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Offences and Prosecution under Income tax act

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June 8, 2021

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19 mins read

Offences and Prosecution under Income tax act – Chapter V

Provisions of Chapter V not in derogation of any other law [Section 48]

The provisions relating to offences and prosecution are in addition to, and not in derogation of, the provisions of any other law providing for prosecution for offences thereunder.

Let us understand this concept with the help of an illustration. Suppose, an assessee is involved money laundering and   has purchased property outside India out of such money. Now where prosecution was initiated under the Black Money law then such proceedings would be in addition to proceedings initiated under the RBI law for money laundering.

The provisions of Chapter V would be independent of any order under the Black Money Act that may be made, or has not been made, on any person. Also, it shall not be a defence that the order has not been made on account of time limitation or for any other reason.

Punishment for failure to furnish return in respect of foreign income and asset – Section 49

We have already discussed that failure to furnish return of income  when the assessee has any undisclosed foreign asset or undisclosed foreign income, would invite penalty of Rs 10 lakhs. In addition to such penalty,   any person, being a resident and ordinarily resident in India would be punishable with rigorous imprisonment of 6 months to 7 years with fine, when there is any willful failure to furnish return u/s 139(1) of the Income tax Act in due time, and such person : –

  1. held any asset (including financial interest in any entity) located outside India as a beneficial owner or otherwise, or was a beneficiary of any such asset (including financial interest in any entity) located outside India; or
  2. had any income from a source located outside India.

Note :-

Prosecution would not be attracted if the return is furnished before the expiry of the relevant assessment year.

Punishment for failure to furnish information of foreign asset or foreign income in return of income – Section 50

We have already discussed that any failure to information in respect of foreign asset or foreign income would invite penalty of Rs 10 lakhs. Now any such failure would also invite prosecution under this provision. Let’s discuss this provision in detail.

Any person, being a resident and ordinarily resident in India would be punishable with rigorous imprisonment of 6 months to 7 years with fine if such person willfully fails to furnish any information in ITR relating to –

  1. Any asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or
  2. Any income from a source located outside India.

Punishment for willful attempt to evade tax – Section 51

Where any person, who is a resident and ordinarily resident in India under Section 6(6) , willfully attempts to evade any tax, penalty or interest under the Black Money Act, he shall be punishable with rigorous imprisonment of 3 years to 10 years with fine. In order to attract prosecution,    there should be a willful attempt to evade tax, penalty, etc. A willful attempt to evade any tax, penalty or interest chargeable or imposable under the Black Money Act or the payment thereof includes a case where any person –

  1. has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement ; or
  2. makes or causes to be made any false entry or statement in such books of account or other documents; or
  3. willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or
  4. causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.

Punishment for false statement in verification – Section 52

A person shall be punishable with rigorous imprisonment of six months to seven years with fine if such person –

  1. Makes a statement in any verification under the Black Money Act, or under any Rule made thereunder, or
  2. Delivers an account or statement,

which is false, and which he either knows or believes to be false, or does not believe to be true.

Suppose, a person has made any statement in any verification under the proceedings of Black Money Act, which is false, then he would be punishable with imprisonment of the period as specified above.

Punishment for Abetment – Section 53

A person shall be punishable with rigorous imprisonment of six months to seven years with fine if such person –

  1. Abets or induces another person to make and deliver an account or a statement or declaration relating to tax payable which is false and which he either knows to be false or does not believe to be true or
  2. Willfully attempts to evade any tax, interest or penalty under section 51(1).

Presumption as to Culpable Mental State – Section 54

Prosecution provisions trigger, when there is a culpable mental state on the part of accused, or in other words  the accused has an intention or motive to do any offence or he has knowledge of the fact that he is doing such offence.

The court shall presume the existence of such mental state unless the accused proves the fact that he had no such mental state with respect to the offence charged under the Black Money Act.

A fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.

Prosecution to be at instance of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General or Principal Commissioner or Commissioner – Section 55

A person shall not be proceeded against for an offence under Section 49 to section 53 of the Black Money Act , except with the sanction of Principal Commissioner or Commissioner or the Commissioner (Appeals). The Principal Chief Commissioner or the Chief Commissioner  or the Principal Director General or the Director General may issue such instructions, or directions, to the tax authorities as he may think fit for the institution of proceedings under this section.

Guilty of offence under the Black Money Act – Section 56

The related provisions are discussed as under :-

i)     Person-in-charge deemed to be guilty of offence in case of company – section 56(1)

There are certain persons like managers, directors, etc. of the company who manage the affairs of the company. If there are any prosecution proceedings against the company due to offences under Black Money Act, that would be initiated against every person , who is in charge of the company or responsible for the conduct of the company at the time the offence was committed. Such persons shall be deemed to be guilty of offence under the Black Money Act. Proceedings would also be initiated against the company which would also be deemed to be guilty of the offence.

Note :-

If, however, such person proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence, he would not be deemed guilty of the offence. [Section 56(2)]

ii)    DIRECTOR, MANAGER, SECRETARY DEEMED TO BE GUILTY OF OFFENCE – SECTION 56(3)

Director, Manager, Secretary or Other officer shall be deemed to be guilty of offence under the Black Money Act and shall be liable to be proceeded against and punished accordingly, where an offence has been committed by a company, and it is proved that the offence has been committed with the consent or involvement of, or is attributable to any neglect on the part of such person (i.e., any director, manager, secretary or other officer of the company).

iii)  Imprisonment and fine – section 56(4)

Where an offence under the Black Money Act has been committed by a   company, and the punishment for such offence is imprisonment and fine, then, such company shall be punished with fine, and Person-in-charge, director, manager, etc., referred to in Section 56 would be proceeded against and punished as per the provisions of the Black Money Act.

iv)  MEANING OF ‘COMPANY’ AND ‘DIRECTOR’ – SECTION 56(5)

Meaning of Company: –

Company means a body corporate and includes –

  1. An unincorporated body (i.e., a firm, AOP or BOI);
  2. A Hindu Undivided Family

Meaning of Director: –

In relation to – Meaning of Director
Firm Partner in the firm
AOP/BOI Member of the AOP/BOI
HUF Adult member of the HUF
A Company Whole-time director
Where there is no whole-time director Any other director, manager or officer who is in charge of affairs of company

Proof of entries in records or documents – Section 57

The entries in the records, or other documents, in the custody of a tax authority shall be admissible evidence in any proceeding for the prosecution of any person under the Black Money Act.

These entries may be proved by the production of

  1. the records or other documents (containing such entries) in the custody of the tax authority; or
  2. a copy of the entries certified by that authority under its signature, as true copy of the original entries contained in the records or other documents in its custody.

Punishment for Second and Subsequent Offences – Section 58 

If any person convicted of an offence under the Black Money Act,  is again convicted of an offence under any of the aforesaid provisions, he shall be punishable for the second and every subsequent offence with rigorous imprisonment for a term of three to ten years and with fine of Rs. 5 lakhs to Rs. 1 crore .

Summary of Prosecution Provisions

Offence Prosecution Fine
Wilful failure to furnish income-tax return in relation to foreign income and foreign asset [Section 49] 6 months -7 Years Yes
Wilful failure to disclose foreign asset or foreign income in income-tax return [Section 50] 6 months -7 Years Yes
Wilful attempt to evade any tax, penalty or interest by a person being Resident and ordinarily resident [Section 51] 3 -10 Years Yes
Making false statement in verification [Section 52] 6 months – 7 years Yes
Inducing any person to deliver false statement [Section 53] 6 months – 7 years Yes
Second and subsequent offences [Section 58] 3 – 10 years Rs 5 lakh to Rs 1 crore

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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