Contents at a glance Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Chapter 1
Genesis of Prosecution under Income-tax. . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 2
Offences subject to prosecution – A Snapshot. . . . . . . . . . . . . . . . . . . 11
Chapter 3
Offences under Chapter XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 4
Offences by Corporate Assessees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Chapter 5
Offences by other Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Chapter 6
Reasonable Cause and Presumption as to Culpable Mental State. . . 133
Chapter 7
Initiation of Prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Chapter 8
Filing of complaint before Trial court and Bail. . . . . . . . . . . . . . . . . 183
Chapter 9
Pre-charge Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Chapter 10
Framing of charge and post-charge proceedings. . . . . . . . . . . . . . . . 199
Chapter 11
Cross Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Chapter 12
How to Mitigate Framing of Charges by a Trial Court. . . . . . . . . . . 215
Chapter 13
Appeal, Revision and Writ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 APPENDICES
Appendix-1 : Guidelines for Compounding of Offences. . . . . . . . . . . . . . . . . . . . . . 246 Appendix-2 : Guidelines for Prosecutions issued by the CBDT . . . . . . . . . . . . . . . . 262 Appendix-3 : Important Judgments on Prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . 273
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Table of contents Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Chapter 1 Genesis of Prosecution under Income-tax. . . . . . . . . . . . . . . . . . . . . 1 1.1 History of Income-tax in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Brief overview of Income-tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Introduction of Prosecution in the Income-tax Law in India . . . . . . . . . . . . . . 3 1.3.1 Prosecution under the 1922 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3.2 Prosecution under the 1961 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Chapter 2 Offences subject to prosecution – A Snapshot. . . . . . . . . . . . . . . . . 11 2.1 Chapter XXII of the Income-tax Act, 1961. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2 Relevant legal terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.1 Bailable Offence & Non-bailable offence. . . . . . . . . . . . . . . . . . . . . 11 2.2.2 Cognizable offence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.3 Non-cognizable offence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.4 Summons-case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.5 Warrant-case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.3 Difference between summons case and a warrant case. . . . . . . . . . . . . . . . . . 12 Classification of the offences under Chapter XXII of the Income2.4 tax Act, 1961. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Chapter 3 Offences under Chapter XXII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.1 Section 275A: Contravention of order made under section 132(3). . . . . . . . . 20 3.2 Section 275B: Failure to comply with the provisions of clause (iib) of sub-section (1) of section 132. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.3 Section 276: Removal, concealment, transfer or delivery of property to thwart tax recovery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.4 Section 276A: Failure to comply with the provisions of subsections (1) and (3) of section 178.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.5 Section 276AB: Failure to comply with the provisions of sections 269UC, 269UE and 269UL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.6 Section 276B Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 xvii
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3.6.1
3.7
3.8
3.9
3.10
Mere failure to pay the tax deducted with in prescribed period attracts prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.6.2 Pendency of proceedings under section 201(1) and 201(1A) cannot act as a bar to institution and continuance of criminal prosecution for offences punishable under section 276B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.6.3 Mens-rea is not a requisite ingredient of offence under section 276B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 276C: Wilful attempt to evade tax, etc. . . . . . . . . . . . . . . . . . . . . . . . 38 3.7.1 Difference in section 276C(1) and section 276C(2) . . . . . . . . . . . . . 39 3.7.2 Interpretation of term “wilful attempt to evade the payment of tax”:. . . 40 3.7.3 Constitutional Validity of section 276C. . . . . . . . . . . . . . . . . . . . . . . 42 3.7.4 Interpretation of Explanation to section 276C of the Act . . . . . . . . . 43 Section 276CC: Failure to furnish returns of income.. . . . . . . . . . . . . . . . . . . 45 3.8.1 If a return is filed under sub-section (4) of section 139, would it mean that the requirements of sub-section (1) of section 139 are fulfilled?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.8.2 Payment of interest charged cannot absolve the liability of offence committed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.8.3 Interpretation of “wilfully fails” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.8.4 Where the noticeunder section 148 of the Act is not served. . . . . . . 50 3.8.5 Proviso to Section 276CC gives some relief to genuine assesses. . . 51 3.8.6 Pendency of appellate proceedings has no bearing on initiation of prosecution under Act . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 277: False statement in verification, etc. . . . . . . . . . . . . . . . . . . . . . . 53 3.9.1 Who can be prosecuted under section 277of the Act. . . . . . . . . . . . . 54 3.9.2 There should be Tax Evasion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3.9.3 Interpretation of word “Person” in section 277of the Act. . . . . . . . . 55 3.9.4 Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.9.5 Falsification should be intentional. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.9.6 Conclusiveness of statement by co-accused . . . . . . . . . . . . . . . . . . . 60 3.9.7 Where Assessment Order has been set aside in Appeal. . . . . . . . . . . 62 Section 278: Abetment of false return, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 3.10.1 Mere presence in Assessment Proceedings does not amount to abetment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Offences by Corporate Assessees . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Chapter 4 4.1 Can a Company be Prosecuted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4.2 Prosecution of Individuals Related With Companies. . . . . . . . . . . . . . . . . . . 76 4.2.1 Applicability of Principle of Vicarious Liability to Individuals related with companies. . . . . . . . . . . . . . . . . . . . . . . . . . 76 xviii
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4.2.2 4.2.3
Prosecution of Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Principal Officer under section 2(35) of the IT Act. . . . . . . . . . . . . . 88
Chapter 5 Offences by other Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 5.2 Offences by Individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 5.2.1 Principle of “Alter Ego” to Individuals. . . . . . . . . . . . . . . . . . . . . . 108 5.2.2 Is a complaint filed in the name of sole proprietorship concern only maintainable?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Offences by a firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 5.3 Offences by a Limited Liability Partnership. . . . . . . . . . . . . . . . . . . . . . . . . 121 5.4 5.5 Offences by an HUF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 5.6 Offences by Trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Chapter 6
Reasonable Cause and Presumption as to Culpable Mental State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.2 Concept of Reasonable Cause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 6.2.1 Cases for reasonable cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 6.2.2 Erstwhile Section 278AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 6.2.3 Amendment by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 . . . . . . . . . . . . . . . . . . . . . . . 135 6.2.4 Section 278AA (as on date). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 6.2.5 Reasonable cause not a ground for exoneration in all cases of Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 6.2.6 Burden of proof is on the accused. . . . . . . . . . . . . . . . . . . . . . . . . . 137 6.3 What constitutes ‘Reasonable Cause’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 6.4 Presumption as to Culpable Mental State. . . . . . . . . . . . . . . . . . . . . . . . . . . 143 6.5 Presumption as to Culpable Mental State and Discharge Application under section 245 of the Code of Criminal Procedure, 1973 . . . . . . . . . . . . 167 Chapter 7 Initiation of Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 7.1 Sanction for Prosecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 7.2 Is it necessary to Obtain Sanction for Prosecution? . . . . . . . . . . . . . . . . . . . 173 7.3 Necessity to issue Notice before passing an order of sanction to prosecute?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 7.4 Complaint to be filed by WHOM? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Application of mind before Granting sanction for prosecution . . . . . . . . . . 174 7.5 7.6 Sanction can only be granted by Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. . . 177 7.7 Period of Limitation for Launching Prosecution. . . . . . . . . . . . . . . . . . . . . . 179
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Chapter 8 Filing of complaint before Trial court and Bail. . . . . . . . . . . . . . . 183 8.1 Filing of Criminal Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 8.2 Bail Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Chapter 9 Pre-charge Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 9.1 Warrant Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 9.2 Summons Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Chapter 10 Framing of charge and post-charge proceedings . . . . . . . . . . . . . 199 10.1 Warrant Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 10.2 Summons Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 10.3 Separate Charge for Distinct Offences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 Chapter 11 Cross Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Right of accused to cross examine witness of Prosecution. . . . . . . . . . . . . . . . . . . . . 209 Chapter 12 How to Mitigate Framing of Charges by a Trial Court. . . . . . . . 215 12.1 Discharge Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 12.1.1 Scope of Discharge Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 12.1.2 Grounds of Discharge Application . . . . . . . . . . . . . . . . . . . . . . . . . 222 12.2 Quashing of Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 12.2.1 Scope of section 482 of Cr.P.C.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 12.2.2 Section 482 vis-à-vis section 245 of the Cr.P.C.. . . . . . . . . . . . . . . 225 12.3 Compounding of Offences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 12.3.1 Scope of the term “Proceedings”. . . . . . . . . . . . . . . . . . . . . . . . . . . 232 12.3.2 Instructions issued by CBDT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Chapter 13 Appeal, Revision and Writ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 13.1 Appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 13.1.1 Appeal on conviction to the Supreme Court. . . . . . . . . . . . . . . . . . 238 13.1.2 Appeal to the High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 13.1.3 Appeal to the Sessions Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 13.2 Revision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 13.3 Writ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 APPENDICES Appendix-1 : Guidelines for Compounding of Offences. . . . . . . . . . . . . . . . . . . . 246 Annexure 1: Format of Application for Compounding . . . . . . . . . . . . . . . . . . . . . 255 Annexure 2: Checklist for Compounding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 Annexure 3: Format for order u/s 279(2) for Compounding of an Offence . . . . . 260
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Appendix-2 : Guidelines for Prosecutions issued by the CBDT. . . . . . . . . . . . . . 262 (a) Circular F.No. 285/90/2008-IT(Inv.I) dated 24.04.2008. . . . . . . . . . . . . . . . 262 (b) Circular F.No. 285/90/2013-IT(Inv.) dated 07.02.2013 . . . . . . . . . . . . . . . . 266 (c) Circular F.No. 285/90/2013-IT(Inv.V)/112 dated 27.12.2014. . . . . . . . . . . 268 (d) Circular F.No. 285/90/2013-IT(Inv.V) dated 18.10.2016. . . . . . . . . . . . . . . 270 Appendix-3 : Important Judgments on Prosecution. . . . . . . . . . . . . . . . . . . . . . . 273 (a) Madhumilan Syntex Ltd. v Union of India [2007] 290 ITR 199 (SC). . . . . 273 (b) Pooja Ravinder Devidasani v State of Maharashtra (2014 ) 16 SCC 1. . . . . 287 (c) Iridium India Telecom Ltd. v Motorola Inc. [2011] 106 SCL 28 (SC). . . . . 298 (d) K. Inba Sagaran v Asstt. CIT [2001] 247 ITR 528 (Mad.). . . . . . . . . . . . . . 327
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Table of cases A.K. Singhania v Gujarat State Fertilizer Co. Ltd, AIR 2014 SC 71. . . . . . . . . . . . . . 86 Abraham Memorial Educational Trust v C. Suresh Babu, (2013) 1 Comp LJ 371(Mad) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Addl.CIT v Dargapandarinath Tuljayya Co, 107 ITR 850. . . . . . . . . . . . . . . . . . . . . 140 Ajoy Kumar Ghose v State of Jharkhand and Anr (2009) 14 SCC 115. . . . . . . 193, 216 Alim Ahuja v Union of India (UOI) (26.06.1995 - RAJHC) 1996 Cri LJ 1920. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Amit Kapoor v Ramesh Chander (2012) 9 SCC 460. . . . . . . . . . . . . . . . . . . . . . . . . 228 Anand Transport Private Limited v Assistant Commissioner of Tax 2014 (2) TMI 434. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Anirudh Sinhji Jadeja v State of Gujarat, [1995] 5 SCC 302. . . . . . . . . . . . . . . . . . . 178 Arvind Kejriwal & amp; Ors. v Amit Sibal & amp; Anr. 212 (2014) DLT 489 (16.01.2014 - DELHC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Assistant Commissioner of Income Tax v Yerra Nagabhushanam, [1997] 226 ITR 843 (AP).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Asstt. CIT v Nilofar Currimbhoy, [2013] 219 Taxman 102 (Mag.) (Delhi). SLP Accepted/Granted in [2015] 228 Taxman 57 (SC). . . . . . . . . . . . . . 48 Asstt. Commissioner v Velliappa Textiles Ltd, [2003] 263 ITR 550 (SC). . . . . . . . . . 71 Asstt.CIT v Greatway (P.) Ltd. [1993] 199 ITR 391/[1992] 64 Taxman 421. . . . . . . . 99 Azadi Bachao Andolan v Union of India, [2001] 252 ITR 471 (Del) . . . . . . . . . . . . 139 Babu Lal v Hazari Lal Kishori Lal AIR 1982 SC 818, 824. . . . . . . . . . . . . . . . . . . . 233 Banwarilal Satyanarain v State of Bihar, [1989] 179 ITR 387 (Pat.). . . . . . . . . . . . . 136 Bombay CastwellEngg. (P.) Ltd., In re [1984] 55 Comp. Cas. 75 (Bom.). . . . . . . . . . 96 C.G. Balakrishnan v ITO, [1988] 171 ITR 1 (Ker). . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Century Spinning & Manufacturing Co. Ltd. v The State of Maharashtra 1972 Cri LJ 329. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Chairman, CBDT v Umayal Ramanatha [2009] 313 ITR 59 (Mad.). . . . . . . . . 232, 233 CIT v Indira Balakrishna, [1960] 39 ITR 546 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 CIT v PatramDass Raja Ram Beri, [1981] (132 ITR 671)(P&H). . . . . . . . . . . . . 48, 140 CIT v Sahara India Financial Corpn. Ltd, [2012] 211 Taxman 192 (Delhi)(MAG.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 CIT v SPL’S Siddhartha Ltd., [2012] 345 ITR 223 (Delhi). . . . . . . . . . . . . . . . . . . . 177 Commissioner of Central Excise & Customs v Mohammed Farookh Mohammed Ghani, 2010 (259) E.L.T. 179 (Guj.). . . . . . . . . . . . . . . . . . . . . . . . 120 Commissioner of Police Bombay v GovardhanDassBhanji, AIR 1952 SC 16. . . . . . 179 Construction Co. (P.) Ltd. vP.P.Suri, ITO, [1986] 158 ITR 496 (Delhi). . . . . . . . . . . 140 CWT v Arvind, 173 ITR 479 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 xxiii
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DCIT v Shri. M. Sundaram, (2010) 322 ITR 196 (Mad.). . . . . . . . . . . . . . . . . . . . . . . 47 Deputy Commissioner of Income-tax, Circle- XVIII v. Suresh Kumar, [2005] 97 ITD 527 (Kol.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Devendra Kishanlal Dagalia v Dwarkesh Diamonds (P) Ltd (2014) 2 SCC 246. . . . 226 Devendra v State of U.P. (2009) 7 SCC 495. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Dr. R.P. Gupta v IAC, [1987] 168 ITR 33 (Del). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Durga Shankar Mehta v Thakur Raghuraj Singh and Ors, AIR 1954 SC 520. . . . . . 238 Dy. CIT v Modern Motor Works, [1996] 220 ITR 415 (Punj. &Har.). . . . . . . . . . . . . 37 G. Viswanathan v ITO, [1987] 167 ITR 103 (Ker.).. . . . . . . . . . . . . . . . . . . . . . . . 39, 43 General Sales P. Ltd v Gopal Mukherjee, [1987] 166 ITR 77 (Del) . . . . . . . . . . . . . . 29 Girish Chandra Gupta and Ors. v State of U.P. and Anr.2005 (1) ACR 427 . . . . . . . 191 Greatway (P.)Ltd. v Asstt. CIT, [1993] 199 ITR 391 (Punj.& Har.). . . . . . . . . . . . . . 96 Harinarayan G. Bajaj v State of Maharashtra and Ors. (2010) 11 SCC 520 . . . . . . . 209 Income- tax Officer v Dinesh K. Shah, [1997] 223 ITR 68 (Madras) . . . . . . . . . . . . . 82 Income Tax Officer v Shiv Kumar,[2006] 282 ITR 406 (Punj).. . . . . . . . . . . . . . . . . . 41 Indra and Ors. v State of U.P. and Ors. (11.03.2015 - ALLHC) Application U/S 482 No. 6376 of 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 Integrated Finance Co. Ltd. v Thomas 2013 Cri LJ 3709. . . . . . . . . . . . . . . . . . . . . . 216 ITO v Abdul Razack, [1990] 181 ITR 414. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 ITO v Anil Batra, [2015] 53 taxmann.com 296 (Delhi). . . . . . . . . . . . . . . . . . . . . . . 101 ITO v Delhi Iron Works (P.)Ltd., [2010] 195 Taxman 372 (Delhi) . . . . . . . . . . . . . . . 94 ITO v Gadamsetty Nagamaiah Chetty, [1996] 219 ITR 263 (AP). . . . . . . . . . . . . . . . 54 ITO v Ishwar Tractor Co., 1997 225 ITR 544 (Punj). . . . . . . . . . . . . . . . . . . . . . . . . . 69 ITO v J. Chitra and Ors.,[[2001] 247 ITR 497 (Mad) . . . . . . . . . . . . . . . . . . . . . . . . . 61 ITO v Kerala Oil Mills, [1986] 162 ITR 292 (Ker) . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ITO v Mukesh Kumar,[2002] 254 ITR 409 (Punj). . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ITO v R.M. Sevugaperumal& Bros., [1999] 240 ITR 111 (Mad) . . . . . . . . . . . . . . . . 55 ITO v Roshni Cold Storage (P.) Ltd, (2000) 245 ITR 322 (Mad). . . . . . . . . . . . . . . . . 97 J.K. Synthetics Ltd. v ITO, [1987] 168 ITR 467 (Del). . . . . . . . . . . . . . . . . . . . . . . . . 57 J.M. Shah v ITO [1996] 218 ITR 38 (MAD.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 J.P.Singh v IAC [1990] 185 ITR 659 (Raj.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Jamshedpur Engg. & Machine Mfg. Co. Ltd. v Union of India, [1995] 214 ITR 556 (PAT.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80, 87 Jasbir Singh and Ors. v ITO, [1987] 168 ITR 770 (PH). . . . . . . . . . . . . . . . . . . . . . . . 54 K.A.Khaja v ITO, [1992] 196 ITR 627 (Mad).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 K. InbaSagaran v Asstt. CIT [2001] 247 ITR 528 (Mad.) . . . . . . . . . . . . . . . . . . . . . 202 K. Subramanyam v ITO, [1993] 199 ITR 723. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Kaira District Co-operative Milk Producers Union Limited v Deputy Commissioner of Income Tax 2015 (11) TMI 302 . . . . . . . . . . . . . . . . . . . . . . . 243 Kapurchand Shrimal v TRO, [1969] 72 ITR 623 (SC). . . . . . . . . . . . . . . . . . . . . . . . 122
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Kingfisher Airlines Ltd. v Income Tax Department, [2014] 265 ITR 240 (Karnataka). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 91 KishanSwaroop v Govt of NCT of Delhi (1998) 8 SCC 451. . . . . . . . . . . . . . . . . . . 241 Krishna Medical Stores and Anr. v ITO,[1994] 206 ITR 76 (AP). . . . . . . . . . . . . . . . 66 Krishnan and Anr. v Krishnaveni and Ors.,(1997) 4 SCC 241. . . . . . . . . . . . . . . . . . 241 Kusumchand Sharadchand v Union of India, [2006] 286 ITR 370 . . . . . . . . . . . . . . . 77 Lachhman Dass v Santokh Singh [1995] 4 SCC 201. . . . . . . . . . . . . . . . . . . . . . . . . 233 Lalji Co. v Delhi Administration, [1985] 154 ITR 728 (Del). . . . . . . . . . . . . . . . . . . . 70 M.G. Attri v S.K. Jain2013 III AD (Delhi) 201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 M. Murali Mohan v State, [1987] 168 ITR 729 (AP). . . . . . . . . . . . . . . . . . . . . . . . . . 62 M.P. Ponnamma and Anr. v The State of Karnataka (1978)Cri LJ 1241 (Karn) . . . . 241 M.R. Pratap v V.M. Muthuramalingam, ITO, [1984] 149 ITR 798 (Mad.). . . . . . 92, 97 M.V. Javali v Mahajan Borewell & Co. and Ors, [1998] 230 ITR 1 (SC). . . . . . . . . . 79 Madhav Hayawadanrao Hoskot v State of Maharashtra, AIR1978 SC 1548. . . . . . . 237 MadhavraoJiwaji Rao Scindia and Ors. v Sambhajirao Chandro-jirao Angre and Ors.1988 CriLJ 853 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Madhavrao Jiwaji Rao Scindia v Sambhajirao Chandrojirao Angre, 1988 Cri LJ 853. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Madhumilan Syntex Ltd. v Union of India, [2007] 290 ITR 199 (SC) . . . . . . . . 36, 100 Maneka Gandhi v Union of India, AIR 1978 SC 597. . . . . . . . . . . . . . . . . . . . . . . . . 198 Mohd. Iqbal Ahmad v State of A.P, AIR 1979 SC 677. . . . . . . . . . . . . . . . . . . . . . . . 173 Monaben Ketanbhai Shah v State of Gujarat, [2004] 7 SCC 15 . . . . . . . . . . . . . . . . . 87 Mukesh Kumar Agrawal v State of U.P. [2009] 13 SCC 693. . . . . . . . . . . . . . . . . . . 242 Municipal Corporation of Delhi v GirdharilalSapuru, AIR (1981) SC 1169. . . . . . . 241 N.C. Mahendra v Haryana State Electricity Board AIR 1984 P&H 26. . . . . . . . . . . 242 N.K. Jain v Union of India, [2002] 254 ITR 388 (Del) . . . . . . . . . . . . . . . . . . . . . . . . 60 N. Vaidyanathan Deepika Milk Marketing v Dodia Dairy Limited, 2000(1) Civil Court Cases 182. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Narumal v State of Bombay, AIR 1960 SC 1329. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Navarathna & Co. v State, 1987 168 ITR 788 (Mad). . . . . . . . . . . . . . . . . . . . . . . . . . 66 Nemichand Ganeshmal v CIT, (124 ITR 438)(MP). . . . . . . . . . . . . . . . . . . . . . . . . . 140 Oanali Ismailji Sadikot v State of Gujarat, [2016] 135 SCL 215 (Gujarat). . . . . . . . . 84 Om Parkash Sharma v CBI 2000 Cri LJ 3478. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 P.L. Kantha Rao v State of Andhra Pradesh AIR 1995 SC 807 . . . . . . . . . . . . . . . . . 233 P. Muthuraman v Shree Padmavathi Finance (Regd.), (1995) BC 304 . . . . . . . . . . . 114 Parmeet Singh Sawney v Dinesh Verma, [1988] 169 ITR 5 (Delhi) . . . . . . . . . . . . . 175 Pooja Ravinder Devidasani v State of Maharashtra, [2015] 124 CLA 162 (SC). . . . . 83 Prakash Nath Khanna v CIT, [2004] 266 ITR 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Pramatha Nath v State, AIR 1951 Cal 581. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Pran Nath v Chief Magistrate, 1991192 ITR 70 (Punj. &Har.) . . . . . . . . . . . . . . . . . 185 Pratibha Rani v Suraj Kumar and Anr 1985 CriLJ 817 . . . . . . . . . . . . . . . . . . . . . . . 224 xxv
Prosecution under the Income-tax Act
Public Prosecutor v Vaijanth AIR 1971 AP 48. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Quality v ITO, [1999] 239 ITR 290 (Pat). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 R.P. Kapur v State of Punjab AIR 1960 SC 866. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 R. Rajendran, S.V. SivalingaNadar, S.V. Chandra Pandian v ITO, [2000] 242 ITR 368 (Mad). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 R.S. Nayak v A.R. Antulay, 986 Cri LJ 1922. . . . . . . . . . . . . . . . . . . . . . . . . . . 194, 218 R. Vijayalakshmi v Appu Hotels Ltd, [2002] 257 ITR 4 (Mad). . . . . . . . . . . . . . . . . . 31 Raghunath Pandey v State of Bihar, [1998] 232 ITR 908 (Pat.) . . . . . . . . . . . . . . . . 144 Rajanna v ChayapathiI LR 1988 KARNATAKA 198 . . . . . . . . . . . . . . . . . . . . . . . . 192 Raj Kapoor v State (1980) 1 SCC 43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Rajvir Singh v State of Rajasthan, [1990] 186 ITR 144 (RAJ.). . . . . . . . . . . . . . . . . 186 Ramanlal Bhailal Patel v State of Gujarat, 2008 (5) SCC 449. . . . . . . . . . . . . . . . . . 126 Rasik Lal v Kishore (2009) 4 SCC 446 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Rattan Singh Gupta v State, [2011] 336 ITR 629 (Del). . . . . . . . . . . . . . . . . . . . . . . . 28 Repaka Seetharamaswamy v CIT, (1961) 42 ITR 829 (AP). . . . . . . . . . . . . . . . . . . . 140 Roshan Lal v Special Chief Judicial Magistrate, [2010] 322 ITR 353 (Allahabad). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 S.C. Gupta v State, [2002] 257 ITR 272 (Delhi). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 S.G. Kale v Union of India, [2002] 256 ITR 148 (Raj.). . . . . . . . . . . . . . . . . . . . . . . 175 S.K. Alagh v State of U.P, (2008) 5 SCC 662. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 S.M. Badsha v ITO, [1987] 168 ITR 332. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 S.R. Batliboi & Co. v Department of Income-tax (Investigation), [2009] 315 ITR 137 (Delhi). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 S. Sundaram Pillai v V. R. Pattabiraman, AIR [1985] SC 582. . . . . . . . . . . . . . . . . . . 47 S. Sundaram v Dy. Inspector of Police (Crimes), [1992] 1 97 ITR 696 (Mad.). . . . . 186 Sajjan Kumar v Central Bureau of Investigation JT 2010 (10) SC 413. . . . . . . . . . . 222 Sangeeta Exports P. Ltd. v UOI, 2009] 311 ITR 258 (Del) . . . . . . . . . . . . . . . . . . . . . 55 Sanjay Sinha v Union of India & Anr,.[2004] 271 ITR 465 (Pat) . . . . . . . . . . . . . . . . 21 Sasi Enterprises v Asstt. CIT, [2014] 361 ITR 163 (SC) . . . . . . . . . . . . . . . . 51, 53, 144 Saurashtra Cement & Chemical Industries Ltd, 215 ITR 27 (Guj.). . . . . . . . . . . . . . 140 Selvi J. Jayalalitha v ACIT [2007] 290 ITR 55 (Mad.)24. . . . . . . . . . . . . . . . . . . . . . 168 Selvi J. Jayalalitha v Union of India, [2007] 288 ITR 225 (Madras). . . . . . . . . . . . . 145 Shah Rukh Khan v State of Rajasthan and Ors RLW 2008 (1) Raj 809. . . . . . . . . . . 218 Sham Sunder v. State of Haryana, AIR 1989 SC 1982. . . . . . . . . . . . . . . . . . . . . . . . 117 Shaw Wallace & Co. Ltd v CIT, [2003] 264 ITR 243 (Calcutta). . . . . . . . . . . . . . . . 143 Sirpur Paper Mills Ltd. v CWT, [1970] 77 ITR 6 (SC) . . . . . . . . . . . . . . . . . . . . . . . 179 Soffia Software Ltd. v Mrs. Kalpagam Bhaskaran, [2010] 321 ITR 122 (Mad) . . . . . 29 Sonali Autos Private Limited vThe State of Bihar & Ors, [2017] 84 taxmann.com 286 (Patna). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Sonarome Chemicals (P.) Ltd. v Union of India, [2000] 242 ITR 39.. . . . . . . . . . . . . 47 Sonarome Chemicals Pvt. Ltd. v Union of India, [2000] 242 ITR 39 (Karn).. . . . . . . 42 xxvi
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Sports Infratech (P.) Ltd. v Dy. CIT (HQRS) [2017] 391 ITR 98 (Delhi). . . . . . . . . 234 Sri Sivasakthi Industries v Arihant Metal Corporation (2011) 1 SCC 74. . . . . . . . . . 113 Sri Sivasakthi Industries v Arihant Metal Corporation, (1993) BC 120. . . . . . . . . . . 113 Standard Chartered Bank v Directorate of Enforcement, 275 ITR 81 (SC). . . . . . 56, 75 State of Haryana v. Bhajan Lal 1992 Supp (1) SCC 335. . . . . . . . . . . . . . . . . . . . . . 229 State of Jharkhand through S.P., CBI v Lalu Prasad and Ors. (08.05.2017 - SC) Criminal Appeal Nos. 394, 393 and 395 of 2017. . . . . . . . . . 202 State of Karnataka vPratap Chand, [1981] 2 SCC 335. . . . . . . . . . . . . . . . . . . . . . . . . 87 State of Madhya Pradesh v Khizar Mohammad 1996 Cri LJ 1007 (MP). . . . . . . . . . 241 State of Maharashtra v Narayan Champalal Bajaj, [1993] 201 ITR 315 (Bom) . . . . . 21 State of Maharashtra v Som Nath Thapa 1996 CriLJ 2448 . . . . . . . . . . . . . . . . . . . . 221 Suleman v State of U.P. 2014 (87) ALLCC 23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 Sunil Bharti Mittal v Central Bureau of Investigation (“CBI”) and Ors, [2015] 132 SCL 56 (SC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Sunil Mehta and Anr. v State of Gujarat and Anr. (2013) 9 SCC 209 . . . . . . . . . . . . 210 Suraj Pal v State of Uttar Pradesh AIR 1955 SC 419. . . . . . . . . . . . . . . . . . . . . . . . . 202 Suresh Chand v State of Rajasthan [1985] 1 WLN 305. . . . . . . . . . . . . . . . . . . . . . . 189 Sushil Suri v State, [2008] 303 ITR 86 (Delhi) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 T. Jayarajan v P.R. Muhammed and Ors.,(1999) Cri LJ 1856 . . . . . . . . . . . . . . . . . . 241 T. S. Baliah v T. S. Rangachari, ITO, [1969]72 ITR 787 (SC). . . . . . . . . . . . . . . 83, 174 Tesco Supermarkets Ltd. v Nattrass, 1971 All ER 127. . . . . . . . . . . . . . . . . . . . . . . . 112 Thanjai Murasu v ITO, [2001] 247 ITR 465 (Mad). . . . . . . . . . . . . . . . . . . . . . . . . . . 63 The Tax Recovery Officer and another v Bhishma Pithamaha 2015 (9) TMI 392. . . 243 Umesh Kumar v State of A.P (2013) 10 SCC 591. . . . . . . . . . . . . . . . . . . . . . . . . . . 225 Union of India v Banwarilal Agarwal, [1999] 238 ITR 461. . . . . . . . . . . . . . . . 173, 232 Urmila Devi v Yudhvir Singh, JT (2013) SC 262. . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 V. Sundararamireddi v State, 1990 Cri LJ 167. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 V.A. Haseeb & Co. (Firm) v CCIT [2017] 245 Taxman 139 (Madras) . . . . . . . . . . . 233 Veerakistiah v ITO, [1983] 139 ITR 113 (AP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Vijaya Commercial Credit Ltd. v ITO, [1988] 170 ITR 55 (Karn) . . . . . . . . . . . . . . . 56 Vikram Capoor v The State of U.P. (2015)ILR 1 All 233. . . . . . . . . . . . . . . . . . 225, 229 Vikram Singh v Union of India [2017] 394 ITR 746 (Delhi). . . . . . . . . . . . . . . . . . . 234 Vinay Chandra Chandulal Shah v State of Gujarat, [1995] 213 ITR 307 (Guj.). . . . . 40 Vipin Sharma v State of U.P. and Ors.2016 (92) ALLCC 682. . . . . . . . . . . . . . . . . . 229 Woodward Governors India (P.) Ltd. v CIT, [2002] 253 ITR 745 (Delhi). . . . . . . . . 139 Y.P. Chawla v M.P. Tiwari [1992] 195 ITR 607 (SC). . . . . . . . . . . . . . . . . . . . . . . . . 234 Yogendra Shankarlal Jani v State of Gujarat & 2009 GLH (3) 104. . . . . . . . . . 171, 173
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Genesis of Prosecution under Income-tax Synopsis 1.1 1.2 1.3
History of Income-tax in India ...................................................................... 1 Brief overview of Income-tax ....................................................................... 2 Introduction of Prosecution in the Income-tax Law in India......................... 3 1.3.1 Prosecution under the 1922 Act.......................................................... 3 1.3.2 Prosecution under the 1961 Act.......................................................... 4
Hon’ble Chief justice of India of India, Sabyasachi Mukerji, observed in the celebrated case of CWT v Arvind1 that: “One would wish that one could get the enthusiasm of Justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often, in a country of shortages, with ostentatious consumption, and deprivation for the large masses, ask is, does he with taxes buy civilization or does he facilitate the waste and ostentation of the few. Unless waste and ostentation in government spending are avoided or eschewed, no amount of moral sermon would change people’s attitude to tax avoidance”.
1.1
HISTORY OF INCOME-TAX IN INDIA
The Mutiny of 1857 not only laid the foundation of Freedom struggle in India but also exposed India to the formal structure of Income-tax. The object of the first Income-tax Act which was introduced in the year 1860 was to recoup the treasury which was facing financial difficulty pursuant to the mutiny. Although, the duties introduced by this Act were to be levied for a period of 5 years but it became a precursor for the subsequent legislation on the Income-tax. 1
CWT v Arvind, 173 ITR 479.
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In the year 1867, another variant of Income-tax in the form of “Licence Tax” was introduced on various trades and professions on the basis of annual Income earned by them. Further, in the year 1868, this Act was supplanted by ‘Certificate Tax” which was not substantially different from the “Licence Tax”. Gradually in the year 1869, General Income-tax was introduced which inter alia taxed agricultural Income. However, all these legislations were temporary in nature and in the year 1873 when the financial situation improved, Income-tax was abolished. The great famine of 1876 - 1878, again revived the concept of Direct Taxation by the Act of 1877. During this period, various local tax laws were also introduced in Bengal, Bombay and Madras. Besides, Central Act for other British Province i.e. the North West Frontier Province (NWFP) and the State of Punjab also came into operation. By the end of the year 1886, there were approximately 23 enactments dealing with tax. Starting 1886, a more consolidated tax law started taking shape, which ultimately culminated in Indian Income-tax Act, 1922. Unlike the earlier tax legislations, the administration of 1922 Act was vested in the Central Government. Various concepts were introduced, many of them continue till date. The 1922 Act was replaced by the current the Income-tax Act, 1961.
1.2
BRIEF OVERVIEW OF INCOME-TAX
In any fiscal statue, there are three broad elements. These are: 1.
Charge
2.
Calculation
3.
Administration
The obligation under any tax law is to pay tax on the charge. Under Income-tax Act, 1961 the tax is payable on the income. In case, the tax is not paid, the taxpayer may be subject to following consequences: ●
Recovery of Tax
●
Imposition of Interest
●
Imposition of Penalty
●
Prosecution
Tax can be recovered through various means including coercive means like attachment of properties or bank accounts; interest is usually compensatory and mandatory in nature. Further, the penalty may be imposed by the tax authorities. However, imposing penalty is generally discretionary. In extreme cases, tax authorities may go for prosecuting the tax defaulter. It is used sparingly and generally with the idea of creating deterrence in the society against the wilful default of payment of tax.
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Harsher the tax laws; innovative are the ways to evade payment of tax. Thus, as a deterrent, tax laws have been amended from time and again to discourage deliberate avoidance of payment of taxes. One such measure which we find in tax laws is making the non-payment of taxes a criminal offence.
1.3
INTRODUCTION OF PROSECUTION IN THE INCOME-TAX LAW IN INDIA
1.3.1
Prosecution under the 1922 Act
The Income-tax Act, 1922 for the first time, brought within its ambit the provisions relating to offences and prosecution. The relevant provisions were: “Section 51 - Failure to make payments or deliver returns or statements or allow inspection If a person fails without reasonable cause or excuse-(a) to deduct and pay any tax as required by section 18 or under sub-section (5) of section 46; (b) to furnish a certificate required by sub-section (9) of section 18 or by section 20 to be furnished ; (c) to furnish in due time any of the returns mentioned in section 21, section 22, or section 38; (d) to produce, or cause to be produced, on or before the date mentioned in any notice under sub-section (4) of section 22, such accounts and documents as are referred to in the notice; (e) to grant inspection or allow copies to be taken in accordance with the provisions of section 39, he shall, on conviction before a Magistrate, be punishable with fine which may extend to ten rupees for every day during which the default continues. Section 52 - False statement in declaration If a person makes a statement in a verification mentioned in section 22, or sub-section (3) of section 30, or sub-section (2) of section 32 which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be deemed to have committed the offence described in section 177 of the Indian Penal Code (XLV of 1860)2.” 2
Section 177 of IPC - Whoever, being legally bound to furnish information on any subject to any public servant, as such, furnishes, as true, information on the subject which he knows or has reason to believe to be false, shall be punished with simple imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both; or, if the information which he is legally bound to give respects the commission of an offence, or is required for the Cont…
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Prosecution under the Income-tax Act
1.3.2
Chapter 1
Prosecution under the 1961 Act
The provisions of the 1922 Act were incorporated in the Income-tax Act, 1961, (“the Act”) with much wider scope, which provided for the offences relating to prosecutions and penalties like the failure to comply with various provisions of the Act, failure to make payments or deliver returns or statements, failure to furnish return of income or making any false statement or verification etc., which are enshrined under Chapter XXII of the Act. Clearly, these provisions did not act as sufficient deterrence and the menace of black money and tax evasion kept growing unabatedly. The government, thus, referred the matter to the Direct Taxes Enquiry Committee, known as the Wanchoo Committee. The Committee, inter alia, made following suggestions, which were to a great extent incorporated into the Act. The relevant extract of the recommendations of Wanchoo Committee are as follows: “Need for vigorous prosecution policy 2.83 In the fight against tax evasion, monetary penalties are not enough. Many a calculating tax dodger finds it profitable proposition to carry on evading taxes over the years if the only risk to which he is exposed is a monetary penalty in the year in which he happens to be caught. The public in general also tends to lose faith and confidence in the tax administration once he knows that even when a tax evader is caught, the administration lets him get away lightly after paying only a monetary penalty – when money is no longer a major consideration with him if it serves his business interests. Unfortunately, in the present social milieu, such penalties carry no stigma either. In these circumstances, the provisions for imposition of penalty fail to instil adequate fear of the law in the minds of tax evaders. Prospect of landing in jail, on the other hand, is a far more dreaded consequence-to operate in terrorem upon the erring taxpayers. Besides, a conviction in a court of law is attended with several legal and social disqualifications as well. In order, therefore, to make enforcement of tax laws really effective, we consider it necessary for the Department to evolve a vigorous prosecution policy and to pursue it unsparingly. 2.85 For a successful enforcement programme, it is not enough that adequate numbers of cases are taken to court every year. In selecting cases for prosecution, The Department should ensure Cont… purpose of preventing the commission of an offence, or in order to the apprehension of an offender, with imprisonment of either description for a term which may extend to two years, or with fine, or with both.
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that these represent a cross-section of the society and are picked up from different regions and all walks of life, viz., persons in employment, profession, trade, industry, etc. While the power to compound offences presently available to the Department under sub-section (2) of section 279 of the Income-tax Act, 1961, may continue, we recommend that it may be used very sparingly. We also wish to emphasise that flagrant cases of tax evasion, particularly of persons in the high income brackets, should be pursued relentlessly. Person behind tax evasion to be prosecuted 2.86 We have examined the adequacy of Section 277 of the Incometax Act, 1961, which deals with prosecution for false statement in declaration, etc. We consider that this provision is not adequate to bring to book those persons who are in fact responsible for false returns being furnished to the Department. Section 140 of the Act authorises the return of income being signed in the case of a company by its ‘principal officer’. Clause (35) of section 2 defines a ‘principal officer’ as the secretary, treasurer, manager or agent of the company or any person connected with the management or administration of the company upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer. Section 277 as it stands at present contemplates prosecution of that person only who knowingly makes a false statement in any verification under the Act. In the case of a company, the return is usually signed by the secretary who is merely an employee and thus it is he who can be prosecuted under section 277 of the Act. The Managing Director and other directors who are in fact the persons in charge of running the concern, and in that capacity are normally responsible for commission of tax offences, escape prosecution. Similarly, in the case of partnerships, the managing partner escapes prosecution if the return is signed by a partner who does not actively participate in managing the business. In order to get at the persons who are really responsible for tax offences, we recommend that the definition of ‘principal officer’ for the purposes of signing of the return should be amended so as to provide that the return of income of a limited company should be signed by the persons mainly responsible for the management or administration of the affairs of the company. In other words, the liability for signing the return should be fixed primarily on the managing director, failing which on the working director. Similarly, in the case of a partnership, the responsibility to sign 5
Prosecution under the Income-tax Act
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the return should rest on the managing partner if the partner in charge of the financial affairs of the firm.3 2.87 Cases may, however, still crop up where a person in charge of, and responsible to, a company for the conduct of its business may have managed to avoid signing the return. It will be desirable to bring him also within the reach of the long arm of law. Section 140 of the Customs Act, 1962, contains a useful provision to meet such a situation. It provides that where a company commits an offence, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of its business, shall be held guilty of the offence and be liable to be prosecuted. It further provides that if the offence is found to have been committed with the consent, connivance or negligence of any director, manager, secretary or other officer of the company, the said person shall also be liable to be prosecuted. We recommend that a provision analogous to section 140 of the Customs Act, 1962, be incorporated in the Income-tax Act. Further, it should also cover the case of a partner who is really responsible for the tax offence of the firm, although he has not signed the return himself. We would like the choice of person who should be proceeded against to be left to the discretion of the Commissioner of Income-tax.4 Scope of Section 277 to be widened 2.88 The present section 277 of the Income-tax Act 1961 is very limited in its scope inasmuch as it deals only with cases of signing false verification and delivering false account or statements and does not make tax evasion itself an offence punishable under the Act. We examined the proposal to have a comprehensive legislative provision within the Income-Tax law in order to deal effectively with tax evasion and attempts to evade or defeat taxes. There are provisions to this effect in the East African Income-tax (Management) Act, 1958. In the United States of America, tax offences committed with criminal intent are treated as felony under section 7201 of Internal Revenue Code which reads as follows‘Any person who wilfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon 3
4
6
The substituted clauses (c) and (cc) of section 140 [see u/s. 140, ante] are based on these recommendations. Section 278B [see, post] is based on this recommendation.
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conviction thereof, shall be fined not more than 10,000, or imprisoned not more than 5 years, or both, together with the cost of prosecution.’ Evidently, this provision has a much wider scope than section 277 of the Income-tax Act, 1961, and covers all situations of attempts to evade or defeat taxes, or the payment thereof. We have no doubt in our minds that a provision on the lines of section 7201 of U.S. Internal Revenue Code will be extremely helpful in countering devices of tax evaders, and we recommend that such a provision should be incorporated in the Indian Income-tax laws also.5 Probation of Offenders Act not to apply to tax offences: 2.89 It has been pointed out to us that the Probation of Offenders Act, 1958, has proved a stumbling block in the way of Department securing convictions under Section 277 of the Income-tax Act, 1961. Under section 3 of the Probation of Offenders Act, an offender can be released by the court on probation of good conduct, or even otherwise after due admonition if, inter alia, the offence committed is punishable with imprisonment of not more than two years. This provision is stated to have set at nought certain prosecutions launched by the Department under section 277 of Income-tax Act, 1961. A suggestion has been made that in order to get over this difficulty, Section 277 of the Income-tax Act, 1961 should be amended by suitably enhancing the sentence of punishment to a period which is more than two years. We recommend that section 118 of Probation of Offenders Act, 1958, should be suitably amended to include all the direct tax laws among statues which are saved from the operation of Probation of Offenders Act. Fines for certain offences by departmental officers: 2.90 Offences of various kinds are at present committed with impunity in the course of proceedings before the Income-tax Officers, since cognizance of these offences can be taken only by resorting to the Indian Penal Code and complying with the attendant formalities. A suggestion has been made before us that provisions corresponding to some of the relevant sections of the Indian Penal Code should be incorporated in the Income-tax Act itself so that the Income-tax Act is made comprehensive enough to deal with such offences. We have examined the feasibility of the suggestion. We are of the opinion that this suggestion is fraught with certain far reaching 5
Section 276C [see, post] is based on this recommendation.
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consequences and we, therefore, do not approve of it. Nonetheless, there are certain offences, such as those specified in section 179 and 180 of the Indian Penal Code, which can be incorporated in the Income-tax Act itself. Section 179 of the Indian Penal code makes it an offence for the person to refuse answering a question put to him by a public servant authorised to record statement, and section 180 of the Indian Penal Code relates to punishing a person who refuses to sign any statement made by him before a public servant. We also find that the Customs Act, 1962, contains a comprehensive residuary penalty provision in section 117, which is to the effect that if any person contravenes any provision of the Customs Act, 1962 or abets any such contravention of fails to comply with any of its provisions, he shall be liable to a penalty not exceeding RS. 1000 in case no express penalty is elsewhere provided for such contravention or failure. We recommend that similar provisions should be incorporated in Chapter XXI of the Income-tax Act, 1961 and these contraventions be made liable to a penalty only.6We consider that these changes in law would strengthen the hands of the Department and also relieve the officers of the need of going to the courts and complying with the attendant formalities. In this connection, we also considered the provisions of section 276 of the Income- tax Act, 1961, which prescribes only monetary fines for the offences specified therein. We see no reason why the Department itself should not be empowered to impose penalties in such cases. We recommend that the present section 276 of the Income-tax Act, 1961, may be deleted from Chapter XXII dealing with ‘Offences and Prosecutions’ and may be incorporated with suitable amendments in Chapter XXI of the Income-tax Act, 1961, dealing with ‘Penalties imposable’. 7We may mention that a provision enabling the imposition of penalties by the officers of the Department would not be a new one. Sub-section (2) of section 131 already empowers an Income-tax Officer to impose penalty, though the word used there by oversight is ‘fine’ and not ‘penalty’. 2.91 We recommend that the penalties suggested by us above should be imposed by officers not below the rank of Inspecting Assistant Commissioner.8 If the defaults in question are 6 7 8
8
Section 272 (1) [see, ante] is based on this recommendation. Section 272A (2) [see, ante] is based on this recommendation. Also section 276 has been omitted. Section 272A (3) [see, ante] is based on this recommendation.
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committed in the course of any proceeding or enquiry before the Income-tax Officer, the penalty should be imposed by the Inspecting Assistant Commissioner of Income-tax on the basis of complaint made by the Income-tax Officer. However, if these defaults are committed before an Inspecting Assistant Commissioner, or Appellate Assistant Commissioner, or Commissioner of Income-tax, as the case may be, the penalty may be imposed by the Inspecting Assistant Commissioner, or the Appellate Assistant Commissioner or the Commissioner concerned. The orders imposing penalty may be made appealable to the Appellate Tribunal by suitably amending section 253 of the Income-tax Act, 1961.9 Exclusion of prosecution period for limitation 2.92 At present, a prosecution can be commenced either before or after the completion of assessment proceedings. Normally, a person is proceeded against only after the assessment has been completed. However, cases do arise where documents seized in the course of a search or discovered during assessment proceedings clearly indicate that a tax payer has suppressed certain receipts, sales, purchases or expenses. There are also cases where material obtained show that the tax payer has altogether failed to disclose a particular source of income. Any delay in launching prosecution can provide opportunity to a taxpayer to temper with the evidence, to cook up fresh evidences or to tutor witnesses. In such a case, it becomes desirable to launch prosecution even before the completion of assessment, and soon after the relevant evidence about the commission of offence has been collected. Since prosecution proceeding are generally time- consuming, filing complaints during the pendency of assessment proceedings would present considerable difficulties to tax authorities in the manner of completion of assessments within the period of limitation prescribed under Section 153 of the Income-tax Act, 1961. We, therefore, recommend that the law be suitably amended to exclude the time spent on prosecution from the institution of the complaints to its final disposal, from the period of limitation prescribed for making an assessment or re-assessment. 2.93 In view of the difficulties involved in getting ample and necessary direct evidence to establish tax fraud, it has been suggested that there should be a provision in the Income-tax 9
Section 253 [see, ante] has been suitably amended in terms of this recommendation.
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Act to the effect that possession of assets, disproportionate to disclosed income, would raise a rebuttable presumption of tax evasion for purposes of prosecution. We are elsewhere in this report recommending that the return of income of an assessee should be accompanied by a net worth statement. If the Department is able to discover assets not disclosed in such a statement, it could then be in a position to prosecute the taxpayer for filing a false return. In view of this, such a provision is unnecessary.” Subsequent to the Wanchoo Committee Report, the Law Commission in its 47th Report10 summarised the recommendations about changes to be made in the Income tax Act, as follows: A.
Increasing the punishment under: a.
section 276B [Failure to pay to credit of Central Government (i) tax deducted at source under Chapter XVII-B (noncognizable offence under section 279A), or (ii) tax payable under section 115-O(2) or second proviso to section 194B],
b. section 276C [Wilful attempt to evade tax], c.
section 277 [False statement in verification or delivery of false account, etc. (non-cognizable offence under section 279A)] and
d. section 278 [Abetment of false return, account, statement or declaration relating to any income chargeable to tax (noncognizable offence under section 279A)] should be increased. There should be provision for minimum imprisonment and minimum fine. 2.
A new section – section 276E, should be inserted to punish wilful failure to pay tax assessed under the Act. (This was introduced as Section 276C in the Income-tax Act, 1961). Section 276E was introduced vide Income-tax (Second Amendment) Act, 1981 for failure to comply with the provisions of Section 269T. 11
3.
The amendment should be made in section 279(1) consequential on the addition of new penal sections in the Act.
In light of the recommendations made by Wanchoo Committee and the Law Commission Report, the government made suitable amendments in the provisions of Chapter XXII relating to offences and prosecutions by the Taxation Laws (Amendment) Act, 1975. 10
11
10
Extracts of Law Commission’s 47th Report- CHATURVEDI & PITHISARIA’S Income-tax Law [Sixth edition 2014] page 14466. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-89.