Question And Answer
Subject: Whether prosecution be launched for failure to pay the tax ?
Querist: Sree Lekha
Answered by:
Tags: ,
Date: May 23, 2021
Query asked by Sree Lekha

Good evening sir. The assessee has sold a residential property and has not filed the return of income. On receipt of notice u/s 148, the return was filed and tax was paid. However, during the course of assessment proceedings, the cost of acquisition and development was reduced by the assessing officer and accordingly demand is raised. The assessee has given the sale consideration received as loan to a company, which is in the process of winding up. Hence, the assessee is not in a position to pay the taxes. If the demand is finalised assuming that the assessee loses the appeal in the highest forum, will non-repayment of loan by the company be a reasonable ground for non levy of prosecution on the assessee? Also, please clarify if the age of the assessee will be considered at the time of launch of prosecution for the above mentioned facts.

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Answer given by

Merely on the basis of not allowing the claim in appeal the prosecution cannot be initiated . In case the department levies penalty , the assessee should contest in appeal . The chances are bright that the assessee may succeed in appeal . When the penalty is deleted there cannot be any prosecution. In K. C. Builder v. ACIT (2004) 265 ITR 562 (SC), the court held that when the penalty is cancelled, the prosecution for an offence u/s 276C for wilful evasion of tax cannot be proceeded with thereafter. Following this principle the courts have quashed prosecution proceedings on the basis of the cancellation of penalty by the Appellate Authority (Shashichand Jain & Ors. v UOI (1995) 213 ITR 184 (Bom) (HC).

As regarding the recovery of tax the revenue can recover the tax by following due process of law .
As per Instruction No. 5051 of 1991
dt. 7-2-1991 issued by the Board stated as under:
“Prosecution need not normally be initiated against a persons who have attained the age of 70 years at the time of commission of the offence”.

In Pradip Burma v. ITO (2016) 382 ITR 418 (Delhi) (HC), the court held that, at the time of commission of offence the petitioner has not reached the age of 70 years, hence the circular was held to be not applicable.

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