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Representation for substitution of Prosecution provisions under the Income Tax Act by reasonable monetary penalty as done in case of the prosecutions under the Companies Act; increasing the monetary limit for initiating prosecution complaints in Income tax matters etc. and widening the scope of compounding in prosecution cases.


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Ref. No. – DTPA/Rep/21-22/29

Date: 2nd August, 2021


Hon’ble Finance Minister,
Ministry of Finance,
Government of India,
North Block, New Delhi 110 001

Respected Madam,

Sub: Representation for substitution of Prosecution provisions under the Income Tax Act by reasonable monetary penalty as done in case of the prosecutions under the Companies Act; increasing the monetary limit for initiating prosecution complaints in Income tax matters etc. and widening the scope of compounding in prosecution cases

Representation for relaxing Income Tax Prosecution provisions

We would like to make following submission regarding Prosecutions under the Income Tax Act for kind consideration by your Honour:

1. Prosecution provisions under the Income Tax Act should be substituted by reasonable monetary penalty as done in case of the prosecutions under the Companies Act: We would like to mention that provisions of prosecution under many sections of the Companies Act, 2013 have already been omitted by the Government. These include provisions of sections 53(3), 64(2), 92(5), 102(5), 105(3), 117(2), 121(3), 137(3), 140(3), 157(2), 159, 165(6), 191(50, 197(15), 203(5) and section 238(3) of the Companies Act, 2013. The details of provisions of such sections which earlier provided for prosecution and  now stand replaced by Penalty are appearing in Annexure-A enclosed herewith. Recently many prosecution provisions under LLP have also been changed to penalty. Our suggestions are in line with the thinking of the Government to minimize litigations and the prosecution provisions under the Income Tax Act should also be omitted/ substituted by appropriate penalty as  done in case of the Companies Act and in case of LLP.

2. Without prejudice to our above suggestion, we make the following suggestions for consideration, till the prosecutions provisions are substituted by penalty as prayed for.

a) CBDT Circular 24/2019 and 25/ 2019 dated 09.2019  We convey our thanks to CBDT for issuing Circular 24/2019 dated 09.09.2019 as well as Circular No.  25/2019 dt. 09.09.2019.

b) CBDTCircular 24/2019 dated 09.09.2019 CBDT has issued the said Circular 24/2019 dated 09.09.2019 which provides that prosecution can be launched only in following cases:

(i) If tax sought to be evaded is more than Rs.25 Lakhs and

(ii)  Prosecution should be launched only after the penalty is confirmed by the ITAT

     The said Circular is available on the Government website at following link:

The Circular was issued with an objective of reducing number of prosecution cases and for removal of doubts which shows that it is a clarificatory Circular.

c) Administrative approval of the Collegium:  We appreciate that with a view to ensure that only deserving cases get prosecuted, the CBDT has instructed that prosecution may be initiated only with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3 of the said Circular 24/2019 dated 09.09.2019. The policy decision is admirable as the prosecution has to be based upon evidence gathered, and the offence has to be proved beyond reasonable doubt.

d) Request for allowing Retrospective Effect: We respectfully submit that this Circular is curative, clarificatory and remedial in nature and it ought to be given retrospective effect and apply to all pending cases where the complaint is filed. It should not be restricted only to those pending cases where complaint is yet to be filed. It is a settled law that a curative, clarificatory and remedial amendment must be given retrospective effect. For this proposition reliance may be placed on following judicial pronouncements:

i) When a provision is inserted/deleted so as to mitigate hardship caused to the assessee, it should be given retrospective effect – CIT vs. Calcutta Export Company [2018] 404 ITR 654 (SC).

ii) When a provision is inserted/deleted to remedy unintended consequences itshould be given a retrospective effect – CIT vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC).


e) Our suggestion regarding Prosecutions:

We submit that  the said Circular dated 09.09.2019 stating  that prosecution can be launched only in cases if tax sought to be evaded is more than Rs.25 Lakhs and Prosecution should be launched only after the penalty is confirmed by the ITAT should also be made applicable to cases –

a) where prosecution  is  already launched  and complaint  is  filed  before  Magistrate  as well as cases which  are  pending to be heard;

b) Thus the scope of  said Circular dated 9.9.2019  should be modified to widen the same as prayed for in (a) above.

f) Relaxation of time – Compounding of Offences under Direct Tax Laws- One Time measure.

g) There is also Circular No.  25/2019 dt. 09.09.2019 titled  “Relaxation  of  time- Compounding  of  Offences  under Direct Tax  Laws- One  Time  measures’.  Vide this  circular,  with  a  view  to  mitigating unintended hardship   to  tax payers  in deserving   cases,   and   to   reduce   the pendency  of  existing  prosecuting  cases before  the  Courts,  the CBDT  has  issued as  one-time measure,  the condition  that compounding  application  shall  be  filed within  12  months,  is  relaxed  whereby such  application  shall  be  filed  before  the Competent  Authority  i.e.  the Pr.  CCIT / CGT/Pr.  DG IT/ DGIT concerned, on or before 31-12-2019.

h) The Circular further mentions the situations in which the application can be filed as mentioned below:

(i) Prosecution Proceedings are pending before any court of law for more than 12 months, or

(ii) any  compounding  application  for an offence previously  was withdrawn  by  the  applicant  solely for  the  reason  that  such application was filed  beyond  12  months,  or

(iii) any compounding application for an offence  had  been  rejected previously  solely  for  technical reasons.

i) As  per  Clause  7(ii)  of  the  Guidelines for  Compounding  of  offences  under  the Direct  tax  laws,  2019  issued  by  CBDT, Department  of  Revenue,  Ministry  of Finance, Govt. of  India,  dated  14.06.2019, an  application  for  compounding  was required  to  be  filed  within  12  months from  the  end  of  the month  in  which  the prosecution  complaint  has been  filed in  a court  of  law  in  respect  of  the  offence  for which  the compounding  has been sought. In number of cases, the  compounding application  were filed  after  the  period laid down in the guidelines with the result that there was delay in filing  the  compounding  application.  Consequently assessee filed application for condonation of delay   along   with application for compounding of offence.

j) The   CBDT had in  terms of  Circular No.  25/2019 dt. 09.09.2019, extended  the  time  limit  for filling  such applications which  were  filed under the above  guidelines to 31.12.2019. Thus  under  clause 4.2  of the  circular dated  09.09.2019,  all  applications  for compounding  filed  with application  for condonation  of  delay  are  now   deemed to  have  been  fiIed  within      the   time prescribe d  in  terms  of  clause  7(ii)  of the Compounding Guidelines dated 14.06.2019.

k) The said two  Circulars  were intended to give relief to the  tax payers  and  are  a  step  in  the right  direction,   so   as  to avoid harassment to the  honest   taxpayers  or  unnecessarily subjecting innocent  taxpayers for  minor  offences to  hardship.

l) lt is sincerely urged that prosecution  is  a  drastic  step. Thus small  and  minor  offences  should  be subjected to penalties  and fines only and not subjected to prosecution.

m) A lot of revenue by way of compounding fees will be collected by the Government in form of above relaxation and save many small tax-payers whose tax liabilities are below Rs. 50 Lakh and their appeals are pending. At the same time it will considerably help in reducing unnecessary litigation.

3. Humble Appeal for Fresh Revised Liberalised Guidelines for compounding of Prosecution matters:

There is urgent need for fresh Liberalised guidelines in nature for relaxation of time limit and allowing 50% amount of the tax to be paid as compounding fees as compared to on the earlier guidelines of F.No.285/0812014-IT (Inv.V), Circular No.  25/2019 dt. 09.09.2019 to help the small tax payers who want to pay compounding amount willingly but at present department is not accepting the application.

4. We pray that in the Revised guidelines, the time limit for filling compounding application should be extended to at least 31st December 2021 to get more revenue and for minimizing litigation.

5. Kindly consider all above prayers and oblige.

For this act of kindness, we shall remain grateful to you.

With Best Regards,

Yours faithfully,


CA N.K. Goyal

Adv Narayan Jain 
Chairman,  Representation Committee

CC to :

The Chairman,
Central Board of Direct Taxes,
Ministry of Finance,
North Block, New Delhi 110 001


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One Comment


    Very Well Articulated Representation to reduce harsh Litigation Process of Prosecution In Income Tax Matters. Even after Paying Due Tax, Interest & Penalty, launching the Prosecution in Court is completely harassment of Taxpayers which needs to be addressed in justified manner as mentioned in the above Representation.

    Let’s hope that Hon’ble Finance Minister Listens the genuine concern & take appropriate action ASAP.

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