India: Procedure For Identification And Processing Of Cases For Prosecution Under The Income Tax Act, 1961 And Relaxation Of Time Limit For Compounding The Offence Under The Direct Tax

Last Updated: 18 September 2019
Article by Vijay Pal Dalmia, Partner and Rajat Jain

By
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
Facebook: https://www.facebook.com/vpdalmia
Twitter: @vpdalmia
&
Rajat Jain, Advocate
Email id: rajatjain@vaishlaw.com
Mobile No. 9953887311
LinkedIn: https://www.linkedin.com/in/rajat-jain-75772398/

On 9th September 2019, Central Board of Direct Taxed ("CBDT") has issued 2 circulars with respect to the procedure for identification and processing of cases for prosecution under the Income Tax Act, 1961 and the relaxation of time limit for compounding the offence for which prosecution is pending.

As per the Circular No. 25/2019, the CBDT has given a one-time window period till 31.12.2019, to file the compounding applications before the Competent Authority i.e. the Pro CCIT/CCIT/Pr. DGIT/DGIT, for compounding of the offences for which prosecution is pending and the compounding applications could not be filed within the stipulated period of 12 months as per the Compounding Guidelines dated 23.12.2014, or was rejected or withdrawn as such application was filed beyond the period of 12 months. However, in the Circular, it has been clarified that the such relaxation shall not be available in respect of an offence which is generally/normally not compoundable, in view of Para 8.1 of the Guidelines dated 14.06.2019.

The said circular can be accessed at the following link: https://www.incometaxindia.gov.in/communications/circular/circular_25_2019.pdf

As per the Circular No. 24/2019, the CBDT, in order to reduce the prosecutions, has enhanced the threshold for launching prosecution in respect of the offences for default in filing TDS, income tax returns and evasion of tax:

  1. Offences u/s 276B: Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.
    Cases where non-payment of tax deducted at source is Rs. 25 Lakhs or below, and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution in normal circumstances.

    In case of exceptional cases like, habitual defaulters, based on particular facts and circumstances of each case, prosecution may be initiated only with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.
  2. Offences u/s 276BB: Failure to pay the tax collected at Source
    Same approach as in Para 2.i above.
  3. Offences u/s 276C(1): Wilful attempt to evade tax, etc.
    Cases where the amount sought to be evaded or tax on under-reported income is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

    Further, prosecution under this section shall be launched only after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal.
  4. Offences u/s 276CC: Failure to furnish returns of income.
    Cases where the amount of tax, which would have been evaded if the failure had not been discovered, is Rs. 25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers as mentioned in Para 3.

Further, for most of the offences, the CBDT has added one more obligation on the sanctioning authority to seek the prior administrative approval of a collegium of two CCIT/DGIT rank officers, including the CCIT/DGIT in whose jurisdiction the case lies, before initiating the prosecution. The list of the offences, annexed with the circular, is as under:

Annexure

Section Nature of default Approving Authority
275A Contravention of order made under section 132(1) (Second Proviso) or 132(3) in case of search and seizure Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
275B Failure to afford necessary facility to authorized officer to inspect books of account or other documents as required under section 132(1)(iib) Sanctioning Authority with the previous administrative approval of t e Collegium of two CCIT/DGIT rank officers
276 . Removal, concealment, transfer or delivery of property to thwart tax recovery Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276A Failure to comply with provisions of section 178(1) and (3) — reg. company in liquidation Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276AB Failure to comply with provisions of sections 269UC, 269UE and 269UL reg. purchase of properties by Government Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276B Failure to pay to credit of Central Government (i) tax deducted at source under Chapter XVII-B, or (ii) tax payable u/s 115-0(2) or second proviso to section 194B –
(a) where non-payment of TDS exceeds Rs. 25 lakhs Sanctioning A uthority
(b) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276BB Failure to pay to the credit of Central Government the tax collected a source under section 206C –
(a) where non-payment of TCS exceeds Rs. 25 lakhs Sanctioning Authority
(b) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276C(1) Wilful attempt to evade tax, penalty or interest or under-reporting of income
(a) where tax which would have been evaded exceeds Rs 25 lakh Sanctioning Authority
(c) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276C(2) Wilful attempt to evade payment of any tax, penalty or interest –
(a) where payment of any tax, penalty or interest exceeds Rs 25 lakhs Sanctioning Authority
(d) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276CC Wilful failure to furnish returns of fringe benefits under section 115 WD/115WH or return of income under section 139(1) or in response to notice under section 142(1)(i) or section 148 or section 153A –
(a) where tax sought to be evaded exceeds Rs 25 lakhs Sanctioning Authority
(b) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276CCC Wilful failure to furnish in due time return of total income required to be furnished by notice u/s 158BC(a) Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
276D Wilful failure to produce accounts and documents under section 142(1) or to comply with a notice under section 142(2A) Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
277 False statement in verification or delivery of false account or statement etc
(a) where tax which would have been evaded exceeds Rs 25 lakhs Sanctioning Authority
(b) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
277A Falsification of books of account or document, etc, to enable any other person to evade any tax, penalty or interest chargeable/leviable under the Act Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers
278 Abetment of false return, account, statement or declaration relating to any income or fringe benefits chargeable to tax
(a) where tax, penalty or interest which would have been evaded exceeds Rs 25 lakhs Sanctioning Authority
(b) in other case Sanctioning Authority with the previous administrative approval of the Collegium of two CCIT/DGIT rank officers

The said circular can be accessed at the following link: https://taxguru.in/income-tax/procedure-identify-process-income-tax-cases-prosecution.html

Undoubtedly, the circulars issued by CBDT is a progressive step towards reducing the workload of the prosecution cases being filed by the Income Tax Department, wherein the amount involved is not substantial in juxtaposition of the cost, time and efforts involved in the prosecution of such offences. The main aim of the Income Tax Act, being a fiscal statute, is to collect the revenue instead of prosecuting the offenders.

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