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Offences for Non-Payment of TDS/TCS - Compounding and Prosecution

The article is based upon the classification of offences as the category A and category B offences under the applicable laws with special focus on the Income Tax Act,1961, the Indian Penal Code,1860 and the Goods and Services Tax. Also, the article focuses upon the eligibility conditions, timelines, fees and procedure to be followed for compounding of offences. Prosecution initiated for non-payment or non-deduction of TDS is explained in the later stages of the article.
Written by:
Mehak Sharma
Published on
27-May-19

Classification of offences under the applicable laws

The Chapter-XXII classifies the offences into Category A and Category B under the Act for the very limited scope of the compounding of the offences. 

Category ‘A’

The Category A includes offences:-

Sl No. 

Section

Description/Heading of section

I. 

276 

(Prior to 01/04/1976)- Failure to make payment or deliver returns or statements or allow inspection

ii 

276B

(Prior to 01/0411989) - Failure to deduct or pay tax 

iii

276B 

(i.e. 01/04/1989 and up to 30/5/1997) - Failure to pay tax deducted at source under chapter XVII-B 

iv

276B 

Failure to pay tax deducted at source under chapter XVII-B or tax payable under section 115 -0 or 2nd proviso to section 194B to the credit of the Central Government (w.e.f. 01/06/1997) 

276BB 

Failure to pay the tax collected at source

vi

276DD

(Prior to 1.04.1989) - Failure to comply with the provisions of section 269SS

vii

276E

(Prior to 1.04.1989) - Failure to comply with the provisions of section 269T 

viii

277 

False statement in verification etc. with reference to Category 'A' offences

ix 

278

Abetment of false return 

Category ‘B’

The Category B includes offences:-

Sl No.

Section 

Description/Heading of section 

I.

275A

Contravention of order made u/s 132(3)

ii

275B

Failure to comply with the provisions of Section 132 (1) (iib)

iii

276 

Removal, concealment, transfer or delivery of property to thwart tax recovery

iv

276A

Failure to comply with the provisions of sections 178 (1) and 178(3)

v

276AA

(prior to 01/1011986)-Failure to comply with the provisions of section 269 AB or section 269 I

vi

276AB

Failure to comply with the provisions of sections 269UC, 269UE and 269UL

vii

276(C)(1) 

Willful attempt to evade tax

viii

276(C)(2)

Willful attempt to evade payment of taxes etc

ix 

276CC 

Failure to furnish returns of income

x

276CCC

Failure to furnish returns of income in search cases in block assessment scheme

Xi

276D

Failure to produce accounts and documents

xii

277

False statement in verification etc. with reference to Category 'B' Offences

xiii

277A 

Falsification of books of account or documents etc.

xiv

278

Abetment of false return etc. with reference to Category 'B' Offences

 

What are the Compounding provisions given under IT act

Under Section 279(2), the CCIT/DGIT, before of after the institution of proceedings, has the power to compound the offences as specified under chapter XXII. As per section 2(15A) and 2(21) of the Act, Chief Commissioner of tax includes Principal CCIT and Director General of tax includes Principal DGIT.

Eligibility conditions for compounding

The following conditions should be satisfied for considering compounding of an offence: - 

The application is made to the CCIT/DGIT having jurisdiction over the case for combining of the offences within the prescribed format by the authority.

The person has paid the outstanding tax, interest, penalty and any other sum due, relating to the offence for which compounding has been sought.

The person undertakes to pay the combining charges together with the combining fee, the prosecution institution expenses and also the legal proceeding expenses together with counsel's fee, if any, determined and communicated by the CCIT/DGIT involved.

The person undertakes to withdraw charm filed by him, if any, just in case an equivalent encompasses a referring to the offence wanted to be combined. Just in case such charm has mixed grounds, a number of which cannot be associated with the offence into account, the endeavor is also taken for applicable modification in grounds of such appeal.

 

Offences generally not to be compounded

Offence not detected by the department but voluntarily disclosed by a person prior to the filing of application for compounding of offence in the case under any Direct Tax Acts.

Offences committed by a person who, as a result of investigation conducted by any Central or State agency and as per the information available with the CCIT/DGIT concerned, has been found to be involved, in any manner, in anti-national/terrorist activity.

The punishment prescribed for the person committing the offence is two years or more, with or without fine, and which has a bearing on the offence sought to be compounded under the offences committed in relation to  offences other than the Direct Tax and also, the person who has been convicted by the court in the past under any of the law prescribed by the parliament.

The time period for the filing of the complaint which the authority is competent to try the case is 12 months from the commission of the offence and the person filing the complaint has to follow the guidelines as may be prescribed by the government along with the time limit mentioned in the Limitation Act.

Who is the authority competent to compound an offence?

The CCIT/DGIT having jurisdiction over the person, seeking compounding of an offence, is the competent authority for compounding of all Category 'A' and Category 'B' offences. 

Where Principal CCIT I DGIT(Inv) is the CCIT/DGIT having jurisdiction over the case, then another officer of the rank of CCIT may be co-opted as a member of the Committee. The CCIT/DGIT having jurisdiction over the case will act as the Member Secretary who will also co-opt such other members as the case may be, and convene the meeting, as well as maintain its minutes.

Compounding procedure

When the application along with the documents is made by the applicant, the same has to be processed in the manner as may be prescribed by the law by the competent authority i.e. Assessing Officer/Assistant or Deputy Director through the correct and legal channel of processing the application. The competent authority is under an obligation to dispose of the application within 180 days of receiving the application. If the authority finds that the application is made with malafide intention then the competent authority has the power to reject the application. Then the competent authority has to pass the necessary order in the prescribed format for the compounding of the offence. Once the application is accepted and has been processed by the authority, the applicant is given 60 days for the payment of the amount of the compounding charges within the receipt of such intimation. The time can be extended up to 120 days in certain cases with reasons recorded in writing along with the 2% per month or part of the month of the unpaid amount of compounding charges. Therefore, the final order is to be passed.

Fees for compounding

The fees for compounding of offences shall be as follows: 

The section Section 276B prescribes for ‘Failure to pay the tax deducted at source’ and section Section 276BB prescribes for ‘Failure to pay the tax collected at source’. The section specifies the amount of the tax in default to be disclosed in the compounding application as 3%. Therefore, further the applicable rate for compounding of an offence will be 5% per month or part of a month of the amount of tax in default.

Further Section 276C (1) describes, ‘Willful attempt to evade tax, etc. 100% of the amount sought to be evaded’ and Section 276C (2) specifies, ‘Willful attempt to evade payment of any tax etc’.

Section 276CC-  Failure to furnish returns of income. 

2% per month or part of a month of the tax and interest determined on assessment or reassessment, in relation to return of income that was required to be furnished under section 139(1) or section 142(1) or section 148 or section 153A/153C as the case may be, existing on the date of conveyance of compounding charges to the applicant, determined after rectification under Section 154 of the Act, if any and as reduced by the tax deducted at source and advance tax, if any, paid during the financial year immediately preceding the assessment year, reckoned from the date immediately following the date on which the return of income was due to be furnished to the date of furnishing of the return or where no return was furnished, to the date of completion of the assessment.

Where, before the date of furnishing of the return or where no return was furnished before the date of completion of assessment, any tax is paid by the person under Section 140A, compounding fee shall be calculated in the manner prescribed above up to the date on which the tax is paid; and thereafter, the fee shall be calculated at the aforesaid rate on the amount of tax and interest determined on the assessment or reassessment as the case may be, determined after rectification under Section 154 of the Act, if any, as reduced by the TDS on Professional TCS, advance tax and tax paid under Section 140A before filing of the return of income or where no return was furnished from the date of completion of assessment or reassessment. 

  • Section 276CCC- Failure to furnish return of income as required under section 158BC. The fee for this offence shall be calculated in the same manner as for offences under Section 276CC. 

  • Section 276DD- Failure to comply with the provisions of Section 26988 (prior to 01/04//89). The 20% of the amount of the loan taken has to be deposited in respect of the loan and the deposit due to the contravention of the provisions as prescribed by the law and under Section 269T of the Act.

  • Section 276E- Failure to comply with the provisions of Section 269T (prior to 01/04/89)

  • The 20% of the amount of the loan taken has to be repaid in respect of the loan and the deposit due to the contravention of the provisions as prescribed by the law and under Section 269t of the Act.

  • Section 277- False statement in verification etc.

  • Section 278- Abetment of false return etc.

What are the Charges for Compounding?

As specified in the fees section of the article, the same is as applicable of the compounding charges which will include the compounding fee, pro execution establishment expenses and litigation expenses including Counsel's fee. Further, the offences which are compounded by the single order of the competent authority is charged  at 10% of the compounding fees and also which is subjected to the minimum of Rs. 25,000/- in addition to litigation expenses including Counsel's fees paid/payable by the Department. There are certain cases where the fees or expenses cannot be determined for the compounding of offences including the litigation cost.

Applicability of guidelines to offences under other direct tax laws

The guidelines as prescribed shall work in accordance with the offences which are prescribed under the Direct Tax Laws including the Income Tax Act,1961 and the same fee will be applicable as prescribed under the Direct Tax Law. Also, the guidelines issued by the CBDT with respect to the compounding of the offences will be applicable here as well.

When can one be compounded for offenses?  

Compounding is not a matter of right:

The compounding of the offence has to be considered as a matter of the right granted by the law. Only there are certain competent authorities who have the power to compound the offences in and as the manner prescribed by the law and the CBDT guidelines upon the satisfaction  of the eligibility conditions prescribed in these guidelines keeping in view factors such as conduct of the person; nature and magnitude of the offence and facts and circumstances of each case. 

Prosecution Initiated for Non-payment or Non-deduction of TDS

Applicability of these guidelines to prosecutions under IPC:

For the person to be made guilty under the Indian Penal Code, the prosecution can be withdrawn under Section 321 of the Criminal Procedure Code, 1973.

Prosecution under GST

The prosecution under the Goods and Service Tax is for the offence committed for doing a wrong or criminal act. Also, the legal proceedings are to be instituted for the criminal act done against someone.

Offences liable for prosecution:

Any person committing the following offences (i.e., deliberate intention of fraud) becomes liable to prosecution, i.e., face criminal charges.

  1. Supplies any goods/services without an invoice in order to evade tax

  2. Issues any invoice without supplying any goods/services- thus taking input credit or refund by fraud

  3. Collects any GST (even if in contravention of provisions) but does not submit it to the government within 3 months.

  4. Refund in case of CGST/SGST by fraudulent means.

  5. Submits fake financial records/documents or files fake returns to evade tax

  6. Obstructs the proper officer during his duty (for example, he hinders the officer during the audit by the tax authorities)

  7. Acquires/receives any goods/services with full knowledge that it is in violation of GST rules and is liable for confiscation

  8. Destroys any evidence

  9. Does not provide information/gives false information during proceedings

  10. Helps any person to commit fraud under GST

Punishment

The person committing any of the offences above shall be punished as follows-

Tax amount involved

100-200 lakhs

200-500 lakhs

Above 500 lakhs

Bailable or Non-Bailable

Bailable

Bailable

Bailable**

Jail term

Up to 1 year

Up to 3 years

Up to 5 years

 

If a person commits the following offences AND the amount involved exceeds 500 lakhs then the offences are non-bailable -

  1. Supplies any goods/services without an invoice in order to evade tax

  2. Issues any invoice without supplying any goods/services- thus taking input credit or refund by fraud

  3. Collects any GST (even if in contravention of provisions) but does not submit it to the government within 3 months.

This is in keeping with the government’s anti-tax evasion stance by bringing in stricter measures.

Punishment for destroying evidence

For destroying evidence, preventing the officer from his duty, falsifying information or helping someone in the same, he is liable for up to 6 months imprisonment with fine.

Repeat offenders

If the offense is repeated a second time then punishment can extend up to 5 years with fine.

A person cannot be prosecuted without the prior sanction of the Commissioner.