Certain offences under the Income-tax Act,1961 (“IT Act”) can result in prosecution proceedings being initiated against the taxpayer, or the persons in charge of a non-individual taxpayer (directors, partners, etc.). For instance, prosecution proceedings can be initiated for:
While there is an alternate mechanism available for compounding offences, it is not a matter of right. Depending on the severity of the offence, the risk of prosecution proceedings being initiated by the income-tax department cannot be ruled out. With the increase in cases of initiation of such prosecution proceedings by the income-tax department, taxpayers and the persons in charge of non-individual taxpayers need to ensure compliance with all provisions of the IT Act.
The High Court of Madras in the recent case of Shri N.S.P vs. Assistant Commissioner of Income Tax, Principal Commissioner of Income Tax dated 11.07.2023 1 , explained an important aspect of maintainability of prosecution proceedings initiated under the IT Act. In this case, the petitioner did not file his return of income for the Assessment year 2013-14 within the due date u/s 139(1) of the IT Act. However, he filed his belated return of income u/s 139(4) of the IT Act after almost 2 years, but again did not pay the tax acknowledged therein. The said tax was paid almost one year after the filing of belated tax return only on receipt of notice from the tax officer. The income-tax department initiated criminal prosecution proceedings against the petitioner u/s 276CC and 276C of the IT Act. The petitioner contended that since the tax return has been filed and tax has been paid before initiating the criminal prosecution proceedings, the proceedings should be dropped. However, the Hon’ble High Court relying on the judgment of the Supreme Court in the case of Prakash Nath Khanna & Another vs. Commissioner of Income Tax & Another’s 2 explained that as per section 278E of the IT Act, for any prosecution proceedings under the IT Act which require a culpable mental state on the part of the accused, there is a statutory presumption with regard to the existence of such culpable mental state. The issue of whether there was wilfulness in not filing the returns on time (since belated return is not a tax return filed on time), and not paying the tax on time by the petitioner, is a matter of fact which can be ascertained only through appreciation of evidence. Hence, the onus is upon the accused / petitioner to prove the contrary, which can be done only at the time of trial. Since the case for the alleged offences has been prima-facie made by the income-tax department, the innocence of the accused / petitioner would have to be proved in the trial. Accordingly, the prosecution proceedings initiated against the petitioner cannot be dismissed.
Our Comments
This judgment is an important reminder to taxpayers, and those in charge of non-individual taxpayers, to ensure compliance with all provisions of the IT Act. Casual delay or default in payment of withholding tax, filing of income-tax returns, etc. could invite prosecution proceedings. Further, taking tax positions which lead to allegations of wilful evasion of tax or wilful falsifying of records, or providing wilful false statements in verification, etc. can attract serious ramifications under the IT Act for the organisation and the individuals being prosecuted.
