Prosecutions under Income-tax Act, 1961 have not achieved the desired
object of deterrent on taxpayers due to delay in proceedings

The Finance Ministry has revealed that it has aggressively launched prosecution against the offences of wilful attempt to evade tax or payment of any tax, wilful failure in filing return of income, false statement in verification and failure to deposit the tax deducted/collected at source etc. (

We have been informed by tax professionals that the tax administration has issued prosecution notices indiscriminately. In case of one of the assessees, who is a senior citizen, though he had paid the self-assessment tax but had not paid advance tax since he was advised by the Chartered Accountant that he was not liable to pay the same as tax since the tax, in dispute was not more than ₹ 30,000/-. Prosecution notice was still issued. In some of the cases, where the quantum appeal is pending, prosecution notices have been issued. In some cases, even for a few months delay in filing the return of income, prosecution notices were issued. Is it justified for the tax administration to take such actions.

The Federation, in their representation dated 14-12-2017 has stated that indiscriminate issue of prosecution notices will lead to harassment of honest taxpayers which should be avoided. The compounding fee may be liberalised. The prosecutions pending before a Court for more than 15 years may be compounded by charging nominal compounding fees (

The Comptroller & Auditor General of India in its report has stated the following:

(a) The Ministry needs to ensure instituting a more robust mechanism for identifying cases for prosecution which take into account timeliness, the quantum of tax evasion and contemporary impact.

b) The CBDT should perform a one time exercise to identify the stage of pendency of all cases in the various Courts and follow on actively for resolutions.

(c) The CBDT should consider compounding of offences before launching the prosecution proceedings so that greater revenues are collected.

(d) The CBDT should deploy prosecution machinery for high impact cases and avoid focusing on low impact ones.

In Srinivas Pal v. Union Territory of AP, AIR 1988 SC 1729, 1732, the Apex Court held that a speedy and fair trial is a fundamental right of citizens and hence the trial may be completed within a reasonable time. Even a 9 and 1/2 years delay has been taken as an inordinate delay by the Supreme Court. In
Sheela Barse v. UOI, AIR 1986 SC 1773, 1778, the Apex Court held that the fundamental right of speedy trial is implicit under Article 21 of the Constitution and consequences of violation of that right would be that the prosecution itself would be liable to be quashed on the ground that it is a breach of the fundamental right.

It is desired that only in few deserving cases, prosecutions may be launched. It is also desired that the compounding fee which is currently prescribed, being very high, needs to be reduced. There could be a number of assessees who are filing their returns regularly and paying the taxes, in such cases, just because in one of the years, where the penalty is confirmed or there is a delay in filing the return of income, prosecution proceeding should not be initiated. Prosecution should be a deterrent for tax evaders and not for regular assessees.

The need of the hour is that the tax administration must improve the administration of tax and try to get the results within two years of the finalisation of the assessment. Today in Mumbai, the Appeals before CIT(A) take more than three years and more than two years before the Tribunal. In the Bombay High Court, nearly 10,000 appeals are pending for hearing and disposal. It takes a minimum of four years to get a date for admission and if admitted, another 10 years for final disposal. The appeals admitted in the year 2002 are still pending for final disposal.

Therefore one has to think of drastic changes in the tax administration for better management of tax litigation. Merely initiating prosecution proceedings before the designated Court will not have any deterrent effect on the assessees. Before Bombay High Court, the department has filed affidavit stating that they will display all the cases admitted before the High Court, on a website [CIT v. TCL Ltd (2016) 241 Taxman 138 (Bom.) (HC)] and for showing the Court, they have filed the print out of the legal corner (www.incometaxmumbai). Though the order was dated 12-7-2016, it seems, till date no progress has taken place due to reasons best known to the tax administration.

Officers who file the complaint and the officers whose names are referred as witnesses, may have to appear before the Magistrate Court to tender evidence. If the complaint is filed today, the matter may come for final hearing after 15 years i.e., 2033. The officer concerned, who has filed the complaint, may have retired and still he may have to come and attend the proceedings before the Court, therefore, before launching prosecution proceedings, they may have to consider the consequences, the delay and also their chances of success. One of the biggest hurdles in doing easy business in India is the uncertainty in taxation. Therefore the need of the hour is to take drastic measures to bring certainty in tax litigation within reasonable time.

We hope the tax administration will consider the suggestions of the Federation positively and honest taxpayers will not be harassed by issuing prosecution notices.

Dr. K. Shivaram


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