By TIOL News Service

NEW DELHI, JAN 31, 2014: THE assesse appellants are J. Jayalaithaa, N. Sasikala and their partnership firm Sasikala Enterprises, who have all been prosecuted under Section 276CC of the Income Tax Act for failure to file Income Tax returns. The accused appellants had filed discharge petitions with the trial court which was rejected. On appeal, the High Court also rejected the plea. The accused appellants are before the Supreme Court, actually in the second round of litigation.

Appellants' plea: The senior counsel appearing for the appellants, submitted that the High Court did not appreciate the scope of Section 276CC of the Act. He pointed out that once it is established that on the date of the complaint i.e. on 21.08.1997 the assessment had not attained finality, the complaint became pre-mature as on the date of the complaint and no offence had taken place and all the ingredients of offence under Section 276 of the Act were not satisfied. He pointed out that unless and until it is shown that failure to file the return was willful or deliberate, no prosecution under Section 276CC could be initiated. He pointed out that in fact, the second accused in her individual return had disclosed that the firm was doing the business and that it had some income and hence, it cannot be said that A-2 had concealed the fact that the firm had any intention to evade tax liability. He also submitted that whether the assessee had committed any offence or not will depend upon the final assessment of income and tax liability determined by the appropriate authority and not on the assessment made by the assessing officer. Placing reliance on the proviso to Section 276CC he submitted that, that is the only interpretation that could be given to Section 276CC. Referring to Section 278E of the Act, the senior counsel submitted that till the assessment does not attain finality, Section 276CC is not complete and the presumption under Section 278E is not attracted.

Revenue Defence: Additional Solicitor General of India, appearing for the Revenue, on the other hand, submitted that Section 139 of the Act placed a statutory mandate on every person to file an income tax return in the prescribed form and in the prescribed manner before the due date i.e. 31st August of the relevant assessment year. The ASG submitted that on breach of Section 139(1) of the Act, cause of action to prosecute the assessee arises subject to other ingredients of Section 276CC of the Act. He pointed out that what is relevant in the proceedings, is not only the due date prescribed in Section 139(1) of the Act, but also time prescribed under Section 142 and 148 of the Act, by which further opportunities have been given to file the return in the prescribed time. In other words, Section 276CC, according to the ASG, applies to a situation where assessee has failed to file the return of income as required under Section 139 of the Act or in response to notices issued to the assessee under Section 142 or Section 148 of the Act. The ASG also submitted that the scope of proviso to Section 276CC to protect the genuine assessees who either file their return belatedly but within the end of the assessment year or those who paid substantial amount of their tax dues by pre-paid taxes.

Questions for consideration by the Supreme Court: The Supreme Court formulated the following questions for consideration by the Court.

(1) Whether an assessee has the liability/duty to file a return under Section 139(1) of the Act within the due date prescribed therein?

(2) What is the effect of best judgment assessment under Section 144 of the Act and will it nullify the liability of the assessee to file its return under Section 139(1) of the Act?

(3) Whether non-filing of return under Section 139(1) of the Act, as well as non-compliance of the time prescribed under Sections 142 and 148 of the Act are grounds for invocation of the provisions of Section 276CC of the Act?

(4) Whether the pendency of the appellate proceedings relating to assessment or non-attaining finality of the assessment proceedings is a bar in initiating prosecution proceedings under Section 276CC due to non-filing of returns?

(5) What is the scope of Section 278E of the Act, and at what stage the presumption can be drawn by the Court?

At the outset, the Supreme Court observed, “We are, in these appeals, concerned with the question of non- filing of returns by the appellants for the assessment year 1991-92, 1992-93 and 1993-94. Each and every order passed by the revenue as well as by the Courts were taken up before the higher courts, either through appeals, revisions or writ petitions. The details of the various proceedings in respect of these appeals are given in paragraph 30 of the written submissions filed by the revenue, which reveals the dilatory tactics adopted in these cases. Courts, we caution, be guarded against those persons who prefer to see it as a medium for stalling all legal processes. We do not propose to delve into those issues further since at this stage we are concerned with answering the questions which have been framed by us.”

The Supreme Court noted that Section 139 of the Act prior to 1989-90 and after, placed a statutory mandate on every person to file an income tax return in the prescribed form and in the prescribed manner. Non-compliance with a notice under Section 142(1)(i) may attract prosecution under Section 276CC. The Income Tax Act, had stipulated both the penalty under Section 271(1)(a) and prosecution under Section 276CC, the former for depriving taxes due to the exchequer and later for the offence/infraction committed.

As per Section 139, it is mandatory on the part of the assessee to file the return before the due date. Explanation (a) to the said section defines the term “due date”. The consequence of non-filing of return on time has also been stipulated in the Act. Section 148 refers to the issue of notice where income has escaped assessment. Sub-section (1) of Section 139, clause (i) sub-section (1) of Section 142 and Section 148 are mentioned in Section 276CC of the Act. Section 276CC deals with punishment for failure to file income tax returns.

Section 276CC applies to situations where an assessee has failed to file a return of income as required under Section 139 of the Act or in response to notices issued to the assessee under Section 142 or Section 148 of the Act. The proviso to Section 276CC gives some relief to genuine assesses. The proviso to Section 276CC gives further time till the end of the assessment year to furnish return to avoid prosecution. In other words, even though the due date would be 31st August of the assessment year as per Section 139(1) of the Act, an assessee gets further seven months' time to complete and file the return and such a return though belated, may not attract prosecution of the assessee . Similarly, the proviso in clause ii( b) to Section 276CC also provides that if the tax payable determined by regular assessment has reduced by advance tax paid and tax deducted at source does not exceed Rs.3,000 /-, such an assessee shall not be prosecuted for not furnishing the return under Section 139(1) of the Act. Resultantly, the proviso under Section 276CC takes care of genuine assesses who either file the returns belatedly but within the end of the assessment year or those who have paid substantial amounts of their tax dues by pre-paid taxes, from the rigor of the prosecution under Section 276CC of the Act.

Section 276CC, it may be noted, takes in sub-section (1) of Section 139, Section 142(1)(i) and Section 148. But, the proviso to Section 276CC takes in only sub-section (1) of Section 139 of the Act and the provisions of Section 142(1)(i) or 148 are conspicuously absent. Consequently, the benefit of proviso is available only to voluntary filing of return as required under Section 139(1) of the Act. In other words, the proviso would not apply after detection of the failure to file the return and after a notice under Section 142(1)(i) or 148 of the Act is issued calling for filing of the return of income. Proviso, therefore, envisages the filing of even belated return before the detection or discovery of the failure and issuance of notices under Section 142 or 148 of the Act.

Held: offence under Section 276CC of the Act has been made out in all these appeals and the rejection of the application for the discharge calls for no interference by this Court.

Is Pendency of appellate proceedings a factor for not initiating prosecution? The Supreme Court held, "Section 276CC contemplates that an offence is committed on the non-filing of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach. The language of Section 276CC, in our view, is clear so also the legislative intention. It is trite law that that “the language employed in a statute is the determinative factor of the legislative intent. It is well settled principle of law that a court cannot read anything into a statutory provision which is plain and unambiguous”. If it was the intention of the legislature to hold up the prosecution proceedings till the assessment proceedings are completed by way of appeal or otherwise the same would have been provided in Section 276CC itself. Therefore, the contention of the learned senior counsel for the appellant that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the appellant had not filed the return as per Section 139(1) of the Act or following the notices issued under Section 142 or Section 148 does not arise."

The appeals are dismissed and the Criminal Court is directed to complete the trial within four months.

(See 2014-TIOL-09-SC-IT)