Penalties and Prosecutions
Default in complying with provisions of or with
conditions prescribed under the Income-tax Act would attract certain penalty
and in critical cases prosecutions as well. The document will provide you
information about the punishable offences, prosecutions and the quantum of
penalties that can be imposed under the law.
There are three modes built in the fiscal legislation for
encouraging tax compliance: (a) Charge of Interest, (b) imposition of penalty
(c) launching of prosecution against tax delinquents. While charging of
interest is compensatory on character, the imposition of penalty and
institution of prosecution proceedings act as strong deterrents against
potential tax delinquents.
What
are the defaults which may invite levy of penalty?
Chapters XVII and XXI of Income-tax Act, 1961, contain
various provisions empowering an Income-tax Authority to levy penalty in case
of certain defaults. The following defaults may invite levy of penalty:
(i) When the assessee is in default or is deemed to be in
default in making payment of tax, including the tax deducted at source, advance
tax and the self assessment tax. [Section 221 read with Sec.201(1)]
(ii) Failure to pay the advance tax as directed by the
Assessing Officer or as estimated by the assessee. [Section 273(1)]
(iii) Failure to comply with a notice issued under
section 142(1) or 143(2) or failure to comply with the direction issued under
section 142(2A) to get the accounts audited. [Section 271(1)(b)]
(iv) Concealment of particulars of income or furnishing of
inaccurate particulars of income. [Section 271(1)(c)]
(v) Failure to maintain books of accounts and documents
by persons carrying on profession or business as prescribed under section 44AA.
[Section 271A]
(vi) Failure to get the accounts audited in prescribed
circumstances or failure to obtain the prescribed audit report within
prescribed time period of failure to furnish the audit report along with the
return, as required under section 44AB. [Section 271B]
(vii) Failure to subscribe to the eligible issue of
capital [Section 271BB]
(viia) Penalty for failure to deduct tax at source.
[Section 271C]
(viii) Accepting of any loan or deposit or repayment of
deposit of Rs.20,000 or more otherwise than by account payee cheque or account
payee draft, in contravention of the provisions of Section 269SS. [Section
271D]
(viiia) Repayment of loan in contravention of the
conditions imposed in section 269T. [Section 271E]
(viiib) A. Failure of file the return of income as required
under Section 239 (1), shall entail imposition of penalty. [Section 271F]
B. Failure to file the return as required under the
proviso to Section 139(1), in the event of assessee fulfilling the prescribed
conditions, i.e., certain persons in occupation of immovable property or owner
of motor vehicle or subscriber to telephone, one who incurred expenditure on
foreign travel, the holder of the credit card or a member of a club, subject to
specific conditions, are required to file the return as per proviso to Section
139(1), failing which penalty may be imposed. (Proviso to Section 271F)
(ix) Refusal to answer in contravention of legal
obligation. [Section 272A(1)(a)]
(x) Refusal to sign any statement made in the course of
income-tax proceedings. [Section 272A(1)(b)]
(xi) Failure to attend or give evidence or produce books
of accounts and documents in compliance with the requirements of summons under
section 131(1). [Section 272A(1)(c)]
(xii) Failure to comply with the provisions of section
139A dealing with the application for and allotment of Permanent Account Number
or General Index Register Number. [Section 272A(1)(d)]
(xiii) Failure to furnish information regarding
securities. [Section 272A(2)(a)]
(xiv) Failure to give notice of discontinuance of business
or profession. [Section 272A(2)(b)]
(xv) Failure to furnish in due time information sought
under section 133 of Income-tax Act. [Section 272A(2)(c)]
(xvi) Failure to furnish in due time prescribed
returns/statements. [Section 272A(2)(c)]
(xvii) Failure to allow inspection or take copies of
registers of registers of companies. [Section 272A(2)(d)]
(xviii) Failure to furnish in due time the return of
income by charitable or religious institutions. [Section 272A(2)(e)]
(xix) Failure to deliver in due time a copy of
declaration of non-deduction of tax at source u/s.197A. [Section 272A(2)(f)]
(xx) Failure to furnish a certificate of tax deducted at
source to the person on whose behalf tax has been deducted or collected as
required by Section 203 or Section 206C. [Section 272A(2)(g)]
(xxi) Failure to deduct and pay tax from salary payable
to an employee as directed by the Assessing Officer or the Tax Recovery Officer
as required by Section 226(2). [Section 272A(2)(h)]
(xxii) Failure to allow an Income-tax Authority to
collect any information useful or relevant to the purposes of Income-tax Act
u/s.133B. [Section 272AA)]
(xxiii) Failure to comply with the provisions of section
203a dealing with tax Deduction Account Number [Section 272BB]
Is
the levy of penalty automatic?
No penalty under the Income-tax Act is imposed unless the
person concerned has been given reasonable opportunity of being heard.
What
is the minimum and maximum penalty leviable?
The quantum of penalty leviable depends upon the nature
of default. The relevant section of Income-tax Act prescribe the minimum and
maximum penalties which can be levied.
Can
the penalty be reduced or waived?
The Commissioner of Income-tax may reduce or waive the
amount of any penalty imposed or imposable, if prescribed conditions are
satisfied. The assessee should voluntarily and in good faith make full and true
disclosure of income prior to the detection of concealment by the Assessing
Officer. In certain cases of genuine hardship, the penalty levied can be
reduced/waived if the assessee has co-operated in any enquiry relating to the
assessment and recovery of taxes. The waiver/reduction of penalties is
discretionary and dependent upon satisfaction or prescribed conditions. No
assessee can, a matter of right, claim waiver or reduction of penalty imposed
or imposable upon him. [Section 273A]
Office
and prosecution under the income tax act. why is prosecution necessary?
In the fight against tax evasion, the imposition of
monetary penalty alone is not sufficient. A calculating tax evader finds it
profitable to evade tax for years, if he knows that he may get away with it by
paying penalty in the year in which he is caught. However, the prospect of
landing in jail is a far more dreaded consequence and works as a deterrent.
Further, for more serious defaults, sometimes launching of prosecution is
prescribed without prescribing monetary penalties.
The Parliament has, therefore, been enacting deterrent
laws for effective implementation of tax laws. The Income-tax Act contains a
separate chapter XXII wherein offences have been defined and punishment
provided.
What
are the offences punishable under the income tax act?
The following offences committed by a person are
punishable:
(i) Removal, parting with or otherwise dealing with books
of accounts, documents, money, bullion, jewellery or other valuable article or
thing put under restraint during the search. [Section 275A]
(ii) Fraudulent removal, concealment, transfer or
delivery of any property or any interest in the property with the intention to
thwart recovery of tax. [Section 276]
(iii) Failure on the part of a liquidator or receiver of
a company to give notice of his appointment to the Assessing Officer or failure
to set apart amount notified by the Assessing Officer, or parting away of
company’s properties in contravention of income-tax provision. [Section 276A]
(iv) Failure to enter into written agreement or failure
to furnish the statement of immovable property intended to be transferred
u/s.269UC, or failure to surrender or deliver the property u/s.269UE, purchased
by the Appropriate Authority or doing or omitting to do anything u/s.269UL,
which will have the effect of transfer of property without the permission of
the Appropriate Authority (under the provisions of Chapter XX-C) [Section
276AB]
(v) Failure to pay to the credit of the Central
Government the tax deducted at source. [Section 276B]
(va) Failure to pay the tax collected at source. [Section
276BB]
(vi) Willful attempt to evade any tax, penalty or
interest [Section 276C(1)]
(vii) Willful attempt to evade the payment of any tax,
penalty or interest levied under Income Tax Act. [Section 276C(2)]
(viii) Willful failure to furnish in due time return of
income. [Section 276CC)]
(viiia) Failure to furnish return of income in Search
Cases as required under section 158BC [Section 276CCC]
(ix) Willful failure to produce accounts and documents as
directed by issue of notice under section 142(1) [Section 276D]
(x) Willful failure to get the accounts audited as
directed by the Assessing Officer under section 142(2A). [Section 276D]
(xi) Making of a statement in verification or delivery of
an account or statement which is false and which the concerned person knows or
believes to be false or does not believe to be true. [Section 277]
(xii) Abetting or inducing another person to make and
deliver an account or statement or declaration relating to any taxable income
which is false and which he either knows or believes to be false. [Section 278]
(xiii) Punishment for 2nd & subsequent offences
in cases of certain defaults. [Section 278A]
No person shall be punished for any failure if he proves
that there is reasonable cause failure. [Section 278AA].
Who
is liable to be prosecuted?
Any person, committing the offence is liable to be
prosecuted. In this connection it is not necessary that the person should be an
assessee under the Income-tax Act. In the case of an offence committed by a
Company, Firm, Association of Persons or Body of Individuals, every person in
charge of or responsible for the conduct of the business of the concern as well
as the concern are deemed to be guilty. Similarly, in the case of an offence by
a Hindu Undivided Family, the karta thereof is deemed to be guilty of the
offence.
Is
mens rea or culpable mental state or guilty intention necessary?
In case of willful act of omission or commission, the
court shall presume the existence of culpable mental state. However, the accused
can rebut this presumption by producing necessary evidence before the court.
(Section 278E).
Can
the offence be compounded?
Section 279(2) of Income-tax Act empowers a Chief
Commissioner of Director General of Income-tax to compound an offence either before
or after the institution of prosecution proceeding.
When
public servant liable to be prosecuted?
If a public servant furnishes any information in
contravention of the provisions of Section 138(2), prosecution may be
instituted against him with the previous sanction of the Central Government.
(Section 280).
PENALTIES
Updated
with Amendment made vide Finance Act, 2015 and applicable for A.Y. 2016-17 and
Onwards
|
Nature of
default/failure
|
Sections
|
Penalty
|
|
Default in payment
of any tax due
|
Section 221(1)
|
Such an amount as
the Assessing Officer may impose but not exceeding the amount of tax.
|
|
Determination of
undisclosed income of block period
|
Section 158BFA(2)
|
Minimum : 100 per
cent of tax leviable in respect of undisclosed income
Maximum : 300 per cent of tax leviable in respect of
undisclosed income.
|
|
Failure to comply
with notice issued under section 142(1) or section 143(2) and direction for
audit under section 142(2A).
|
Section 271(1)(b)
|
Rs. 10,000 for each
failure.
|
|
Concealment of
income or furnishing inaccurate particulars of income
|
Section 271(1)(c)
|
100% to 300% of the
tax
evaded. |
|
Distribution of
profits by registered firm otherwise than in accordance with result of which
partner has returned income below the real income
partnership deed and as a |
Section 271(4)
|
Not exceeding 150
per cent of difference between tax on partner’s income assessed and tax on
income returned, in addition to tax payable
|
|
Failure to keep,
maintain or retain books of account, documents, etc., as are required under
section 44AA
|
Section 271A
|
Rs. 25,000
|
|
Failure to keep and
maintain information and documents required in respect of international
transaction or specified domestic transaction, failure to report such
transaction, etc.
|
Section 271AA
|
2% of the value of
each international transaction or specified domestic transaction entered into
by the taxpayer.
|
|
Penalty in case of
search
|
Section 271AAB
|
10%, 20% and ranging
from 30% to 90% of the undisclosed income.
|
|
Failure to get
accounts audited or furnish a report of audit as required under section 44AB
|
Section 271 B
|
One-half per cent of
total sales, turnover or gross receipts, etc., or Rs. 1,50,000, whichever is
less
|
|
Failure to furnish a
report from an accountant as required by section 92E
|
Section 271BA
|
Rs. 1,00,000
|
|
Failure to deduct
tax at source, wholly or partly or failure to pay wholly or partly tax under
section 115- O(2)
|
Section 271C
|
An amount equal to
tax not deducted (in case of TDS) or tax not paid (in case of dividend
distribution tax)
|
|
Failure to collect
tax at source
|
Section 271CA
|
An amount equal to
tax not collected.
|
|
Taking or accepting
certain loans or deposits or specified sum* in contravention of provisions of
section 269SS
*“Specified sum” means any sum of money receivable, whether as
advance or otherwise, in relation to transfer of an immovable property,
whether or not the transfer takes place.
Please note that Advance in cash for Property Covered by
Section 269SS & 269T wef 01.06.2015
|
Section 271D
|
An amount equal to
loan or deposit or specified sum so taken or accepted
|
|
Repaying loans or
deposits or specified advance* in contravention of provisions of section 269T
*“Specified advance” means any sum of money in the nature of
advance, by whatever name called, in relation to transfer of an immovable
property, whether or not transfer takes place
Please note that Advance in cash for Property Covered by
Section 269SS & 269T wef 01.06.2015
|
Section 271E
|
An amount equal to
loan or deposit or specified advance so repaid
|
|
Failure to furnish
the return of income before the end of the assessment year
|
Section 271F
|
Rs. 5,000
|
|
Failure to furnish
statement of financial transaction or reportable account (previously called
as Annual Information Return) as required under section
285BA(1) |
Section 271FA
|
Rs. 100 or Rs.500,
as the case may be, per day of default
|
|
Failure to furnish
an accurate statement of financial transaction or
reportable account |
Section 271FAA
|
Rs. 50,000
|
|
Failure to furnish
statement or information or document [as required under Section 9A(5)] by an
eligible investment fund within the prescribed time-limit.
|
Section 271FAB
|
An amount equal to
Rs. 5,00,000
|
|
Failure to furnish
any information or document as required by section 92D(3)
|
Section 271G
|
2% of the value of
the international transaction or specified domestic transaction for each such
failure
|
|
Failure to furnish
information or document under section 285A* by an Indian concern.
*Section 285A provides that where any share or interest of
foreign company derives its value substantially from assets located in India,
and such company holds such assets in India through Indian Concern then such
Indian concern shall furnish the prescribed information to the income-tax
authority.
|
Section 271GA
|
A sum equal to 2% of
the value of the transaction in respect of which such failure has taken
place, if such transaction had the effect of directly or indirectly
transferring the right of management or control in relation to the Indian
concern;
An amount equal to Rs.
5,00,000 in any other case |
|
Failure to file the
TDS/TCS return
|
Section 271H
|
Not less than
Rs.10,000 and upto Rs. 1,00,000
|
|
Failure to furnish
information or furnishing of inaccurate information under Section 195(6) in respect of payment made to non-residents. |
Section 271-I
|
An amount equal to
Rs. 1,00,000
|
|
Failure to
co-operate with the tax authorities, i.e., not answering any question, not
signing statements, etc.
|
Section 272A(1)
|
Rs. 10,000 for each
failure/default |
|
Penalty under
section
272A(2) |
Section 272A(2)
|
Rs. 100 per day for
every day during which the default continues.
|
|
Failure to comply
with
section 133B |
Section 272AA(1)
|
An amount not
exceeding Rs. 1,000
|
|
Failure to comply
with provisions relating to Permanent Account Number (PAN)
|
Section 272B
|
Rs. 10,000
|
|
Failure to comply
with provisions relating to Tax Deduction Account Number or Tax Collection
Account Number
|
Section 272BB(1)
|
Rs. 10,000
|
|
Failure to comply
with the provisions relating to Tax Collection Account Number
|
Section 272BBB
|
Rs. 10,000
|
Note : No penalty is imposable for any
failure under sections 271(1)(b), 271A, 271AA, 271B, 271BA, 271C, 271CA,
271D, 271E, 271F, 271FA, 271FB, 271G, 271H, 272A(1)(c) or (d),
272A(2), 272AA(1), 272B, 272BB(1), 272BB(1A) and 272BBB if the person or
assessee proves that there was reasonable cause for such failure (section
273B).
Section 273AA provides that a person
may make application to the Principal Commissioner/Commissioner for granting
immunity from penalty, if (a) he has made an application for settlement
under section 245C and the proceedings for settlement have abated; and (b)
penalty proceeding have been initiated under this Act. The application shall
not be made after the imposition of penalty after abatement.
OFFENCES
AND PROSECUTIONS
Updated
with Amendment made vide Finance Act, 2015 and applicable for A.Y. 2016-17 and
Onwards
|
Section
|
Nature of default
|
Punishment (rigorous
imprisonment)
|
Fine
|
|
(1)
|
(2)
|
(3)
|
(4)
|
|
275A
|
Contravention of
order made under section 132(1) (Second Proviso) or 132(3) in case of search
and seizure
|
Up to 2 years
|
No limit
|
|
275B
|
Failure to afford
necessary facility to authorised officer to inspect books of account or other
documents as required under section 132(1)(iib)
|
Up to 2 years
|
No limit
|
|
276
|
Removal,
concealment, transfer or delivery of property to thwart tax recovery
|
Up to 2 years
|
No limit
|
|
276A
|
Failure to comply
with provisions of section 178(1) and (3) re : company in liquidation
|
6 months to 2 years
|
—
|
|
276AB
|
Failure to comply
with provisions of sections 269UC, 269UE and 269UL re : purchase of
properties by Government5
|
6 months to 2 years
|
No limit
|
|
276B
|
Failure to pay to
credit of Central Government (i)
tax deducted at source under Chapter XVII-B (non-cognizable offence under
section 279A), or (ii)
tax payable u/s 115-O(2) or second proviso to section 194B
|
3 months to 7 years
|
No limit
|
|
276BB
|
Failure to pay the
tax collected under the provisions of section 206C
|
3 months to 7 years
|
No limit
|
|
276C(1)
|
Wilful attempt to
evade tax, penalty or interest (non-cognizable offence under section 279A)—
|
||
|
(a) where tax sought to
be evaded exceeds Rs. 1 lakh (Rs. 25 lakh w.e.f. 1-7-2012)
|
6 months to 7 years
|
No limit
|
|
|
(b) in other cases
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
|
276C(2)
|
Wilful attempt to
evade payment of any tax, penalty or interest (non-cognizable offence under
section 279A)
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
276CC
|
Wilful failure to
furnish returns of fringe benefits under section 115WD/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 (non-cognizable offence under section 279A)—
|
||
|
(a) where tax sought to
be evaded exceeds Rs. 1 lakh (Rs. 25 lakh w.e.f. 1-7-2012)
|
6 months to 7 years
|
No limit
|
|
|
(b) in other cases
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
|
276CCC
|
Wilful failure to
furnish in due time return of total income required to be furnished by notice
u/s 158BC(a)
|
3 months to 3 years
|
No limit
|
|
276D6
|
Wilful failure to
produce accounts and documents under section 142(1) or to comply with a
notice under section 142(2A)
|
Up to 1 year
|
7Rs. 4 to Rs. 10 for every day of default
|
|
277
|
False statement in
verification or delivery of false account, etc. (non-cognizable offence under
section 279A)
|
||
|
(a) where tax sought to
be evaded exceeds Rs. 1 lakh (Rs. 25 lakh w.e.f. 1-7-2012)
|
6 months to 7 years
|
No limit
|
|
|
(b) in other cases
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
|
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
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
278
|
Abetment of false
return, account, statement or declaration relating to any income or fringe
benefits chargeable to tax (non-cognizable offence under section 279A)
|
||
|
(a) where tax, penalty or
interest sought to be evaded exceeds Rs. 1 lakh (Rs. 25 lakh w.e.f. 1-7-2012)
|
6 months to 7 years
|
No limit
|
|
|
(b) in other cases
|
3 months to 3 years
(2 years w.e.f. 1-7-2012)
|
No limit
|
|
|
278A
|
Second and
subsequent offences under section 276B, 276C(1), 276CC, 277 or 278
|
6 months to 7 years
|
No limit
|
|
280(1)
|
Disclosure of
particulars by public servants in contravention of section 138(2)
[Prosecution to be instituted with previous sanction of Central Government
under section 280(2)]
|
Up to 6 months
(simple/rigorous)
|
No limit
|
Notes
:
1. No person is punishable for any failure under section
276A, 276AB or 276B if he proves that there was reasonable cause for such
failure (vide section
278AA).
2. (a)
Prosecution for offences under section 275A, section 275B, section 276, section
276A, section 276B, section 276BB, section 276C, section 276CC, section 276D,
section 277, section 277A and section 278 to be instituted with previous
sanction of Principal Director General/Principal Chief Commissioner/Principal
Commissioner/Director General/Chief Commissioner/Commissioner, except where
prosecution is at the instance of the Commissioner (Appeals) or the appropriate
authority (vide section
279).
(b)
The offences under Chapter XXII can be compounded (either before or after the
institution of proceedings) by Principal Director General/Director General or
Principal Chief Commissioner/Chief Commissioner.
3. Where an offence under this Act has been committed by
a person, being a company, and the punishment for such offence is imprisonment
and fine, then, such company shall be punished with fine and every person,
referred to in sub-section (1) of section 278B, or the director, manager,
secretary or other officer of the company referred to in sub-section (2) of
section 278B shall be liable to be proceeded against and punished in accordance
with the provisions of this Act.
4. With effect from 1-4-2008 under section 278AB a person
may apply to the Principal Commissioner/Commissioner for granting immunity from
prosecution, if he has applied for settlement under section 245C and the
proceedings have abated under section 245HA. The application shall not be made
after institution of prosecution proceedings after abatement.
——————-
- With effect from assessment year 2015-16 “annual information return” has been changed to “statement of financial transaction or reportable account” and word “return” has been changed to “statement”.
- With effect from assessment year 2015-16 a new section 271FAA has been inserted to provide for a penalty of Rs. 50,000 for furnishing inaccurate statement of financial transaction or reportable account in certain cases.
- With effect from 1-10-2014 TPO can also levy penalty.
- Section 271H as amended with effect from 1-10-2014 provides that penalty shall be levied by Assessing Officer.
- Non-operative with effect from 1-7-2002.
- With effect from October 1, 2014, if a person wilfully fails to produce accounts and documents as stated or wilfully fails to comply with the direction given, he shall be punishable with rigorous imprisonment for a term which may extend to one year and with fine (quantum of fine has not been specified).
- No limit w.e.f. 1-10-2014.
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