Sasi Enterprises vs. ACIT (Supreme Court)

In light of the recent 276CC notices, the below is the judgement based on which such notices are freshly issued by Tax Officers.

Prosecution for offence u/s 276CC for failure to file ROI can be initiated during the pendency of assessment proceedings. The statement in the individual returns of the partners that the firm has not filed a ROI as its’ accounts are not finalized does not absolve the firm of prosecution for non-filing of ROI


The assessee, a registered partnership firm, of which Ms. J. Jayalalitha and Mrs. N. Sasikala are partners, did not furnish returns of income despite several opportunities. The AO made a best judgement assessment u/s 144 and filed a complaint with the Megistrate against the assessee for committing offences punishable u/s 276CC. The assessee challenged the filing of the complaint on the ground that as the assessment had not attained finality no offence had taken place and so the complaint was pre-mature. It was also pointed out that in the individual returns of the partners it was stated that as the accounts of the assessee-firm had not been finalized, its return of income could not be filed. The Magistrate and High Court dismissed the challenge to the complaint. On appeal by the assessee to the Supreme Court, HELD dismissing the appeal:

(i) The offence u/s 276CC is attracted on failure to comply with the provisions of s. 139(1) or failure to respond to the notice issued u/s 142 or s. 148 within the time limit specified therein. The contention that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings u/s 276CC is not acceptable. S. 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 s. 276CC is clear so also the legislative intention. 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 s. 276CC itself. Therefore, the contention 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 s. 139(1) of the Act or following the notices issued u/s 142 or s. 148 does not arise;

(ii) The declaration or statement made in the individual returns by partners that the accounts of the firm are not finalized, hence no return has been filed by the firm, will not absolve the firm in filing the statutory return u/s 139(1) of the Act. The firm is independently required to file the return and merely because there has been a best judgment assessment u/s 144 would not nullify the liability of the firm to file the return as per s. 139(1) of the Act. The contention that since they had in their individual returns indicated that the firm’s accounts had not been finalized, hence no returns were filed would mean that failure to file return was not willful, cannot be accepted;

(iii) S. 278E deals with the presumption as to culpable mental state. The question is on whom the burden lies, either on the prosecution or the assessee u/s 278E to prove whether the assessee has or has not committed willful default in filing the returns. Court in a prosecution of offence, like s. 276CC has to presume the existence of mens rea and it is for the accused to prove the contrary and that too beyond reasonable doubt. Resultantly, the appellants have to prove the circumstances which prevented them from filing the returns as per s. 139(1) or in response to notices u/s 142 and 148 of the Act;

(iv) The details of the various proceedings reveal the dilatory tactics adopted in these cases. Courts must be guarded against those persons who prefer to see it as a medium for stalling all legal processes. The Criminal Court is directed to complete the trial within four months from the date of receipt of this Judgment.

Related judgements :
1. ACIT Vs M/s A.R. Enterprises (SC)
2. CIT Vs M/s Dynamic Enterprises (Karnataka HC)
3. Cit Vs M/s Delite Enterprises (Bombay HC) 

You face legal action for not filing returns even after Income Tax notice

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.
Source: Times of India