PROSECUTION AND COMPOUNDING OF OFFENCES By Subash Agarwal, Advocate

Q. What is Prosecution ??

“Prosecution” means taking of legal proceedings against a person for a crime.

What is “Compounding of offence ??

“Compounding of Offence” means conciliation by the parties under dispute. (a) Permission of the court is not required for compounding. (b) Through compounding, the distressed party is compensated for his grievance.

Who has power to compound an offence??

The aggrieved party or the victim has a right to compound an offence. A public prosecutor has no right of compounding.

(a) Cognizable and Non-cognizable offence. (b) Technical and Non-Technical offence.

(a) Cognizable Offence - As per sec. 2(c) of Code of Criminal Procedure, 1973, it is an offence for which a police officer can arrest without a warrant. (b) Non-cognizable Offence - As per sec. 2(l) of CPC, it is an offence for which a police officer has no authority to arrest without warrant.

Technical Vs. Non Technical Offences under Income tax Act, 1961

As per the guidelines of the CBDT F. No. 285/161/90-IT (Inv As per the guidelines of the CBDT F.No. 285/161/90-IT (Inv.) dated 30th September, 1994 and F.No. 285/26/2002-IT(Inv.) dated 29th July, 2003 distinction between technical and non-technical offences is detailed as under: - Offences u/s. - 276B (relating to TDS), - 276BB (relating to TCS), and - 276E (omitted w.e.f. 1-4-1989 which related to section 269T) are regarded as technical. All other offences are regarded as non-technical. 2. The technical offences can be compounded even before filing a complaint.

Offences under the Income Tax Act,1961

Sections 275A to 278 provides for various types of offences under which the Income Tax Department can prosecute an assessee in the Court of Law.

Contravention of order u/s. 132(3) Section Offence Particulars Punishment 275A Contravention of order u/s. 132(3) Order for non removal of money bullion etc. under Search and seizure Fine and 2 years rigorous imprisonment. 275B Contravention of order u/s. 132(1)(iib) Failure to allow inspection of books of accounts and other documents to authorized officer Fine and 2 years R.I. 276 Removal, concealment, transfer or delivery of property to thwart recovery of taxes. 276A Failure to comply with provisions of sections 178(1) and 178(3). Section 178(1): Notice by liquidator of a company within 30 days of his appointment to the A.O. Section 178(3): Non removal of assets of the company by liquidator without permission of the CCIT or CIT 6 months to 2 years R.I.

Section Offence Particulars Punishment 276B Failure to pay tax to the credit of the central Govt. under chapter XIID or XVII-B Failure to pay the tax deducted at source under Chapter XVII-B or pay tax as per 115O(2) or proviso to section194B Fine and 3 months to 7 years R.I. 276BB Failure to pay the tax collected at source. 276C(1) Wilful attempt to evade tax. 1. If the tax sought to be evaded exceeds Rs. 25 lacs 2. In any other case 1. Fine and 6 months to 7 years R.I. 2. Fine and 3 months to 2 years R.I. 276C(2) Wilful attempt to evade payment of tax, penalty or interest Fine and 3 months to 2 years R.I.

Section Offence Particulars Punishment 276CC Wilful failure to furnish the return of income u/s 139(1), pursuant to notice u/s 142(1)/ Sec. 148/ Sec. 153A 1. If the tax sought to be evaded exceeds Rs. 25 lacs. 2. In any other case. 1. Fine and 6 months to 7 years R.I. 2. Fine and 3 months to 2 years R.I. 276D Wilful failure to produce  account books and documents & Wilful failure to comply direction u/s 142(2A). Non compliance under section 142(1)-for production of books and Section 142(2A)- special audit R.I. upto 1 year or fine @ Rs. 4-10 per day during which default continues or both.

Section Offence Particulars Punishment 277 False statement in verification, etc. 1. If the tax sought to be evaded exceeds Rs. 25 lacs. 2. In any other case 1. Fine and 6 months to 7 years R.I. 2. Fine and 3 months to 2 years R.I. 277A Falsification of books of account or documents, etc.. If a person (1st person) falsifies books of another person (2nd person) then the 1st person is guilty and he is subject to imprisonment. The 1st person will be prosecuted whether or not the 2nd person has evaded any tax or not. Fine and 3 months to 2 years R.I.

Section Offence Particulars Punishment 278 Abatement of false returns etc. If a person (1st person) induces any other person (2nd person) to make and deliver any false account or statement or declaration in relation to any income chargeable to tax then the 1st person is guilty and he is subject to imprisonment. 1. If the tax sought to be evaded exceeds Rs. 25 lacs 2. In any other case. 1. Fine and 6 months to 7 years R.I.   2. Fine and 3 months to 2 years R.I.

Non Cognizable Offences under the Income Tax Act.

As per section 279A the following offences shall be deemed to be non -cognizable offences notwithstanding anything contained in the Code of Criminal Procedures 1973. 1. Sec. 276B Failure to pay tax to the credit of the central Govt. under chapter XIID or XVII-B 2. Sec. 276C(1) Wilful attempt to evade tax. 3. Sec. 276C(2) Wilful attempt to evade payment of tax 4. Sec. 276CC Failure to furnish the return of income. 5. Sec. 277 False statement in verification, etc. 6. Sec. 278 Abatement of false returns etc.

Significance of Technical & Non-Technical Offences 1. As per the guidelines of the CBDT F.No. 285/161/90-IT (Inv.) Dated 30th September, 1994 and F.No. 285/26/2002-IT(Inv.) Dated 29th July, 2003 distinction between technical and non-technical offences is detailed as under: Offences u/ss. 276B (relating to TDS), 276BB (relating to TCS), and 276E (omitted w.e.f. 1-4-1989 which related to section 269T) are regarded as technical. All other offences are regarded as non-technical. 2. The technical offences can be compounded even before filing complaint. 3. (a) A technical offence may be compounded by Chief Commissioner of Income Tax or Director General of Income Tax. (b) Non-Technical offence can be compounded only with the previous approval of the Board.

Compounding Fees and Approving Authority.

This Act provides relief from prosecution u/s 278AA and 279 This Act provides relief from prosecution u/s 278AA and 279. A list of compoundable offences is provided hereinafter –

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  275A Contravention of order u/s. 132(3) Yes, with prior approval of the CBDT Not prescribed-on case to case basis + 10%of composition fees as establishment expenses (max Rs. 50,000.00) 275B Contravention of order u/s. 132(1)(ii) Not prescribed-on case to case basis + 10% of composition fees as establishment expenses (max Rs. 50,000.00)

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276 Removal, concealment, transfer or delivery of property to thwart recovery of taxes. Yes with prior approval of the CBDT Not prescribed-on case to case basis + 10%of composition fees as establishment expenses (max Rs. 50,000.00)

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276A  Failure to comply with provisions of sections 178(1) and 178(3). U/s 278AA, if there is reasonable cause then no prosecution proceedings can be initiated. Otherwise composition with the prior approval of the CBDT 2% per month or part of a month of amount in default irrespective of amount in default   

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276B  Failure to pay the tax deducted at source.  U/s 278AA, if there is reasonable cause then no prosecution proceedings can be initiated. Otherwise compounding by CCIT or DGIT. CBDT approval not needed. 2% per month or part of a month of amount in default irrespective of amount in default   

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276BB Failure to pay the tax collected at source. Compounding by CCIT or DGIT. CBDT approval not needed. 2% per month or part of a month of amount in default irrespective of amount in default

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276C   (a) 276C(1) Wilful attempt to evade tax. (b) 276(2) Wilful attempt to evade payment of tax, penalty or interest. (a) Under section 279(1A) it is provided that prosecution for offence u/s 276C cannot be initiated if the penalty imposed or imposable for concealment of income has been reduced or waived by the Commissioner u/s. 273A.In other cases with prior approval of the CBDT (b) -do- (a) 50% of amount  of tax sought to be evaded irrespective of the amount sought to be evaded. (b) 2% per month or part of a month of amount in default irrespective of amount in default 

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276CC Wilful failure to furnish the return of income. Yes, with prior approval of the CBDT 2% per month of the assessed tax.

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  276D Failure to produce account books and documents & Wilful failure to comply direction u/s 142(2A) Yes, with prior approval of the CBDT Not prescribed-on case to case basis + 10% of composition fees as establishment expenses (max Rs. 50,000.00)

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  277 False statement in verification, etc. Under section 279(1A) it is provided that prosecution for offence u/s. 277 cannot be initiated if the penalty imposed or imposable for concealment of income has been reduced or waived by the Commissioner u/s. 273A. with prior approval of the CBDT 100% of the tax amount sought to be evaded where the tax sought to be evaded is less than Rs.1 lakh and 200% in other cases.

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  277A Falsification of books of account or documents, etc. Yes, with prior approval of the CBDT Not prescribed-on case to case basis + 10%composition fees as establishment expenses

Compounding possible by CCIT or DGIT as per section 279(2) Offence Compounding possible by CCIT or DGIT as per section 279(2) Rate of compounding as per guidelines of CBDT F.No. 285/26/2002- IT(Inv.); Dated 29th July, 2003 and other guidelines.  278 Abatement of false returns etc. Yes, with prior approval of the CBDT Not prescribed-on case to case basis + 10% of composition fees as establishment expenses (max Rs. 50,000.00)

As per the new instruction issued by the CBDT on 16.05.2008, compounding fees have been enhanced from 2% to 5%. Note:

Important points relating to compounding of offences under the Income Tax Act (a) As per section 279(2), power has been conferred on CCIT or DG to compound offences either before or after the institution of prosecution proceedings. (b) As per section 278AA, a person shall not be punishable for failure referred to in – Section 276A ( relating to liquidator’s duty u/s 178) Section 276B (relating to TDS default) If he proves that there was a reasonable cause for such failure.

(c) As per various CBDT circulars / guidelines / instructions - It was emphasized that a prosecution should not ordinarily be compounded if the prospects of success were good.  Compounding of an offence may be considered only in those cases in which the assessee comes forward with a written request for compounding offence. The second and subsequent offences may be compounded with the approval of the Board in the following circumstances:- (I) The default does not involve mens rea i.e. it is not deliberate or intended to conceal any information from the department or to defraud the revenue directly or indirectly. (II) Necessary steps for compliance of relevant provisions of Direct Tax Laws have been taken by the assessee prior to the detection of the default by the department. (III) In case of second and subsequent offence, the compounding fee shall be enhanced by 100% each time. Thus for second offence it will be 200% of the normal fee and so on.

In addition to the compounding fee, the compounding. charges In addition to the compounding fee, the compounding charges shall include prosecution/ establishment expenses. Prosecution/ establishment expenses will be charged at the 10% of the composition fee subject to a maximum amount of Rs. 50,000/-. This limit will apply even where a number of offences are compounded under a single order. (v) In a case where prosecution has not been filed, no order for compounding of offence need be passed, if as per guidelines issued vide F. No. 285/160/90-IT(Inv.) dated 7.2. 1991, the smallness of the default does not call for launching of prosecution. However in such cases levy of interest and penalties prescribed under the Direct Taxes Acts must be considered on merits.

Format of Application for compounding of offence to be submitted to CCIT/ DGIT Name: xxxxxxxxxxxxxxxxxxxxxx Address: xxxxxxxxxxxxxxxxxx Date: xxxxxxxxxxxxxxxxxxxx To: The Hon’ble Chief Comissioner of Income Tax-I, Aayakar Bhawan, Kolkata Sir, Sub: Application for compounding of prosecution u/s. 276-B in the case of xxxxxxxxxxx for A.Y. 2011 - 2012 - Regarding. Sir, The applicant is assessed to income-tax with the I.T.O., ward – xx(x), Kolkata.. 2. The applicant is being prosecuted for non-payment of following taxes deducted at source from the payment of “interest other than interest on securities” within the time stipulated under section 200 read with Rule 30 of the I.T. Rules, 1962 for the Assessment Year and amount written hereunder:

A.Y.: 2011 – 2012 b) Amount of TDS Due: Rs.3,00,000/- c) Actual date of tax deducted at source: 30.06.2010 d) Date of payment of TDS: 30th September, 2011 (b) The aforesaid sum together with the compensatory interest u/s 201(1A) of Rs. 80,000/- was paid on 30th September, 2011. Copies of the relevant Form with relevant details alongwith statement of TDS deposited u/s 200(3) are annexed hereto and collectively marked as Annexure: ‘A’. (c) The Ld. ITO, Wd. xx(x) also issued a letter dated xxxxxx asking for the reason for the late deposit of TDS into the Central Government Account. The said Letter was also duly replied to on xxxxxxx. In the said letter, the assessee stated as under- (d) The assessee was suffering from life threatening ailment is evidenced by the various medical reports and prescriptions which are annexed herewith and are collectively marked as Annexure:’C’.

4. The applicant states and submits that a show-cause notice u/s 279(1) dated 05/12/2012 was received from the Ld. CIT(TDS), Kolkata. The applicant appeared before the Ld. CIT(TDS) through his A/R and submitted a reply on xxxxxxx stating therein why prosecution proceedings u/s 276B be dropped. Copies of the show-cause notice and the reply are annexed hereto and marked as Annexure: ‘D’. 5. The applicant is prepared to pay the Compounding Fees as prescribed. The applicant understands that as per the present norms, the Compounding Fees, payable may work out Rs.1 lac which the applicant is prepared to pay. 6. The amount of tax involved is small and the applicant has discharged all its obligation under the Act. There are no taxes outstanding as far as the Assessment Years referred to above are concerned. 7. The applicant in the above circumstances, requests the Hon’ble Chief Commissioner to kindly consider the applicant’s case for compounding the above offence in terms of section 279(2) of the I.T. Act, 1961 and the prosecution may kindly be waived/the case filed in the Court of the Presidency Magistrate may kindly be withdrawn. Thanking you, Yours faithfully, CC: To- Hon’ble Commissioner of Income Tax (TDS)

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