Madras High Court Upholds Criminal Prosecution for Late Income Tax Return Filing

Madras High Court Upholds Criminal Prosecution for Late Income Tax Return Filing

The Madras High Court has affirmed the commencement of criminal prosecution under Section 276CC of the Income Tax Act, 1961, as a consequence of the Assessee's failure to submit the income tax return and remit the self-assessment tax within the timeframe prescribed by Section 139(1) of the Act.

The Court clarified that the phrase "wilfully fails to furnish in due time" mentioned in Section 276CC of the Act encompasses the deadline set under Section 139(1) of the Act and does not include the extended time granted under Section 139(4) of the Act. Consequently, merely filing the return during the extended period will not serve as a defence for the petitioner to evade criminal prosecution.

In dismissing the Assessee's argument against the initiation of criminal proceedings due to the absence of 'wilfulness,' the High Court noted that Section 278E introduces a statutory presumption regarding the presence of a culpable mental state. The question of whether there was wilfulness in the failure to file the returns promptly and pay taxes on time is regarded as a matter of fact. This matter can only be determined through the examination and evaluation of evidence during the trial, and it cannot be resolved while exercising jurisdiction under Section 482 of the Criminal Procedure Code (CrPC).

Justice N. Anand Venkatesh, presiding over a Single Judge Bench, clarified that the phrase "wilfully fails to furnish in due time" mentioned in Section 276CC includes the specific deadline set under Section 139(1) and does not encompass the extended time granted under Section 139(4) of the Act.

During the legal proceedings, Senior Advocate P. Wilson represented the Assessee. On the other side, Senior Public Prosecutor M. Sheela represented the Revenue.

In the given case, the Assessee, an individual, filed a belated income tax return for the assessment year 2013-14 under Section 139(4). In this return, the Assessee declared an income of ₹3.48 crore and admitted a tax liability (self-assessment tax) of ₹1.04 crore, which was not paid at the time of filing the belated return.

Subsequently, the Assessing Officer (AO) issued a show cause notice to the Assessee, intending to initiate proceedings under Section 276CC and Section 276(2) of the Income Tax Act. Following this notice, the Assessee paid the self-assessment tax.

Later, the AO obtained sanction from the Principal Chief Commissioner of Income Tax (PCIT) and filed a complaint before the Judicial Magistrate of First Class, Vellore, seeking the initiation of prosecution under Section 276CC of the Income Tax Act.

The Assessee challenged the initiation of criminal proceedings, arguing that such proceedings cannot be initiated merely due to a delay in filing the income tax return or in paying the self-assessment tax unless there is a deliberate and intentional delay (wilful or wanton).

In response, the Revenue Department opposed the Assessee's contention and argued that the term "due time" mentioned in Section 276CC should be understood in connection with the time prescribed under Section 139(1) of the Income Tax Act and not the extended time allowed under Section 139(4). The Revenue Department further pointed out that the fact that the Assessee paid the self-assessment tax only after receiving a notice from the Assessing Officer indicates wilful non-compliance on the part of the Assessee in not filing the return and paying the tax on time.

After considering the arguments presented, the Bench referred to a ruling by the Supreme Court in the case of Prakash Nath Khanna & Another Vs. CIT & Another [2004 (135) Taxman 327]. In that case, it was clarified that the term "failure" used in Section 276CC pertains to both the submission of assessment and the return of income. However, this "failure" cannot be equated with the failure to pay taxes in time under Section 276C.

The Court in the Prakash Nath Khanna case further held that filing the return of income within the extended time allowed under Section 139(4) does not diminish the violation of not furnishing the return in due time as prescribed under Section 139(1).

The Bench made a significant observation that once the onus is shifted to the Assessee due to the statutory presumption provided in the relevant tax law, it becomes the responsibility of the Assessee to discharge that burden of proof during the course of presenting evidence. This exercise of proving innocence or justification cannot be undertaken in a petition filed under Section 482 of the CrPC.

In conclusion, the High Court observed that the Revenue has established a prima facie case, and consequently, the statutory presumption under Section 278E of the Income Tax Act comes into effect. Considering the presence of this statutory presumption and the prima facie case made by the Revenue, the Court emphasised that the jurisdiction under Section 482 of the CrPC cannot overlook or disregard the statutory presumption.