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Wilful failure to file return can be taxing
May, 19th 2007
`Wilful default' is deliberate failure to do what the tax-payer ought to have done, knowing that to omit doing so was wrong.

With the time for filing tax returns drawing closer, it is necessary to consider the provisions pertaining to prosecution under Section 276-CC of the Income-Tax Act, 1961. This provision seeks to punish any wilful failure to furnish in due time a return of income under Section 139(1) or abide by the notice given under Sections 142(1) or 148.

In Prakash Nath Khanna v. C.I.T. (266 I.T.R. 1), the Supreme Court held that the question whether there was wilful failure to file the return must be adjudicated factually by the court that deals with the prosecution case. The assessment of income of an assessee who has failed to furnish an income-tax return has no relevance to the initiation or continuation of prosecution, as held by the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO (149 I.T.R. 696). In this case it was held that mere expectation of success in another pending proceeding would not bar a criminal prosecution if the ingredients of the offence charged are prima facie fulfilled.

In Maya Rani Punj v. C.I.T. (157 I.T.R. 330), it was held that non-compliance with the obligation of making a return is an infraction as long as the default continues. Therefore, the pendency of the adjudication proceedings will have no bearing on the prosecution proceedings against the petitioners for non-filing of return. The proviso to Section 276-CC will only apply in cases where the assessees have filed their returns voluntarily before detection or before issuance of the statutory notices. The Section punishes the person who `wilfully fails' to furnish return of income in time; mere failure to file the return in time does not, by itself, constitute the offence under this Section (Narayan v. Union of India (208 I.T.R. 82).

Intentional Failure

`Wilful default' is some deliberate or intentional failure to do what the tax-payer ought to have done, knowing that to omit to do so was wrong. Formerly mens rea had to be established to attract this Section. From September 10, 1986, mens rea is to be presumed, and the accused has to prove the absence of it (Section 278-C) Raghunath Pandey v. State of Bihar (232 I.T.R. 908), and V. P. Punj v. C.I.T. (253 I.T.R. 369). Although the Section does not prescribe a time limit for launching a prosecution, it has been held that prosecution should be commenced within a reasonable time, and punishment under this Section can ensue only when it is proved that the assessee has wilfully failed to furnish the return in due time after the serving of a notice Vishnu V. Kamat Tarcar v. Assessing Officer. (207 I.T.R. 1040) and Assessing Officer v. Mukesh Kumar (254 I.T.R. 409).

Under the proviso to this Section, prosecution will not be launched where the assessable income is less than Rs 3,000.

In State of Bihar v. Ramesh Singh (4 SCC 39), the Supreme Court held that the presumption of guilt of the accused is only for the purposes of deciding prima facie whether the court should proceed with the trial or not. If the evidence which the prosecutor proposes to adduce to prove the guilt of the accused does not show that the accused committed the offence, there would be no sufficient ground for proceeding with the trial.

Grounds for prosecution

In State of M.P. v. Mohanlal Soni (6 SCC 338), the Supreme Court held that the judicial view is that at the stage of framing a charge, the court has to prima facie consider whether there is sufficient ground for proceeding against the accused. The court is not required to appreciate all the evidence to conclude whether the materials produced are sufficient or not for convicting the accused.

The authority sanctioning the prosecution must apply its mind to ensure that there is no frivolous and vexatious prosecution. The order must ex facie disclose that the authority had considered the evidence and other materials. The authority has to apply its own independent mind. It should not be under pressure from any quarter.

The question whether there is wilful failure in not filing a return within the prescribed time is a matter upon which there should be factual adjudication by the Court. One of the significant terms used in Section 276-CC is `in due time'. The time within which the return is to be furnished is indicated only in Section 139(1) and not in Section 139(4). That being so, even if a return is filed within the time allowed in Section 139(4) that would not condone the infraction of law committed in not furnishing the return in due time under Section 139(1).

Otherwise, the use of the expression `in due time' would lose its relevance. Before substitution of the words `clause (i) of Section 142(1)' by the Direct Tax Laws (Amendment) Act, 1987 with effect from April 1, 1989, the words used were `Section 139(2)'.

At that time the Assessing Officer was empowered to issue a notice requiring furnishing of a return within the time indicated therein. Thus, the infraction, which is covered by Section 276-CC, relates to non-furnishing of return within the prescribed time in terms of sub-section (1) or indicated in the notice given under Section 139(2).

There is no condonation of such infraction, even if a return is filed in terms of sub-section (4). Accepting such a plea would mean that a person who has not filed a return within the time prescribed under Section 139(1) or 139(2) would get benefit by filing the return under Section 139(4) later. This cannot be the legislative intent.

Section 277-CC cannot be said to be applicable only when there is discovery of the failure regarding evasion of tax. Therefore, what follows from the rationale laid down by the Supreme Court is that even if evasion of tax is not established, the prosecution may be launched for the offence of non-filing of returns.

The law is clear that if there is wilful failure on the part of assessee in furnishing the return of income within the prescribed time, prosecution launched against him would be sustained by the court. Therefore, tax payers must ensure that the tax returns are filed as required under Section 139(1), that is, by July 31 or October 31 as may be applicable.

H. P. Ranina
(The author, a Mumbai-based advocate specialising in tax laws)

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