Prosecution on Willful Failure to File Return of Income

Section 276CC of Income tax Act provides for period of rigorous imprisonment and fine in case of willful failure to file return of income under section 139/148/153A or in response to Notice u/s 142(1). The Prosecution is as follows –

1. If amount of tax sought to be evaded is Rs 25 Lakh or less :

• Minimum period of rigorous imprisonment of 3 months and fine
• Maximum period of rigorous imprisonment of 2 years and fine.

2. If amount of tax sought to be evaded is more than Rs 25 Lakh :

• Minimum period of rigorous imprisonment of 6 months and fine
• Maximum period of rigorous imprisonment of 7 years & fine.

No Limit for Quantum of fine specified.

Section 139(1) provides for Obligation to file return of Income for Every person (a) being a company or a firm or (b) being a person other than company or a firm, if his total income exceeded the maximum amount which is not chargeable to tax.

Maximum amount which is not chargeable to tax as provided by Finance Act 2018 in case of Individuals are as follows :

1. In case of Individual, being a resident in India, who is of the age of 60 years or more but less than 80 years at any time during the Previous year : Rs 3,00,000

2. In case of Individual, being a resident in India, who is of the age 80 years or more at any time during the previous year: Rs 5,00,000

3. In case of Individuals other than referred above or in case of HUF : Rs 2,50,000

Sixth Proviso to Section 139(1) provides that the above Total Income shall be Calculated before giving effect to the Provisions of Chapter VI-A i.e. Section 80C to 80U

For example: If an Individual has Salary Income of Rs 3,50,000 and Deduction u/s 80C of Rs 1,50,000, the Total Income will be Rs 2,00,000 but still as per sixth proviso to Section 139(1) his total Income will be considered without giving effect to Section 80C 1,50,000 deduction and he will be required to file return of income.

Time limit to file return of Income u/s 139(1) are –

• 30th September of the Assessment Year, Where the assessee is –
  • a Company; or
  • a person whose accounts are required to be audited under the Income tax Act or under any other law; or
  • a working partner of a firm whose accounts are required to be audited under the income tax Act or under any other law
• 30th November of the Assessment Year, in case of assessee who is required to furnish report of transfer pricing under section 92E
• 31st July of Assessment Year, in case of any other assessee

Section 142(1): if the assessee has not furnished the return of income within the time prescribed u/s 139(1), then the Assessing Officer may issue a Notice requiring him to furnish the return of Income within the time specified in the notice.

Section 148 provides for Notice to file return of Income where Income has escaped assessment under section 147

Section 153A provides for Notice to furnish return of income for assessment in case of Search.

Now, Prosecution for failure to file return of income will be there as under :

♦ Failure to file Return of Income (ROI) within time allowed in a notice under section 142(1)/148/153A

♦ Failure to file ROI within the time allowed under section 139(1),

Exception :

• If ROI filed before the expiry of the relevant Assessment Year (AY) i.e. Under Section 139(4)
  • No Prosecution whatever may be the amount of income tax payable.
• If ROI filed after the expiry of the relevant AY
  • In case of person other than company: 
    • Balance Tax after adjusting TDS/TCS and Advance tax from Tax on Assessed Income is Rs 3,000 or less, there will be NO PROSECUTION.
  • In case of Company, Prosecution will be there even if no tax is payable. 

In order to prevent abuse of the said section by shell companies, the provisions are amended by Finance Act 2018 to prosecute companies for not filing return of income even if there is no tax payable.

Section 139(4) : If a person has not furnished return of Income within the time allowed under section 139(1) then he may furnish the return of income at any time before the end of the relevant assessment Year.

Therefore, For Previous Year 2017-18, the assessment year will be 2018-19 and the return can be filed upto 31.03.2019 in order to avoid Prosecution u/s 276CC.

But filing return beyond the time limit prescribed u/s 139(1) shall attract the late fees provided under section 234F.

Section 234F : Fee for Default in furnishing Return of Income 

• Rs 5,000, if the return is furnished on or before the 31st day of December of the assessment year;
• Rs 10,000 in any other case (i.e. if return furnished after 31st day of december)

Proviso: If Total Income of the person does not exceed Rs 5 Lakh, the Fee payable under the section shall not exceed Rs 1,000.