The Delhi HC has held that prosecution can be initiated even if assessment has not been completed in case of the taxpayer.
Taxpayers beware! Now you can be prosecuted for failing to file your
income tax return on time as well as not responding to the income tax
notice sent to you. And the prosecution can be initiated even if
assessment has not been completed in case of the taxpayer.
The Delhi High Court
has recently approved initiating prosecution proceedings, under Section
276CC of the Income Tax Act 1961, against an individual taxpayer for
not filing ITR and failing to respond
to the tax notices sent to him.
The prosecution proceedings were upheld despite the taxpayer submitting
that there was no tax payable for the years under question, and in fact a
refund was due to him in two of the years under question.
According to tax experts, this approach could have serious bearing on
taxpayers who may have missed filing their tax return, whatever be the
reason for the default.
Facts of the case
In this case the individual taxpayer had failed to submit his tax
return for 3 consecutive Assessment Years – 2003-04 to 2005-06 – within
the time prescribed under the Income Tax Act. The tax officer initiated
prosecution proceedings by way of filing criminal complaints on the
taxpayer for failure to respond to notices issued under the Act. The
taxpayer filed an application in the sessions court challenging the
order framing prosecution charges, arguing that no tax was payable for
the AYs in question and he was, in fact, entitled to a refund for AYs
2004-05 and 2005-06. The taxpayer submitted that his response to the
show-cause notice to this effect was not properly construed, according
to a Tax Alert by Grant Thornton.
In case of AY 2003-04, the taxpayer had submitted that the fresh
notice issued in place of the original notice did not stipulate the
specific time within which the compliance had to be completed.
Therefore, he could not be held to be in breach of the statutory
obligation and hence no prosecution should be initiated against him.
On appeal before the Revisional Court, the taxpayer’s contention that
no tax was due for AY 2004-05 to 2005-06 was rejected. The Revisional
Court relied on a Supreme Court decision wherein it was held that the
offence stands committed for non-filing of return and is not related to
the pendency of the assessment proceedings, except for the determination
of time period of imprisonment.
Basis the SC decision, it was held that the prosecution charges be
initiated against the taxpayer for AY 2004-05 and 2005-06 for non-filing
of return irrespective of the fact that refund was claimed. The
Revisional Court accepted the taxpayer’s contentions for AY 2003-04
regarding time not being stipulated in the fresh notice, and held that
no prosecution should be initiated, the Tax Alert by GT says.
Aggrieved, the taxpayer and the Revenue filed petitions before the High Court.
HC’s observations and decision
Noting that failure to furnish the tax return within the time
prescribed under the Act is a punishable offence, the High Court
observed that the assessment proceedings are not related to criminal
prosecutions. The assessment proceedings may eventually have a bearing
for the benefit of the threshold provided under the Act for exclusion
from prosecution proceedings, i.e., if the tax payable on the total
income determined on regular assessment as reduced by the advance tax
and tax deducted at source does not exceed Rs 3,000.
In case of AY 2003-04, the HC observed that the taxpayer failed to
furnish the tax return and to respond the notices issued under the Act.
The HC rejected the ground that no time was stipulated for the fresh
notice, and held that the fresh notice issued cannot supersede the
previous notice as it is not the intention of the law to allow an
indefinite period for compliance of such notices.
The HC held that the prosecution for non-filing of return within
prescribed time will be initiated irrespective of the fact that that
taxpayer subsequently filed the tax return for AY 2003-04 on 24 October
2007.
In case of AYs 2004-05 and 2005-06, the HC opined that the Revisional
Court took the correct view in directing initiating prosecution
proceedings. In view of the above, the HC held that the prosecution
proceedings will continue against the taxpayer, and directed the parties
to appear in the trial court.
Tax Experts’ Views
Tax experts say that the judgement is not clear as to whether assessment proceedings were completed in the instant case or not.
The taxpayer argued that there is no tax payable in the said years
and hence the benefit of de-minimis monetary threshold of the provision
should be extended to it. The court held that the benefit of this
provision can be extended only on completion of assessment proceedings.
The Delhi HC has held that prosecution can be initiated even if
assessment has not been completed in case of the taxpayer, ie. default
is triggered on non-filing of return itself. The HC has observed that
assessment and prosecution proceedings can go simultaneously. “This
approach, however, could have serious bearing on taxpayers who may have
missed filing their tax return, whatever be the reason for the default.
In case of prosecution proceedings, the taxpayer would be required to
demonstrate that the default was not deliberate or willful, and there
was no mens rea,” say experts.
Commenting on this case, Vikas Vasal, National Leader Tax – Grant
Thornton India LLP, said, “While the Income-Tax Act contains stringent
provisions related to prosecution for various non-compliance, the same
have usually been invoked in cases where it is proved beyond reasonable
doubt that the default is willful or deliberate; or where such a measure
is necessary to protect the Revenue’s interests. In the recent past,
however, the revenue authorities have been pressing for prosecution
proceedings and the Courts have also been taking a relatively stricter
view. It is, therefore, imperative that taxpayers are careful in meeting
their compliance obligations within the due dates.”