Meaning of Prosecution

When an assessee commits a default or violation, they can face prosecution under the provisions of the Income Tax Act. The following sections outline the nature of offenses and the corresponding punishments, including imprisonment, for each offense.

Types of Defaults/Lapses and Prosecution

• Contravention of Orders in Search Cases (Section 275A) – If an assessee disobeys orders during a search, such as removing documents, cash, assets, or other items that must not be moved, they may face rigorous imprisonment for up to two years, along with a fine.

• Failure to Provide Access to Books of Accounts in Search Cases (Section 275) – An assessee who fails to grant the income tax authorities access to their books of accounts during a search may face rigorous imprisonment for up to two years, and may also be liable to a fine.

• Removal, Concealment, or Transfer of Property to Prevent Tax Recovery (Section 276) – An assessee who intentionally removes, conceals, or transfers property to prevent tax recovery may face rigorous imprisonment for up to two years, along with a fine.

• Failures in Case of Company Liquidation (Section 276A) – When a company goes into liquidation, the liquidator must:

  • Inform the income tax department about their appointment within 30 days.
  • Maintain funds to pay taxes or future taxes.
  • Refrain from transferring assets in violation of the law. Failure to comply may lead to rigorous imprisonment for 6 months to two years.

• Failure to Deposit TDS (Section 276B) – If an assessee fails to deposit TDS, Dividend Distribution Tax, or tax on in-kind winnings, they may face imprisonment for 3 months to 7 years, along with a fine.

• Failure to Deposit TCS (Section 276BB) – An assessee who fails to deposit TCS may face rigorous imprisonment for 3 months to 7 years, along with a fine.

• Willful Attempt to Evade Tax, Interest, Penalty, or Underreport Income (Section 276C(1)) – An assessee who knowingly and intentionally attempts to evade tax, interest, penalty, or underreports income will face prosecution as follows:

  • If the amount exceeds ₹25 lakh, the sentence may range from 6 months to 7 years, along with a fine.
  • In other cases, the sentence will range from 3 months to 2 years, along with a fine.

• Willful Attempt to Evade Payment of Tax (Section 276C(2)) – If an assessee willfully evades the payment of tax, they may face rigorous imprisonment for 3 months to 2 years, along with a fine. This includes cases where:

  • Books or documents contain false entries.
  • False entries are intentionally made or omitted.
  • The assessee creates circumstances enabling tax evasion.

• Knowingly Not Furnishing the Return of Income Within the Prescribed Time (Section 276CC) – An assessee who knowingly fails to file their return on time may face prosecution as follows:

  • If the tax loss exceeds ₹25 lakh, they may face imprisonment from 6 months to 7 years, along with a fine.
  • In other cases, they may face imprisonment for 3 months to 2 years, along with a fine.

• Willful Failure to Produce Accounts or Get Them Audited (Section 276D) – An assessee who willfully fails to produce books or documents or fails to get them audited may face imprisonment for up to one year, along with a fine.

• False Statement in Accounts or Production of False Books (Section 277) – An assessee who makes false statements in their accounts or produces false books will face prosecution as follows:

  • If the tax loss exceeds ₹25 lakh, they may face rigorous imprisonment from 6 months to 7 years, along with a fine.
  • In other cases, they may face imprisonment from 3 months to 2 years, along with a fine.

• Falsification of Books or Accounts (Section 277A) – Anyone who falsifies entries in another person’s books to assist in tax evasion will face imprisonment for 3 months to 2 years, along with a fine.

• Abetment of False Return, Accounts, Statement, etc. (Section 278) – A person who induces another to file a false return or submit false information will face prosecution as follows:

  • If the false return leads to a loss of over ₹25 lakh, the person will face rigorous imprisonment for 6 months to 7 years, along with a fine.
  • In other cases, the punishment is imprisonment for 3 months to 2 years, along with a fine.

• Offences by Companies/Firms (Section 278B) – When a company commits an offense, all persons associated with it (directors, secretaries, officers) may be held liable and face punishment. However, individuals can be exempt if they prove the offense was committed without their knowledge. The same applies to firms, where partners are responsible.

• Offences by HUF (Section 278C) – In the case of an offense by a Hindu Undivided Family (HUF), the Karta (head) will be held responsible and punished accordingly. If the Karta can prove the offense occurred without their knowledge, they may be exempt from punishment.

• Furnishing of Information or Documents by a Public Servant (Section 280(1)) – A public servant who furnishes information or documents in violation of the rules under Section 138(2) may face imprisonment for up to 6 months.