IN this Article we have discussed 37 defaults which invites levy of Penalty and 17 offences which are punishable under under the Income Tax Act,1961. Articles further discusses in brief about Penalty & Prosecution Provision in Brief.
Direct Tax Legislations are one of the significant modes which enable the State to realize the objectives of both Social and Economic Justice as also defraying the cost of rendering public services on the part of the State, thereby ushering in an era of egalitarian Social and Economic order as enunciated in Part –IV (i.e. of the Directive Principles of State Policy) of the Constitution of India. The emphasis is shifting progressively to voluntary compliance of tax laws; but it will be an exercise in futility, in case it is not backed by strong deterrence against tax evaders so that they do not go with impunity. There are three modes built in the fiscal legislation for encouraging tax compliance: (a) Charge of Interest, (b) Imposition of penalty, (c) launching of prosecution against tax delinquents. While charging of interest is compensatory in character, the imposition of penalty and institution of prosecution proceedings act as deterrents against potential tax delinquents.
Thus, the imposition of penalty and initiation of prosecution proceedings under the Income -tax Act, 1961 are intended to ensure a strong deterrent in the mind of potential tax delinquent. In the last two decades, the economic activities at global level have largely impacted the Indian economy. Global business transaction and cross border business transactions have become regular business operations in the Indian economy. Therefore, the penal action under the Income Tax Act has also extended towards non–compliance of statutory obligations by the person / entities, who enters international transactions.
WHAT ARE THE DEFAULTS WHICH MAY INVITE LEVY OF PENALTY
Chapter – XVII and XXI of the Income-tax Act, 1961 contain various provisions empowering an income-tax authority to levy penalty in case of certain defaults.
The following defaults may invite levy of penalty:
(1) When the assessee is in default or is deemed to be in default in making payment of tax, including the tax deducted at source or advance tax or the self assessment tax [Section 221 read with section 201(1)]
(2) Failure to comply with notice under section 142(1) or section 143(2) or section 143(2) or failure to comply with a direction issued u/s 142(2A) to get accounts audited [Section 271(1)(b)]
(3) Concealment of particulars of income or furnishing of inaccurate particulars of income [271(1)(c)]
(4) Failure to keep, maintain books of accounts, documents etc. as required by Section 44AA by persons carrying on profession or business. [271A]
(5) Failure to keep or maintain information and documents etc. in respect of international transaction or specified domestic transaction as required by Section 92D(1) and (2) of Income Tax Act [271AA]
(6) In a case where search has been initiated u/s 132 on or after last day of June, 2007 [but before first day of July, 2012], on undisclosed income of the specified previous year [271AAA]
(7) In a case where search has been initiated u/s 132 on or after July, 2012, on the undisclosed income of the specified previous year [271AAB]
(8) Failure to get the accounts audited in respect of any previous year or years or failure to furnish a report of such audit within prescribed time period as envisaged u/s 44AB of the Act [271B]
(9) Failure to furnish a report from an accountant as required by section 92E of the Income-tax Act to be furnished by persons entering into international transaction or specified domestic transaction on or before the specified date in the prescribed form duly signed and verified by such accountant in the prescribed manner [271BA]
(10) Failure to deduct tax at source as required by or under the provisions of Chapter XVII-B or pay the tax as required by or under section 115-O(2) or second proviso to section 194B of the Act [271C]
(11) Failure to collect the tax at source by person who is responsible to collect the whole or any part of the tax as required by or under the provisions of Chapter XVII-BB of the Income-tax Act [271CA]
(12) Accepting of any loan or deposit or repayment of deposit of Rs. 20,000/- or more otherwise than by account payee cheque or account payee draft in contravention of the provisions of sections 269SS[271D]
(13) Repayment of loan or deposit in contravention of the condition imposed in section 269T of the Income Tax Act [271E]
(14) Failure to file the return of income as required under section 139(1) or by the provisos to that sub-section [271F]
(15) Failure to furnish an annual information return as per section 285BA(1) within time prescribed under sub-section (2) thereof, for such failure for every day during which failure continues [271FA]
(16) Failure to furnish a statement of financial transaction or reportable account by a person covered in clause (k) of subsection 1 of section 285BA on account of deliberate failure in complying the due diligence required under section 285BA(7) read with section 285BA(6) of the Act (271FAA)
(17) Failure to furnish information / document under section 92D of the Act by a person, who has entered into an international transaction or specified domestic transaction, for each such failure [271G]
(18) Failure to furnish a statement or furnishing an incorrect information in the statement within the time prescribed as per section 200(3) or the proviso to section 206(c)(3) [271H]
(19) Refusal to state the truth to answer any question put by income tax authority in contravention of legal obligation [272A(1)(a)]
(20) Refusal to sign any statement made in the course of any income tax proceedings which he is legally required to do [272A(1)(b)]
(21) Failure to attend or give evidence or produce books of account or other documents in compliance with the requirement of summons issued u/s.131(1) of the Income Tax Act [272A(1)(c)]
(22) Failure to furnish information regarding avoidance of tax by certain transaction in securities as required under section 94(6) of the Act [272A(2)(a)]
(23) Failure to give notice of discontinuance of business or profession as required by section 176(3) of the Act [272A(2)(b)]
(24) Failure to furnish in due time statements / returns / particulars mentioned in section 133 or section 206 or section 206 C or section 285B of the Act [272A(2)(c)]
(25) Failure to allow inspection of any register / any entry referred in section 134 of the Act or take copies of such register or any entry therein of companies [272A(2)(d)]
(26) Failure to furnish in due time the return of income by charitable or religious institution or research association or institution / educational institution referred under sub section (4A) or (4C) of section 139 of the Act [272A(2)(e)]
(27) Failure to deliver or cause to be delivered in due time a copy of declaration of non-deduction of tax at source under section 197A [272A(2)(f)]
(28) Failure to furnish a certificate of tax deducted at source to the person on whose behalf tax has been deducted or collected as required by section 203 or section 206(c) [272A(2)(g)]
(29) Failure to deduct and pay tax from salary payable to an employee as directed by assessing officer or the tax recovery officer as required by section 226(2) of the Act [272A(2)(h)]
(30) Failure to furnish a statement giving correct and complete particulars of perquisites or profits in lieu of salary as required by sub section. (2C) of section 192 of the Act [272A (2)(i)]
(31) Failure to deliver or caused to be delivered in due time a copy of declaration in writing in prescribed form and verified in prescribed manner for the goods referred in column (2) of the table of section 206C(1) as referred to in section sub section (1A) of section 206C(1) [272A(2)(j)]
(32) Failure to deliver to cause to be delivered the statement within the time specified in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C [272A(2)(k)]
(33) Failure to deliver or cause to be delivered the statement within the time specified in sub section (1) of section 206A for furnishing a quarterly return in respect of payment of interest to resident without deducting of tax by banking company or co-operative society or by company [272A(2)(l)]
(34) Failure to allow an income tax authority to collect any information useful or relevant to the purpose of income tax under section 133B of the Act [272AA]
(35) Failure to comply with the provision of section 139A(1) or sub section 5(c), (5A), (5C) of section 139A of the Act [272B)
(36) Failure to comply with the provision of section 203A of the Act to quote his tax deduction account number, tax collection account number or tax deduction and tax collection account number as envisaged under sub section (2) of section 203A of the Act [272BB]
(37) Failure to comply with the provision of section 206CA by a person collecting the tax in accordance with section 206C of the Act within such time as prescribed for applying the allotment of a tax collection account number [272BBB]
IS THE LEVY OF PENALTY AUTOMATIC?
No penalty under the Income-tax Act is imposed unless the person concerned has been given reasonable opportunity of being heard.
WHAT IS THE MINIMUM AND MAXIMUM PENALTY LEVIABLE?
The quantum of penalty leviable depends upon the nature of deault. The relevant sections of income-tax Act prescribe the minimum and maximum penalties which can be levied. For some defaults penalty amount is presesibed per day of delay or default
CAN THE PENALTY BE REDUCED OR WAIVED?
The Commissioner of Income-tax may reduce or waive the amount of any penalty imposed or imposable, if prescribed conditions are satisfied. The assessee should voluntarily and in good faith make full and true disclosure of income prior to the detection of concealment by the Assessing Officer. In certain cases of genuine hardship, the penalty levied can be reduced / waived if the assesee has co-operated in any enquiry relating to the assessment and recovery of taxes. The waiver/reduction of penalties is discretionary and dependent upon satisfaction of prescribed conditions. No assessee can, as a matter of right, claim waiver or reduction of penalty imposed or imposable upon him. [Section 273A]
OFFENCES AND PROSECUTIONS UNDER THE INCOME TAX ACT.
WHY IS PROSECUTION NECESSARY?
In the fight against tax evasion, the imposition of monetary penalty alone is not sufficient. A calculating tax evader finds it profitable to evade tax for years, if he knows that he may get away with it by paying penalty in the year in which he is caught. However, the prospect of landing in jail is a far more dreaded consequence and works as a deterrent. Further, for more serious defaults, sometimes launching of prosecution is prescribed without prescribing monetary penalties.
The Parliament has, therefore, been enacting deterrent laws for effective implementation of tax laws. The Income-tax Act contains a separate chapter XXII wherein offences have been defined and punishment provided.
WHAT ARE THE OFFENCES PUNISHABLE UNDER THE INCOME TAX ACT?
What are the offences punishable under the Income Tax Act :
(1) Removal, parting with or otherwise dealing with books of accounts, documents, money, bullion, jewellery or other valuable articles or things put under restrain order as per section proviso to sub section (1) or sub section (3) of section 132 during the search [section 275A]
(2)Failure to comply with the provisions of clause (iib) of sub section (1) of section 132 in affording the authorized officer the necessary facility to inspect the books of account or other documents [275B]
(3) Fraudulent removal, concealment, transfer or delivery of an property or any interest in the property with the intention to thwart recovery of tax [section 276)
(4) Failure on the part of a liquidator or receiver of a company to give notice of his appointment to the Assessing Officer or failure to set apart amount notified by the Assessing Officer, or parting away of company’s properties in contravention of income-tax provision [section 276A]
(5) Failure to enter into written agreement or failure to furnish the statement of immovable property intended to be transferred u/s.269UC or failure to surrender or deliver the property u/s.269UE, purchased by the Appropriate Authority or doing or omitting to do anything u/s.269UL, which will have the effect of transfer of property without the permission of the Appropriate Authority (under the provisions of Chapter XX-C) [Section 276AB]
(6) Failure to pay to the credit of the Central Government the tax deducted at source [section 276B]
(7) Failure to pay the tax collected at source under section 206C to the credit of Central Government [section 276BB]
(8) Willful attempt to evade any tax, penalty or interest chargeable or imposable under the Income Tax Act [section 276C(1)]
(9) Willful attempt to evade the payment of any tax, penalty or interest levied under Income Tax Act [section 276C(2)]
(10) Willful failure to furnish in due time return of income or return of fringe benefits [section 276CC]
(11) Failure to furnish return of income in search cases as required under clause (a) of section 158BC [section 276CCC] Search upto 31/5/03
(12) Willful failure to produce accounts and documents as directed by issue of notice under section 142(1) [section 276D]
(13) Willful failure to get the accounts audited as directed by the assessing officer under section 142(2A) [section 276D]
(14) Making of a statement in verification or delivery of an account or statement which is false and which the concerned person knows or believes to be false or does not believe to be true [section 277]
(15) Falsification of books of account or document by any person willfully and with intent to enable any other person to evade any tax or interest or penalty chargeable and imposable under the Income Tax Act makes or causes to make any entry or statement, which is false [section 277A]
(16) Abetting or inducing another person to make and deliver an account or statement or declaration relating. to any taxable income or any fringe benefits, which is false and which he either knows or believes to be false [section 278]
(17) Punishment for 2nd & subsequent offences in cases of certain defaults convicted u/s.276B/276C/276CC/276DD/276E/277 & 278 of the Act [section 278A]
No person shall be punished for any failure u/s 276A, 276AB or 276B if he proves that there is reasonable cause for such failure [section 278AA]
WHO IS LIABLE TO BE PROSECUTED?
Any person, committing the offence is liable to be prosecuted. In this connection it is not necessary that the person should be an assessee under the Income-tax Act. In the case of an offence committed by a Company, Firm, Association of Persons or Body of Individuals, every person in charge of or responsible for the conduct of the business of the concern as well as the concern are deemed to be guilty. Similarly, in the case of an offence by a Hindu Undivided Family, the karta thereof, is deemed to be guilty of the offence.
IS MENSREA OR CULPABLE MENTAL STATE OR GUILTY INTENTION NECESSARY?
In case of willful act of omission or commission, the court shall presume the existence of culpable mental state. However, the accused can rebut this presumption by producing necessary evidence before the court. [Section 278E]
CAN THE OFFENCE BE COMPUNDED?
Section 279(2) of Income-tax Act empowers a Principal Chief Commissioner or a Chief Commissioner or Principal Director General or Director General of Income-tax to compound an offence either before or after the institution of prosecution proceeding.
WHEN PUBLIC SERVANT IS LIABLE TO BE PROSECUTED?
When public servant liable to be prosecuted?
If a public servant furnishes any information in contravention of the provisions of Section 138(2), prosecution may be instituted against him with the previous sanction of the Central Government. [Section 280]