Law of Taxation (16B162)

Law of Taxation (16B162)
  • Law of Taxation (16B162)

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Gujarat National Law University, Gandhinagar, (2019-20)

A Research Paper on OFFENCES LIABLE TO PROSECUTION – a Critique Submitted by Supervisor –

Faculty

Subham Agarwal(16B162) Prabhavati Baskey,

Mrs.

Semester – VII [B.BA. LL.B. (Hons.)] Assistant Professor of Law (Batch: 2016-21)

This Research paper is submitted for the partial fulfilment of the academic requirements for the Subject ‘Law of Taxation – 1’.

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INDEX S.

Topic

Page

No. 1

Acknowledgement

No. 03

2

List of Abbreviations

04

3

 Introduction

05

 Concept of Mens Rea

06

 Various Offences Liable to Prosecution

5 6

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06-13

 Proceedings before income tax authorities

14

 Limitation for initiation of proceedings Conclusion

14 15

Bibliography

16-17

ACKNOWLEDGEMENT I express my profound gratitude to our supervisor Mrs. Prabhavati Baskey,

Assistant

Professor

of

Law,

Gujarat

National

Law

University, for her expert, sincere and valuable guidance and constant encouragement extended to me. I salute her perseverance for perfection and diligence for quality which enabled me to carry out the work with utmost precision. I wish to express my sincere thanks to Dr. S. Shanthakumar, Director,

Gujarat

National

Law

University,

Gandhinagar

for

providing me with all the necessary facilities. I express my indebtedness towards my parents who always have been my source of inspiration. My role models, my parents have been our lifetime trainers. They have continuously fuelled zeal and enthusiasm to achieve new milestones in our life. I dedicate this work to them.

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LIST OF ABBREVIATIONS

Abbreviation

Full Form

&

and

03rd

Third

ACIT

Assistant Commissioner of Income Tax Article

Art.

CIT

Bachelor of Business Administration and Bachelor of Law Commissioner of Income Tax

Del

Delhi

Dr.

Doctor

etc.

Et cetra

IT

Income Tax

ITAT

Income Tax Appellate Tribunal

ITD

Income Tax Department

ITO

Income Tax Officer

ITR

Income Tax Reporters

Ltd.

Limited

Mum

Mumbai

No.

Number

Pvt.

Private

S.

Serial

TDS

Tax Deducted at Source

V

versus

v.

Versus

Vs

versus

B.B.A. LL.B.

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INTRODUCTION The Income Tax Law contains several provisions providing for prosecutions for acts committed by any taxpayer. There are various acts for which a taxpayer can be prosecuted apart levying of penalties for defaults. Under the I.T Act, 1961, there are several provisions which calls for compliance with taxing provisions and tax collections. The I.T Act objects to enforce compliance of taxation in a three fold manner:(a) Imposition of Interests, (b) Imposition of Penalties and, (c) Prosecutions.1 Chapter XXII of the Income Tax Act, 1961, deals with the offences and prosecution proceedings. However, under no circumstances, the Act deals with the procedures which regulates the prosecution. Such procedures are regulated by the provision of CrPC (Criminal Procedure Code), 19732. The provisions of such Code are to be read for all the offences committed under the I.T Act. The Central Government has been given the ultimate power to establish Special Courts after consulting the Chief Justices of the jurisdictional High Courts. Under normal circumstances, the Magistrate Court in whose jurisdiction the offence took place, tries the offence. In cases of direct tax, the jurisdiction of the offence is said to be at the place where submission of false returns took place. In J. K Synthetics Ltd. v. ITO, 3 the Court observed that any offence committed under Section 277, can be tried only at such place where the false statement had been delivered. All India Federation of Tax Practitioners accessed 01 October 2019 2 Criminal procedure Code, 1973 3 J. K Synthetics Ltd. v. ITO (1987) 168 ITR 467 (Delhi) (HC) 1

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In Babita Lila v. UOI,4 the Court held that any First Class Magistrate or a Metropolitan Magistrate, shall try the prosecution proceedings under the direct taxes. If any notification has been given related to Special Economic offences Court, then the complaint must be filed before that specific court.

CONCEPT OF MENS REA The concept of mens rea has always been an integral part of criminal jurisprudence. An offence cannot be said to be committed without any intention. The golden rule in criminal jurisprudence has evolved over the years and today, the concept of “innocent until proven guilty” stands. However, the Taxation Laws has carved out an exception to the said rule. The Section 278E places the burden upon the accused to prove the absence of mens rea, and that also shall be proved beyond reasonable doubt. In Prakash Nath Khanna v. CIT,

5

the Court has opined that the

Court has to mandatorily presume that culpable mental state exists, and absence of such mental status can only be pleaded by the accused in terms of his own defense. In J. Tewari v. UOI,6 evidence

related

to

the Court has observed that the law of presumptions

of

culpability

does

not

differentiate between a juristic person and a natural person in any circumstance and that the court itself will presume whether the culpable state of mind exists or not.

VARIOUS OFFENCES LIABLE TO PROSECUTION There are various offences under the Income Tax Act, 1961 , which is liable to prosecution. Such offences have been explained as following:-

4 5 6

Babita Lila v. UOI (2016) 387 ITR 305 (SC) Prakash Nath Khanna v. CIT (2004) 266 ITR 1 (SC) (12) J. Tewari v. UOI, (1997) 225 ITR 858 (Cal.) (HC) (861)

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Wilful attempt to evade tax, interest or penalty If any person wilfully attempts to evade any kind of tax, interest or penalty or hides his income, then prosecution proceedings shall be intitated against such evader under Section 276-C.7 Actions and/or activities wherein an individual or business entity avoids payment of their tax liability, either partly or fully is/are known as tax evasion. A few examples of tax evasion are: (a) Non-payment of taxes (b) Under-payment of taxes (c) Concealment of assets to reduce/understate tax liability.8 Section 271 AAB9 further specifies the penalties under different scenarios viz., : a. In

case

the

Assessee

confesses/admits

to

the

undisclosed income, a 10% penalty on the undisclosed income along with the interest shall be levied. b. In case the Assessee does not confess/admit to the undisclosed income but reports of such income in the Income Tax Return furnished in the Previous Year, a 20% penalty on the undisclosed income along with the interest shall be levied. c. If case the Assessee does not disclose the amount and it is

found

out

by

enquiry/investigation,

the a

Department penalty

upon

ranging

further from

Income Tax Act, 1961, Section 276 Paisa Bazaar,  accessed October 2019 9 Income Tax Act, 1961, Section 271

a

7 8

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2

minimum 30% to a maximum 90% on the undisclosed amount shall be levied.10 In K.C Builder v. ACIT,11 the court opined that when any penalty stands cancelled, the prosecution under Section 276C for evasion of tax canoot be initiated thereafter. In ITO v. Nandlal and Co.,12 the court passed a judgment that when any order for penalty is set aside, the prosecution initiated for willful evasion of tax also does not survive.

Dealing with Seized Assets Section 13213 deals with removing, parting or otherwise dealing with seized assets. It gives power to the tax authorities to begin with search proceedings at the taxpayer’s premises. While the search is in process, the authorities also have the power to seize jewellery, bullion, money or any other valuable article found at the premises. In the normal course, any valuable thing found or seized by the tax authorities, must be kept in their custody, i.e. in the Government’s custody. In case it is not possible for the authorities to keep possession of the valuables or store it in a safe place due to its characteristic such as volume, weight, or it being in a dangerous state. The Second Proviso to Section 132(1) also empowers the authorities to take charge of the asset by storing the asset at the taxpayer’s place only. In those cases, the asset will still be called to be ‘seized’ by the authorities. The Authorized officer needs to serve an order on the person with immediate possession or the owner of the seized assets, that under no circumstances, any part of the asset will be Paisa Bazaar,  accessed October 2019 11 K.C Builder v. ACIT (2004) 265 ITR 562 (SC) 12 ITO v. Nandlal and Co. (2012) 341 ITR 510 (SC) 13 Income Tax Act, 1961, Section 132 10

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2

moved or dealt with. Any movement in the asset would require permission of the officer. Such actions performed by the Officer will be covered under the Income Tax Act. Sometimes, it might not be practicable to seize any documents, books of accounts, money, jewellery, or any other valuable article for other reasons than mentioned in the second proviso to 132(1). Similarly, in these cases, the authorities may serve an order on the person with immediate possession or the owner that he shall not part with, remove or deal with the valuables. Any transaction can be made only with prior permission of thee officer. In cases of non- compliance with this section, the person will be charged under Section 275A,14 which calls for prosecution.

Provision of necessary facility for insoection of books and oter documents In case the person-in-charge fails to provide necessary facility to the authorities conducting search to inspect documents and books of accounts, shall be punishable with rigorous imprisonment and fine under Section 275B.

Dealing with the Property in order to prevent tax recovery If any person, who is eligible to pay tax, defaults in discharging himself from the tax liability, then the tax authority is empowered to recover the dues from him. Recovery can be made by attaching his immovable and movable property. If the taxpayer intends to fraudulently remove, transfer, conceal or delivery any property to any other person, thereby trying to evade the authorities and prevent the property from being attached for recovery, would be 14

Income Tax Act, 1961, Section 275

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liable an prosecution proceedings have to be initiated against him under Section 27615.

Failure by the Liquidator of a Company Section 178(1)16 mandates that every person, who has been appointed a liquidator of any company or receiver of any assets of the company, shall give notice of his appointment to the tax authority within 30 days of him becoming the liquidator. Section 178(3) provides that no liquidator can part or deal with any assets of the Company unless notified by the Assessing Officer. The liquidator, on being notified, shall ensure to set aside the amount equal to the notified amount, and unless he does so, he shall not deal with any other assets of the Company. Under no circumstances, the liquidator can be debarred from dealing with the assets or purpose of tax payment by the company or for making any kind of payment to the secured creditors. Section 276A calls for prosecution in the case of failure to serve a notice or in setting aside the given sum in compliance with the provisions. Prosecution proceedings can also be initiated in case the liquidator deals with any assets or property of the Company in contrary to the provisions.

Payment of TDS or DDT to the Government’s credit A person is liable to be prosecuted with rigorous imprisonment and fine under 276B, if he/she fails to pay :(a) The tax deducted at source, (b) Dividend Distribution Tax, 15 16

Income Tax Act, 1961, Section 276 Income Tax Act, 1961, Section 178

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(c) Tax in respect to winning from crossword puzzle or lottery, to the credit of the Central Government.

Payment of the tax collected Section 206C17 of the Income Tax Act, governs the provisions related to collection of tax at source. If any person fails to pay the tax to the Government’s credit, then he/she shall be prosecuted and fined as per Section 276BB.

Furnishing of return of income A person wilfully failing to furnish his return of income is also liable to prosecution under the Act. Such person wil be prosecuted under Section 276CC. A person is liable to furnish his return of income or respond to notice under 142(1)(i). Failing to comply will result in attracting Section 276CC18. Nevertheless, the taxpayer cannot be prosecuted for failure to furnish his return of income in duetime:(a) When the return is filed before the expiry of the assessment year, (b) When the tax payable on the income determined on regular assessment does not exceed Rs. 10,000.

Production of documents and accounts or compliance with the direction issued

17 18

Income Tax Act, 1961, Section 206 Income Tax Act, 1961, Section 276

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Any taxpayer is liable to prosecution under the Income Tax Act, if he/she wilfully fails to produce documents and accounts under Section 142(1)19 or fails to comply with any direction issued under 142(2A). Section 142(1) deals with the provisions relating to the inquries conducted before assessment. Under such section, the Assessing Officer can serve a notice on the taxpayer asking him/her to file the return of income, in case of failure to file or produce such documents or books of accounts. On the other hand Section 142(2A) provides for special audit. Accordingly, if the conditions mentioned in this Section is not satisfied, then the Assessing Officer may serve an order to the taxpayer to get his/her accounts audited from a Chartered Accountant, who shall be nominated by the Chief Commissioner or Principal Chief Commissioner, and to also furnish such report of audit in the prescribed manner. Section 276D of the Income Tax Act says that in cases of taxpayers wilfully failing to produce such accounts and documents or comply with such directions, are liable for prosecution.

Delivery of False Statement Any taxpayer who has made any statement for any verification under the Income Tax Act or has delivered any account or statement which he knows is false or believes to be false, shall be charged with prosecution under Section 27720 of the Act.

Enable any other person to evade any kind of tax, interest or penalty 19 20

Income Tax Act, 1961, Section 142 Income Tax Act, 1961, Section 277

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If any person wilfully intends to enable or abet any other person to evade any kind of tax, nterest or penalty, or causes to make any false entry or statement and which is also known to be false to that person, then that person shall be liable for prosecution under Section 277A.

Abetment of false account, return, etc. If any person induces or abets any other person to deliver a false statement, declaration or an account related to any income, which is chargeable to tax, and which is also known to be false or believes to be not true, then such person is said to commit an offence under Section 276C(1) and shall be prosecuted under Section 278. Abetment can be committed in mainy three ways; By instigation, by conspiracy or by intentional aid. In order to establish abetment, it must be proved that the abettor has intentionally aided the commission of crime. Intentional aid and complicity are the main ingredients of the offence of abetment. In Shri Ram v. State of Uttar Pradesh,21 it was held that a man can be held guilty for abetting even if the offence has not been committed. To prove abetment, it is not necessary that the offence must have taken place. In Faunga Nath v. State of Uttar Pradesh,22 the court held that a person can be convicted for abetment, even when the alleged person has been acquitted. In Jamuna Singh v. State of Bihar,23 the Court opined that when a Tribunal sets aside the Assessing Officer’s order , the Complaint

21 22 23

Shri Ram v. State of Uttar Pradesh, 1975 SCC (3) 495 Faunga Nath v. State of Uttar Pradesh, AIR 1959 SC 673 Jamuna Singh v. State of Bihar, AIR 1967 SC 553

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which has been filed for abetment is quashed. Such stance was also taken by the court in Smt. Sheela Gupta v. IAC.24

Disclosure of particulars by Public Servants Under the I.T Act, Section 138(1) talks about the disclosure of information by the authorities to other authority, officers, etc. Whereas Section 138(2) puts a restriction on declaration of information by public servants. In case the public servants fails to comply with Section 138(2), he/she is liable to prosecution under Section 280.

Offences by a Company. I.T Act also provides for offences committed by any Company. According to Section 278B, if any offence has been committed by a Company, then, every person who was incharge and responsible for the conduct of the Company at the time of offence, shall be liable for the offence and proceedings shall be initiated against them accordingly. If the person held for the offence is able to prove that the offence was committed without his prior knowledge or that he took all steps to prevent commission of such offence, then the person shall not be held guilty for that offence. When there is an offence committed by a Company, under the Income Tax Act, and it has been proved that the offence committed with the consent of, or due to neglect of any director, secretary, manager or any other officer of the Company, then, that person shall be held guilty and proceedings shall be initiated against him.

24

Smt. Sheela Gupta v. IAC (2002) 253 ITR 551 (Delhi) (HC)

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In Dhrupadi Devi (Smt.) v. State of Rajasthan,25 the Court observed that the criminal liability of any partner cannot be thrusted upon his/her legal heirs. In ITO v. Kamra Trading Co.,26 the Court took a stance that initiating prosecution proceedings against the sleeping partner is bad in law for failure in tax payment.

Offences by a Hindu Unidivided Family Under the Section 278C of I.T Act, any offence committed by a Hindu Undivided Family, then in such circumstances, the Karta shall be held guilty of that particular offence and proceedings shall be initiated against him. Nevertheless, if the Karta is able to prove that the offence has been committed without his knowledge or that he had already exercised all due diligence to prevent the commission of that offence. When there is an offence committed by a Hindu Undivided Family, under the Income Tax Act, and it has been proved that the offence committed with the consent of, or due to neglect of any member of the Hindu undivided Family, then, that person shall be held guilty and proceedings shall be initiated against him. In Roshan Lal v. Special Chief Magistrate, 27 the Court opined that any member of the Hindu Undivided family shall not be held liabe for delayed filing of returns, even though he has participated in the assessment proceedings.

25 26 27

Devi (Smt.) v. State of Rajasthan (2001) 106 Comp. Cas 90 (Raj.) (HC) 93 ITO v. Kamra Trading Co. (2004) 267 ITR 170 (P&H) (HC) Roshan Lal v. Special Chief Magistrate, (2010) 322 ITR 353 (All.) (HC)

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PROCEEDINGS

BEFORE

INCOME

TAX

AUTHORITIES Section 13628 of the Income Tax Act provides that such proceedings initiated under this Act shall be covered under the meaning of judicial proceedings in Section 193 and for Section 196 of the IPC. 29 Nevertheless all proceedings under this Act cannot be covered under the meaning of judicial proceedings. In KTS Mohammed v. UOI,30 the Court opined that the Officer cannot initiate prosecution for perjury in proceedings under FERA. Also, if any assessee gives any false evidence, then that assessee would be liable for prosecution under 193 of IPC, 1860.

LIMITATION FOR INITIATION OF PROCEEDINGS Chapter XXXVI of the CrPC,31 has laid down the limitation period. No court can take any cognizance of any offence beyond the limitation period. Such offence should be punishable with fine only or imprisonment which does not exceed three years. In Friends Oil Mills & ors. v. ITO,32 the Hon’ble Court observed that the limitation bar prescribed under the Section 468 of CrPC, would not be applicable to prosecution under the I.T Act. In lieu of this, there does not exist any fixed limitation period for initiation of proceedings.

28 29 30 31 32

Income Tax Act, 1961, Section 136 Indian Penal Code, 1860, Section 196 KTS Mohammed v. UOI, (1992) 197 ITR 196 (SC) Code of Criminal Procedure, 1973 Friends Oil Mills & ors. v. ITO, (1977) 106 ITR 571 (Ker.) (HC)

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In Gajanand v. State (1986),33 the High Court was of the opinion that in cases where the proceedings have proceeded for more than twelve years and still, the department of Income tax has not produced the evidence, then in such cases, the prosecution proceedings shall be quashed. In State of Maharashtra v. Natwarlal Damodardas,34 the High Court held that while mitigating the sentence, any kind of delay and other circumstances must be taken into consideration.

CONCLUSION It is very important for the tax consultants to guide the assesses to comply with the rules and regulations of the Act and also adopt a much needed and better tax management services to stay in the liability free zone. It has never been advisabke to enter into tax avoidance

schemes

in

order

to

evade

tax

payment

to

the

Government. No person shall try to escape the laws of the land. The Tax administration is well equipped with technology and systems, which can easily get hold of the tax invaders. There has been various suggestions by the Comptoller and Auditor General of India for better analysis and administration of proceedings. The CBDT tries to ensure that the public faces no issue in paying the taxes and also setting up a proper mechanism so that no person can evade tax.

33 34

Gajanand v. State (1986) 159 ITR 101 (Pat) (HC) State of Maharashtra v. Natwarlal Damodardas AIR 1980 SC 593

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BIBLIOGRAPHY 

All

India

Federation

of

Tax

Practitioners

accessed 01 October 2019  Babita Lila v. UOI (2016) 387 ITR 305 (SC)  Code of Criminal Procedure, 1973  Criminal procedure Code, 1973  Devi (Smt.) v. State of Rajasthan (2001) 106 Comp. Cas 90 (Raj.) (HC) 93  Faunga Nath v. State of Uttar Pradesh, AIR 1959 SC 673  Friends Oil Mills & ors. v. ITO, (1977) 106 ITR 571 (Ker.) (HC)  Gajanand v. State (1986) 159 ITR 101 (Pat) (HC)  Income Tax Act, 1961, Section 132  Income Tax Act, 1961, Section 136  Income Tax Act, 1961, Section 142  Income Tax Act, 1961, Section 178  Income Tax Act, 1961, Section 206  Income Tax Act, 1961, Section 271  Income Tax Act, 1961, Section 275  Income Tax Act, 1961, Section 276  Income Tax Act, 1961, Section 276  Income Tax Act, 1961, Section 276  Income Tax Act, 1961, Section 277  Indian Penal Code, 1860, Section 196  ITO v. Kamra Trading Co. (2004) 267 ITR 170 (P&H) (HC)  ITO v. Nandlal and Co. (2012) 341 ITR 510 (SC)  J. K Synthetics Ltd. v. ITO (1987) 168 ITR 467 (Delhi) (HC)  J. Tewari v. UOI, (1997) 225 ITR 858 (Cal.) (HC) (861)  Jamuna Singh v. State of Bihar, AIR 1967 SC 553  K.C Builder v. ACIT (2004) 265 ITR 562 (SC)  KTS Mohammed v. UOI, (1992) 197 ITR 196 (SC) 18 | P a g e

 Paisa

Bazaar,  accessed 2 October 2019  Paisa

Bazaar,  accessed 2 October 2019  Prakash Nath Khanna v. CIT (2004) 266 ITR 1 (SC) (12)  Roshan Lal v. Special Chief Magistrate, (2010) 322 ITR 353 (All.) (HC)  Shri Ram v. State of Uttar Pradesh, 1975 SCC (3) 495  Smt. Sheela Gupta v. IAC (2002) 253 ITR 551 (Delhi) (HC) 

State of Maharashtra v. Natwarlal Damodardas AIR 1980 SC 593

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