issue directions for pairing of CCsIT/DGIT for this purpose. In case of disagreement between the two CCIT/DGIT rank officers of the collegium, the matter will be referred to the Principal CCIT(CCA) whose decision will be final. In the event that the Pr.CCIT(CCA) is one of the two officers of the collegium, in case of a disagreement the decision of the Pr.CCIT(CCA) will be final.

The approval of the sanctioning authority is to be obtained in the following cases-

• Failure to pay to credit of Central Government (i) tax deducted at source under Chapter XVII-B, or (ii) tax payable under section 115-O(2) or second proviso to section 194B where non-payment of TDS exceeds Rs. 25 lakhs.
• Failure to pay to the credit of Central Government the tax collected a source under section 206C where non-payment of TCS exceeds Rs. 25 lakhs.
• Wilful attempt to evade tax, penalty or interest or under-reporting of income where tax which would have been evaded exceeds Rs. 25 lakhs.
• Wilful attempt to evade payment of any tax, penalty or interestwhere payment of any tax, penalty or interest exceeds Rs. 25 lakhs. 
• Wilful failure to furnish returns of fringe benefits under section 115WD/ 115WH or return of income under section 139(1) or in response to notice under section 142(1)(i) or section 148 or section 153A - where tax sought to be evaded exceeds Rs. 25 lakhs.
• False statement in verification or delivery of false account or statement etc - where tax which would have been evaded exceeds Rs. 25 lakhs.
• Abetment of false return, account, statement or declaration relating to any income or fringe benefits chargeable to tax - where tax, penalty or interest which would have been evaded exceeds Rs. 25 lakhs.

In all other cases the approval of sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers is to be obtained.

Prosecution under Indian Penal Code

Prosecution under sections 193 and 196 of the Indian Penal Code (IPC)  [Section 229 and 233 of Bharathiya Nyaya Sanhita, 2023 (‘BNS’ for short)] can only be initiated by the officer before whom the offense occurred. This officer could be a revisional authority, first appellate authority, or assessing officer/ADIT/DDIT. However, section 195(1)(a) of the Criminal Procedure Code [Section 217 of Bharathiya Nagarik Suraksha Sanhita, 2023 (‘BNSS’ for short)] allows a superior authority to the officer before whom the offense occurred to also initiate prosecution.

Limitation

While Section 468 of the Criminal Procedure Code [Section 514 of BNSS}sets a three-year limitation for launching prosecution, offences under the Income-tax Act and Wealth-tax Act are exempt from this limitation. However, it’s important to note that newly introduced provisions like Securities Transaction Tax and Banking Cash Transaction Tax are not exempt from this limitation.