ATM :: You face legal action for not filing returns even after I-T notice

Check I-T return status before December 31 to ensure tax compliance. I-T Act provides for prosecution—rigorous imprisonment of three months to seven years and a fine. 

LUBNA KABLY, TNN | Feb 7, 2014, 03.43AM IST | Times of India


MUMBAI: If you haven’t filed your income-tax returns within the statutory deadline or within the time period available after the I-T department issues a notice, it could result in prosecution. In case of a firm or a company, it is the persons responsible for the day-to-day conduct of the business—such as partners or directors—who could face prosecution.

This was upheld by the Supreme Court in its order last week. The SC has also held that in case prosecution proceedings are initiated, taxpayers have to prove the circumstances which prevented them from filing the I-T returns. Which means that the burden is on the taxpayer to prove that the failure to furnish the I-T returns was not wilful.

In addition to penal interest, the I-T Act also provides for prosecution—rigorous imprisonment of three months to seven years and a fine.

Prosecution proceedings can be initiated when the I-T return is not filed by the statutory due date or within the time permitted by the tax authority in the notice sent requiring filing of such returns.

Section 276CC of the I-T Act enables such prosecution proceedings to be carried out. However, provisos to this section provide for some relief in certain instances.

A taxpayer can file the I-T returns by the end of the fiscal year in which the return is required to be filed and still not attract prosecution proceedings. For instance, the due date of filing returns for a salaried employee is July 31. In respect of income earned during fiscal 2012-13 (April 1, 2012 up to March 31, 2013) salaried employees had to file their I-T returns by July 31, 2013. However, even if the returns are filed by March 31, 2014, prosecution proceedings will not be attracted.

Similarly, no prosecution proceedings are initiated if the tax payable after prepaid taxes (advance tax and tax deducted at source) does not exceed Rs 3,000.

“However, such relief from prosecution is not available in case of a failure to file I-T returns in response to a notice sent by the tax authorities,” explains Tarun Gulati, partner, PDS legal, law firm specializing in tax litigation.

As there is no protection available against prosecution, even if substantial taxes have been paid either as advance taxes or tax deducted at source, notices from the tax department calling for filing of I-T returns must be attended to promptly. Partners and directors of business entities who are in charge of day-to-day operations must also ensure due diligence in this regard, else they too could be prosecuted,” he adds.

In this case, a Chennai-based partnership firm, Sasi Enterprises, failed to file I-T returns for two years—for fiscal years 1990-91 and 1991-92. The firm also did not act upon the notices sent by the tax department. Consequently, the tax department, in the absence of a tax return or financial information, carried out a ‘best judgment’ assessment and raised tax demands.

The firm appealed against the demand and the matter was pending. In parallel, partners filed belated individual I-T returns. In these individual returns, it was mentioned that the accounts of the firm were not finalized and, hence, no returns of the firm had been filed.

The SC dismissed the argument that no prosecution could be initiated against the partners of the firm on the ground that the appeal was pending and the assessment was not completed. The apex court also held that the firm was independently required to file its I-T returns and dismissed the contention that a declaration made in the individual returns of the partners stating reasons for not filing the firm’s return would ensure protection against criminal proceeding.

The SC directed the criminal court to complete trial against the firm and its partners within four months.

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