INSTRUCTION NO. 5051/1991

[F.NO. 285/160/90-IT(INV)]

DATED 7-2-1991

Under the Direct Tax Laws prosecution against tax offences and tax frauds is a significant provision and requires to be effectively deployed to create an appropriate impact and to subserve as a deterrence against tax evasion. During the last few years the department has stepped up the number of cases where proceedings for prosecution have been initiated. Considering the mounting pendency and the inability of the judicial administration to speed up the disposal, it has become necessary to re-examine the strategy in regard to initiating prosecution proceedings.

2. The efforts of the department should be to concentrate on relatively important cases in filing prosecution complaints. For achieving this, it is essential that greater stress is laid on offences involving tax frauds, fabrication of evidence and major defaults relating to various other offences. While selecting cases for filing prosecution complaints, it is necessary to examine the facts of the case properly so that complaints are filed in really strong and sustainable cases.

3. Once a default has been properly examined and it falls within the parameters of prosecution guidelines, the assessing officer should send a notice to the defaulter intimating the nature of offence committed and requiring the assessee to show cause why prosecution proceedings may not be initiated.

No such notice will be sent in any case where the offence committed is u/s 276C(1) and 277. All relevant enquiries regarding the default should be made by the assessing officer before the issue of the above mentioned notice.

4. Prosecution need not normally be initiated against persons who have attained the age of 70 years at the time of commission of offence.

5. The guidelines for initiation of prosecution proceedings for specific offences are given below:-

(1) Section 276B - Failure to pay the tax deducted at source

The offence u/s 276B w.e.f. 01-04-89 is only for failure to pay the tax deducted at source. Prosecution need not be initiated where the cumulative interest payable u/s 201(1A) for all the years involved in respect of tax deductions at sources under sections 192 to 195 of the Income-tax Act is less than Rs. 10,000/- and the tax is also paid to the credit of the Central Government. Where the tax deducted at source has not been paid, the interest u/s 201(1A) has to be calculated upto the date on which the show cause notice mentioned in para 3 is issued. If the interest so calculated comes to less than Rs. 10,000/- and the default continues, then, such cases should be reviewed periodically.

The above will also apply to the defaults of failure to deduct or pay the tax deducted at source in time committed prior to 01-04-1989.

(ii) Section 276BB - Failure to pay the tax collected at source

The guidelines for defaults u/s 276B mentioned at (i) above will also be applicable to the defaults under this section.

(iii) Section 276C(1) - Wilful attempt to evade tax, etc.

Prosecution u/s 276C(1) of the Income-tax Act, 1961 or the corresponding provision of the Wealth-tax Act 1957, need not be initiated if;

(a) the income sought to be evaded is less than Rs. 25,000/- or

(b) the net wealth sought to be evaded is less than Rs. 50,000/-.

The same will apply to an offence u/s 277 for false statement in verification etc.

(iv) Section 276C(2) - Wilful attempt to evade payment of taxes, etc.

Prosecution need not be initiated for an offence under this section if the aggregate amount of tax interest and penalty involved is less than Rs.10,000/-. This limit would be Rs. 1,000/- for the corresponding provision under the Wealth-tax Act, 1957.

(v) Section 276CC - Failure to furnish return of income

Prosecution need not be launched for an offence u/s 276CC if;

(a) the net tax involved is less than Rs. 5,000/- and

(b) the tax payer is not a habitual defaulter.

The net tax involved would mean the tax determined on regular assessment as reduced by the tax deducted at source and advance tax, if any, paid during the financial year immediately preceding the assessment year involved.

(vi) Section 276D - Failure to produce accounts and documents

Prosecution need not be initiated if subsequent to the failure to produce accounts and documents referred u/s 276D, the person has co-operated in matters of enquiry relating to the relevant proceedings and has produced the accounts and documents and the failure has not resulted in any loss of revenue.

(vii) Sections 276DD & 276E - Acceptance or repayment of loan or deposit in cash.

Keeping in view the fact that the defaults under these sections are no longer offences w.e.f. 01-04-89, the prosecution under these sections may be filed in important and sustainable cases on merits.

(viii) No guidelines are considered necessary for offences u/s 275A, 276 (prior to 01-04-76) 276 (w.e.f. 01-04-89), 276A (w.e.f. 01-04-65), 276AA and 276AB in view of the need for their strict enforcement.

(ix) Similarly no guidelines are necessary for offence u/s 278 as it is invariably linked with other offences.

6. These instructions supersede all earlier instructions on the subject.

7. This may be brought to the notice of all the officers of your charge.