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.
DIRECT TAXES PROFESSIONALS’ ASSOCIATION
Income Tax Building, 3, Govt. Place West, Ground Floor, Kolkata 700001 Ph 033-22420638
Email : dtpakolkata@gmail.com
Ref. No. – DTPA/Rep/21-22/29
Date: 2nd August, 2021
To,
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
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:
https://taxguru.in/income-tax/procedure-identify-process-income-tax-cases-prosecution.html
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).
iii)
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,
For DIRECT TAXES PROFESSIONALS’ ASSOCIATION
CA N.K. Goyal
President
Adv Narayan Jain
Chairman, Representation Committee
CC to :
The Chairman,
Central Board of Direct Taxes,
Ministry of Finance,
North Block, New Delhi 110 001
Author Bio
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.