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Tax assessees beware! The Delhi High Court has ruled that non-filing of income tax returns can lead to prosecution even if the taxpayer was entitled for a refund had he filed a return.
The recent ruling by the Delhi High Court came in the case of Karan Luthra against the Income Tax Department.
The taxpayer had not filed his tax returns for the Assessment Years 2003-04, 2004-05 and 2005-06 and had also paid excess taxes during AY 2004-05 and 2005-06.
Subsequently, the Income Tax Department served notices to him under section 142(1) (requiring a taxpayer to furnish tax return and certain other information) and section 148 (assessment proceedings) of the Income Tax Act, 1961. Since he did not respond, the department then initiated prosecution proceedings by filing criminal complaints for offences punishable under section 276 CC of the Act.
Two notices
The orders for framing of charges were also upheld by the lower court for all the assessment years, except for AY 2003-04, where the taxpayer contended that he had received two notices and the second notice did not mention any date.
However, based on an earlier ruling of the Supreme Court, the Delhi High Court noted that Section 276CC of the Income Tax Act deals with offences for failure to furnish tax returns both voluntarily under under section 139(1) as well as in response to notices issued under section 142(1) or section 148. It further noted that failure to file tax returns is an offence under each of these sections.
For AY 2003-04, the High Court said that a later notice by the Income Tax Department cannot be seen to supersede an earlier notice, especially in order to have the effect of giving to the assessee an indefinite period for compliance.
As a result, the Delhi High Court upheld the prosecution against the taxpayer even if he was entitled to a refund or there was a shortcoming in the subsequent notice by the Income Tax Department.
Tax experts said while the Supreme Court had already spelt out the judgment in such cases, the Delhi High court ruling has said that a taxpayer can be prosecuted for non-filing of returns even if he was eligible for a refund.
“The taxpayer should be vigilant in timely filing of its income tax returns in India, to avoid any default on its part, including the harshest of getting prosecuted. Filing of tax return by a company assumes more significance, as the relief from prosecution (where tax shortfall does not exceed ₹3,000) has been removed for companies, by Finance Act, 2018,” said a note by Nangia Advisors.
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