Income Tax--Current Issues

Practice Update

V.K. Subramani

VALIDITY OF LAUNCHING PROSECUTION PROCEEDINGS WITHOUT DETERMINATION OF UNACCOUNTED INCOME AND TAX PAYABLE THEREON

Section 276C says that if a person wilfully attempts in any manner to evade any tax, interest or penalty chargeable or imposable under the Income Tax Act, 1961 (hereinafter referred to as Act) he shall be proceeded against for prosecution. This is without prejudice to any penalty that may be imposable on him under any other provision of the Act. The term of prosecution is based on the quantum of tax sought to be evaded.

In the case of Income Tax Department v. D.K. Shivakumar (2021) 200 DTR (Kar) 273 : 2021 TaxPub(DT) 1975 (Karn-HC) two interesting issues came up before the Court. The first one was, the validity of initiating prosecution proceedings by Deputy Director of Income Tax (Inv.) based on the specific authorization given to him by Pr. DIT (Inv) who had accorded sanction for prosecution of the assessee. The court held that the assessee cannot challenge the initiation of action by Deputy Director (Inv) since he was authorized by the PDIT. The second issue was, whether the launch of prosecution proceedings is valid without determination of unaccounted transactions which could lead to imposition of tax, interest and penalty. The court held that no prosecution could be launched before determination of the unaccounted transactions and tax, interest or penalty is payable thereon. It held that prosecution launched is premature and illegal which cannot be allowed to continue when it is based on the seized material consequent to a search and no definite findings were available for establishing that there was an attempt to evade tax, interest or penalty.

Further the court held that the gist of offence covered under section 276C was the 'wilfull attempt to evade tax' and not the 'actual evasion of tax'. It observed that the 'attempt' to evade tax would mean that there was some positive act of the assessee with an intention to evade any tax, interest or penalty. Support for this reasoning was drawn from Prem Dass v. ITO (1999) 152 CTR (SC) 79 : 1999 TaxPub(DT) 1171 (SC) to state that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence under section 276C(2) of the Act.

Applying the above analogy, can we say that if a non-assessee (not having PAN and never assessed to income-tax) who does not know income tax fails to file his ITR, did not do any positive act to evade tax and therefore cannot be charged under section 276C even if there is some income chargeable to tax under the Act?