Prosecution Under Income Tax Act. 1956

There are various offences for which prosecution is prescribed under the Income Tax Act. However, here I will only discuss the offences relating to evasion of taxes.


Willful attempt to evade any tax, penalty or interest, is punishable under section 276C(1) of the Act. A person making a false statement in any verification, or delivering a false account or a statement may also be prosecuted under section 277. Similarly, if a person abets or induces another person to make and deliver a false account or a false statement or declaration, he may be prosecuted under section 278.

The punishment for these offences is very stringent. If the amount sought to be evaded is more than 1 lakh, the person may be punished with rigorous imprisonment ranging from six months to seven year. If the amount sought to be evaded is less than 1 lakh, the term of imprisonment may range from three months to three years. The offender may also be required to pay a fine at the discretion of the court.


In addition, the offence of wilful failure to furnish returns of income is punishable under section 276CC and 276CCC of the Act. For these offences, the punishment may be imprisonment ranging from three months to seven years along with a fine.

If a person wilfully enables another person to evade tax by making false entries in the books of account or by making a false statement, he may be prosecuted under section 277A of the Act for which the punishment is rigorous imprisonment of a term ranging from three months to three years along with a fine. Thus, it may be clarified that not only the person filing a false return or making a false statement is liable to be prosecuted but also the person who helped him do so. Persons rendering professional services get covered by this provision.


When a person is found to have committed any of the above offences and there is evidence to prove that he has wilfully done so, the assessing officer can file a complaint in the court for which the assessee will be tried. The court shall presume the assessee to be guilty unless the accused assessee can produce necessary evidence to prove otherwise. Thus, the responsibility of proving innocence is placed on the accused. On conclusion of the trial proceedings, the court may convict the accused and he may be punished with imprisonment and fine.


Thus, it may be noted that wilful attempt to evade tax is treated as a criminal offence, for which one may be sent to jail and the term would be minimum of three months but could be as high as seven years.
Any person committing the offence is liable to be prosecuted. In the case of an offence committed by a company or a partnership firm, every person who is in charge of or responsible for the conduct of the business of the company or the firm is deemed to be guilty and can be prosecuted. In the case of a Hindu Undivided Family, it is the Karta who is deemed to be guilty of the offence.


Prosecution proceedings in the court are long drawn out proceedings, which may go on for years. Besides involving huge costs by way of hefty advocate fees, travel expenses and loss of business hours, they are like Damodes’ sword, which will never let the accused person rest in peace or allow him to concentrate on his business or profession. Even if he is not finally convicted, he would have lost many precious years of his life. Thus, he would lose much more than he thinks he would have saved by evading taxes. It is not worth it. It is to be well understood and internalized that one may be caught and may have to face the dreaded consequences.


I will be failing in my duty if I çlo not educate the tax payers fully. And the silver lining to the dark cloud is that there is a provision for the compounding of an offence. Compounding refers to a settlement by virtue of which the prosecution proceedings against the accused may be dropped in lieu of payment of monetary compensation by the accused The power to compound an income-tax offence is vested with the senior-most officers of the department, i.e. the Chief Commissioners of Income Tax and the Directors General of Income Tax. Application for compounding of the offence can be made either before or after institution of the proceedings. Depending upon the facts of the case, the nature of the offence and on fulfilment of certain other conditions, the offence may be compounded if the Chief Commissioner or the Director General is satisfied that the case is fit for compounding. The accused is then asked to pay the requisite compounding fee and on payment of such fee, the prosecution complaint is either not filed or withdrawn.
The offences pertaining to evasion of tax, i.e. wilful attempt to evade tax, wilful failure to furnish return of income, wilfully making false verification or delivering false accounts, etc. or abetting another person to do so are more serious than the other offences for which prosecution is prescribed. Ordinarily, such offences may not be compounded.


The above is only an overview of the provisions relating to penalty and prosecution for tax evasion. These may be a little difficult for the readers to comprehend. However, those who have already been caught and have reached the stage of penalty or prosecution would have appointed tax experts to help guide them during the proceedings.


As discussed in details above, when evasion of tax is established against a person, the consequences are very harsh. In addition to monetary cost by way of penalty and fines, the fear of landing up in jail is highly tormenting. Thus, the cost of evasion may turn out to be far more dreadful than the tax itself. It is a wise policy to show income truthfully, pay taxes correctly and file the returns timely. This is the key to retaining mental peace — do not lose it, it is priceless. Be a proud citizen of the country and participate in its economic growth and prosperity. Pay tax and contribute in the forward march of civilization. Somebody has rightly said that “the path of civilization is paved with tax receipts”. Let your tax receipts also get embedded in the path.
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