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Prosecution and Punishment under Income Tax

Narendra Kumar

| Updated: Feb 22, 2018 | Category: Income Tax, Taxation

Under Income Tax

There is a penalty for the various offense under income tax act. Apart from that the income tax acts launching prosecution proceeding against the taxpayers for various offenses.

Order u/s 132(1) (2nd proviso) or u/s 132(3) in case search & seizure

As per Section 132 of the income tax act 1961, the income tax authorities may intimate the search proceeding at the premises of taxpayer.

During the search, the authorities have the power to seize money, bullion, jewelry or other valuable things found from the taxpayer. Generally, the authorities seize the money, bullion etc is taken by the tax authorities in their custody however in certain cases to take physical possession of the same or remove is not possible or practicable due to their nature, volume, weight, dangerous nature or any other factors.

In that case, the Authorities seize the assets by keeping assets at Taxpayer place only by serving an order on the owner or the person who is in immediate possession of the assets that he will not otherwise deal or remove such assets or part of the assets without prior permission of the authorized officer. This action of the authorized officer shall be considered a seizure of such assets or valuable article under the income tax act.

As per section 275A of the income tax act where a person contravenes the provision 132(1), 132(2) & 132(3) as mentioned in above para shall be punishable with rigorous imprisonment of up to a period of 2 years and shall also be liable for fine.

Failure to afford necessary facility to authorized officer to inspect books of account or other documents as is required u/s 132(1) (ii)

Where a search conducted by the authorities under income tax act. The tax authorities as per section 132(1) (ii) may require a person who is found to be possession or control of any books of account or other documents maintained in the form of electronic record as defined section 2(1) (t) of the information technology act, 2000, then such person shall provide the authorized person necessary facilities to inspect such books of accounts and other documents. The person in failure to do so shall be punishable with rigorous imprisonment of up to a period of 2 years and shall also be liable to fine.

Tax Recovery

If a person who is liable to pay the tax, fail to do so then the authorities can recover the liability by attaching his movable and immovable property.

Further, if the person fraudulently removes, conceals transfer or deliver any property or interest therein to avoid such recovery then prosecution proceeding can be initiated u/s 276.

As per section 276 of the Income Tax Act 1961 such person shall be punished with rigorous imprisonment for a term which may extend to 2 years and shall also be liable for fine.

Failure to comply with section 178(1) and (3) dealing with company-in Liquidation

As per section 178(1) of the Income Tax act 1961 every person:-

  1. Who is liquidator of any company which being wound up, whether under the order of court or otherwise; or
  2. Who has been appointed the receiver of any assets of a company,

Shall within 30 days after he has become such liquidator give notice of his appointment to the tax authority that is entitled to assess the income of the company?

As per section 178(3) the liquidator:-

  1. Shall not, without the leave of principal Chief commissioner or chief commissioner or principal commissioner or commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the AOin this regards; and
  2. On being so notified, shall set aside an amount equal to the amount notified and until he so sets aside such amount, shall not part with any of the assets of the company or properties in his hand:

However nothing shall shall debar the liquidator from dealing with assets for the purpose of the payment of secured creditors whose debt to be paid on priority over the Govt. dues on the date of liquidation or winding up expenses as are in the opinion of the principal chief commissioner or Chief Commissioner or principal commissioner or commissioner reasonable.

As per section 276A of the Income Tax act 1961 where a person failure to give notice or setting aside the sum in compliance with the above provision of section 178(1)/178(3) as well as prosecution in case the liquidator parts with any of the assets of the company or the properties in his hand in contravention of the provision of section 178(3). A person who fails to comply with this provision shall be punishable with rigorous imprisonment for a minimum period of 6 months which may extend to 2 years.

Miscellaneous Cases

  1. Where a person fails to credit the following sum in Government account:-
  • TDS
  • DDT u/s 115-O(2)
  • Tax in respect of winning from lottery or crossword puzzle u/s194B
  • Fails to pay tax collected at source.

Then such person shall be punishable with rigorous imprisonment

Minimum: – 3 Months Maximum: – 7 years

The above imprisonment shall be in addition to the fine.

  1. Where a person willful attempt to evade the payment of tax, tds penalty or interest or underreporting of income then such person shall be punished as follows :
Tax sought to be evaded Minimum Imprisonment Maximum Imprisonment
Exceed 25 Lakh 6 months 7 years
Other cases 3 months 2 years

The above imprisonment shall be in addition to the fine.

Failure to Furnish Return

Where a person fails to

  1. File the refund of the income tax act u/s 139(1)
  2. Where a notice u/s 142(1) (i) or section 148 or section 153A has been issued to the assessee and assess fails to file the return in response to such notice.

Then assess shall be liable for the rigorous imprisonment:-

Tax sought to be evaded Minimum Imprisonment Maximum Imprisonment
Exceed 25 Lakh 6 months 7 years
Other cases 3 months 2 years

The above imprisonment shall be in addition to the fine.

Further, the Assesse shall not be proceeded against under this section due to failure to furnish return u/s 139(1) if:

  1. The Return furnished by him before the expiry of the assessment year; or
  2. The tax paid by him under the regular assessment after deduction of advance tax and TDS Return does not exceed Rs. 3000/-

Failure to furnish books of accounts and documents u/s 142(1) or failure to comply with direction issued u/s 142(2A)

As per section 142(1) of the income tax Act 1961 the AOmay issue the notice to the assessee, asking him to file income tax return if he has not filed the return of his income or produce or cause to produce such accounts or documents as he may require furnishing in writing and verified such books or accounts or such points in those books or accounts whether those points included in books or accounts or not as he may deem it necessary

As per section 142(2A) of the income tax act 1961 if the conditions justifying

Special audit gave in section 142(2A) are satisfied. The AO may direct the assessee to get his account audited or re-audited from the Chartered accountant as nominated by Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and furnish a report on such audit in prescribed manner

As per section 276D of the income tax act 1961 if the assess:-

  • Wilful failure by the taxpayer to produce accounts and documents u/s 142(1) or
  • Comply with a direction issued u/s 142(2A).

Then the assessee shall be punishable with rigorous imprisonment which may be extended up to 1 year.

False Statement in Verification or Delivery of False account, etc.

As per the section 277 of the income tax act 1961, if the assessed makes false statement or producing false books or accounts in any verification under the actor under any rules made thereunder which he either knows or believes to be false, or does not it to be true, he shall be punishable as follow:-

Tax sought to be evaded Minimum Imprisonment Maximum Imprisonment
Exceed 25 Lakh 6 months 7 years
Other cases 3 months 2 years

Falsification of books of account or documents, etc. to enable any other person to evade any tax, penalty or interest chargeable/livable under the act

The section 277A of the income tax act 1961 provides the prosecution in the case of falsification of books of account or document etc.

As per section 277A, if any person (hereafter called first person) willingly and with an intent to enable any other person(hereafter called second person)to evade any payment of income tax or interest or penalty thereunder, makes or causes to be made any entry or statement which is not true false and which the first person either knows to be false or does not believe it to be true, in any books of account or another document relevant to or useful in any proceedings against the first person or the second person under the Act,

Then the first person shall be punishable with minimum 3-month imprisonment which may extend to 2 years with fine.

Abetment to make False return etc.

As per section 278 of the income tax act 1961 where if any person who abets or induces in any manner another person to make and deliver an account or a statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe it to be true or to commit an offence under section 276C (1), he shall be punished as under:

Tax sought to be evaded Minimum Imprisonment Maximum Imprisonment
Exceed 25 Lakh 6 months 7 years
Other cases 3 months 2 years

Second and Subsequent Offences under Sections 276B, 276C (1), 276CC, 277 or 278

The provisions of sections 276B, 276C (1), 276CC, 277 or 278 have already been discussed. Section 278A of the income tax Act 1961 provides for prosecution in the case of a second or subsequent offense under those sections.

As per section 278A, a person shall be punishable with imprisonment for a period which shall not be less than 6 months but which may extend to 7 years and with fine.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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