REPRSENTATION TO
HON’BLE PR. CCIT (NWR)
AGAINST LAUNCH OF
PROSECUTION PROCEEDINGS U/S
276B/276BB
IN THE MOST MECHANICAL
MANNER
REPRESENTATION BY :
CHANDIGARH
CHARTERED ACCOUNTANTS
TAXATION
ASSOCIATION
SCO
1004-05, SECTOR 22B,
CHANDIGARH.
PHONE:
+91172-2777742/ 2705641
Executive
Summary of the Representation :
·
The representation is
against issuance of SCNs for prosecution u/s 276B in more than 2500 cases by
making the most strictest & impossible interpretation to Board Instruction
dated 07.02.2013. Further, the earlier issued Instructions on the
subject have been totally ignored even when the same holds the field even
today.
·
The Instruction
provides threshold limit of Rs. 1,00,000/- delay in deposit of TDS for
processing for prosecution u/s 276B. This limit of Rs. 1,00,000/- is
interpreted as aggregate of all offences during the year even when every
offence of delay in deposit of TDS is an independent offence and limit of Rs.
1,00,000/- applies to every offence and should not be aggregated.
·
The Instruction
clearly provides and intents that the amendment is to punish defaulters
depositing the same just before expiry of 12 months limit laid down by earlier instruction
dated 24.04.2008. But this part of Instruction is interpreted as if
even a single day default will result into prosecution. And infact SCNs have
been issued wherein period of default is as low as 1 day. Further, the old Instruction
dated 28.05.1980 provides that the prosecution under section
276B should not normally be proposed when the amount involved and/or the period
of default is not substantial and the amount in default has also been deposited. This Instruction still holds the field. But the same is not
being followed at all.
·
Instruction No. 5051 dated
07.02.1991 lays down that if interest u/s 201(1A)
chargeable is less than Rs. 10,000/-, prosecution proceedings u/s 276B/276BB
need not be initiated. This
Instruction still holds the field. But the same is not being followed at all
and there are cases where SCNs have been issued where Interest u/s 201(1A) is
·
less
than Rs. 2,000/- but the same are being advised to go for compounding.
·
Consequent to
issuance of Instruction dated 07.02.2013, SCNs have been issued for FYs 2010-11
and onwards meaning that the Instruction dated 07.02.2013 is being applied
retrospectively. There is no specific mention of retrospectivity in this
Instruction. The retrospective application of a oppressive circular/instruction
and that too in the absence of any directions from the Board for retrospective
application, is harsh and unjust.
·
The Instruction dated
07.02.2013 provides for issuance of prosecution proceedings within 60 days of
detection. But this limitation is being totally overlooked.
·
The SCNs are being
issued in the most mechanical manner, without recording any satisfaction,
direct computer printouts from database for list of offences, the annexure to SCN
titled as delays in deposit of TDS beyond 12 months but actually the items
include delays of even less than 12 months.
·
On reply by deductor
on the SCN, he is being advised to go for compounding and hearing on reasonable
cause and benefits available to deductor in the Instructions/circulars are not
being provided, allowed as well advised.
·
The initiation of
prosecution proceedings and subsequent charge of compounding fees is being
given a feeling of tax collection tool and not as deterrent for wilful defaulters.
Date : 14.11.2014
To
The Hon’ble Pr. Chief Commissioner of Income
Tax (NWR),
Chandigarh.
Sub: Representation about issues relating to
prosecution u/s
276B/
276BB of the Income Tax Act, 1961 and rules/circular and procedures relating to
the same.
Respected Sir,
The law
relating to prosecution under the Income Tax Act, 1961
(hereinafter called the “Act”) is in the statute book since long. But these have come to be implemented more vigorously only recently. This is more so in the case of provisions of sections 276B and 276BB of the Act as there is spurt of notices issued under these sections by following the Instruction No. 285/90/2013-IT(Inv) dated 07.02.2013 issued by the Board. This Instruction was subsequently advertised by PIB through a Press Release dtd. 06.08.2013. By this Instruction, only a limited modification/revision has been made in the already existing Instruction dated 24.04.2008.
(hereinafter called the “Act”) is in the statute book since long. But these have come to be implemented more vigorously only recently. This is more so in the case of provisions of sections 276B and 276BB of the Act as there is spurt of notices issued under these sections by following the Instruction No. 285/90/2013-IT(Inv) dated 07.02.2013 issued by the Board. This Instruction was subsequently advertised by PIB through a Press Release dtd. 06.08.2013. By this Instruction, only a limited modification/revision has been made in the already existing Instruction dated 24.04.2008.
We are an association of Tax Practioners. In
the last 3 months, we have been approached by our members and also the
Industrialists & other businessmen about the launch of Prosecution
Proceedings u/s 276B/276BB through service of Show cause Notices (SCN) in more
than 2500 cases.
There are certain issues, difficulties,
concerns and apprehensions arising out of the
interpretation of above Instruction so issued by the Board
and the mode of implementation of this instruction in the field. These are the problems being faced by the tax payers
as well as the tax practitioners and the
concern of the society needs to be addressed. The same are being brought to Your Honours kind notice for their
proper redressal :
- COLLECTION MECHANISM: Beyond any doubt, collection of tax is the prime sacred responsibility of the Departmental authorities. The mechanism of TDS under the Act ensures collection of such taxes at point of origin of income. To make such TDS provisions more effective, various provisions like interest u/s. 201(1A), penalty u/ss. 221(1)/ 271C/271CA and prosecution provision u/s 276B/276BB are incorporated into the statue book. Disallowance of expense u/s 40(a)(ia) in the hands of payer of income for Non-Deduction/Deposit of tax at source is another weapon in the armory of the authorities.
- OBJECTIVE: It will be appreciated that the objective of such stringent law is to administer the tax law in smooth and
effective manner and to collect legally levied tax.
Generally speaking, such stringent laws are unavoidable because of non-compliance attitude of the public at large. As a policy matter (enacted in to law), such punitive measures are necessary evils in our system but careful handling of such provisions is very much important so as not to lose the intent and objective for which these draconian provisions are made. Facts of each and every case need to be analysed with microscopic eye carefully because set of circumstances and overall conduct of assessee is unique and peculiar in each and every case. Further, discretionary powers must be used by the implementing officers in a judicious manner after due application of mind. The circumstances must be weighed judicially and discretion be used in most transparent manner. This was also held by Hon’ble P&H HC in the case of Bee Gee Motors vs. ITO (1996) 218 ITR 155, wherein the Court, at Para 5, held that the Instructions & discretion regarding prosecution must be used Judicially, other-wise it would be violative of Article 14 of Constitution of India. - BOARD INSTRUCTIONS: Your Honours kind attention is invited to the recent Instruction F.No. 285/90/2013-IT(Inv) dated 07.02.2013 issued in Partial modification of earlier instruction F. No. 285/90/2008-IT(Inv-I)/05 dated 24.04.2008, which is being pursued by the department very ambitiously, if aggressive is a harsh word. The following are the major issues arising out of this new Instruction, its interpretation and implementation thereof:-
- Manner of determination of threshold:
The Board Instruction dated 07.02.2013
provides that cases where there is delay in deposit of TDS in excess of Rs.
1,00,000/-, the same shall be processed for prosecution. While determining the
threshold of default of Rs. 1,00,000/-, all
the defaults occurring during the year are being
aggregated which is not in accordance with the law. As per
the provisions of Income Tax Act, each default of TDS is
an independent default which occurs with delay in payment
of TDS each month. Therefore, the threshold of Rs. 1,00,000/-
should be determined with reference to each default
and aggregate of all TDS defaults during
the year should not be resorted to.
- Reasonableness:
It is also to bring to Your Honours
kind notice that the instruction is being used by the field
officers mechanically without appreciating the spirit of
the instruction. The purpose of the instruction, in our opinion,
is to punish those assessees who wilfully plan their affairs
to circumvent the earlier instruction in this regard.
Instruction is to mandatorily process for prosecution the
cases as defined in clause (a) of Para 3.1(i) and not to
mandatorily initiate the prosecution proceedings. Sir, focus should be to catch hold of Habitual/wilful
defaulters and Non-depositors instead of prosecuting
those who have voluntarily complied with the law-
may be a little late. We request Your Honours to instruct the
field officers to examine the reasonableness of reply, overall
intent & behaviour of assessee before granting of approval
for prosecution.
The
Instruction dated 07.02.2013 has only partly modified the Instruction dated
24.04.2008. The relevant text of revised Instruction dated
07.02.2013 reads as under :
“2.
Instances have come to notice wherein certain deductors/collectors are retaining with them large amounts of
TDS/TCS and are depositing the same
just before the expiry of 12 months from the date of deduction, thereby
avoiding launching of prosecution against them.
3.Considering
that the relevant provisions of the Act do not lay down any specific time limit for the said
default in deposit of TDS/TCS for launching of prosecution and with a view to
enable the field formations to take appropriate action in such cases, the
Central Board of Direct Taxes (the Board) has decided to modify paragraph 3.1(i)
and (ii) of the said guidelines. The modified guidelines are as under:
Offences
u/s 276B: Failure to pay tax deducted at source to the credit of Central
Government
- Cases, where amount of tax deducted is Rs. 1,00,000/- or more and the same is not deposited by the due date prescribed under the Income Tax Act, 1961 read with the Income Tax Rules, 1962 shall mandatorily be processed for prosecution in addition to the recovery steps as may be necessary in such cases.
- Cases, where the tax deducted is between Rs. 25,000/- and Rs. 1,00,000/- and the same is not deposited by the due date prescribed under the Income Tax Act, 1961 read with the Income Tax Rules, 1962 may be processed for prosecution depending upon the facts and circumstances of the case.
The authority for
processing the case for prosecution under this section shall be the officer
having jurisdiction over TDS cases. The prosecution shall preferably be
launched within 60 days of such detection. If any such default is detected
during search and survey, the processing ADIT/DDIT or the Authorized officer
shall inform the AO having jurisdiction over TDS forthwith. ”
It is evident from above language of
limited modification that the intent of the Board is to punish defaulters who
make payment just before expiry of 12 month period which was the threshold
limit for launch of prosecution as per Instruction dated 24.04.2008. The intent
is not to launch prosecution in cases of even a single day delay. The
interpretation now being given to the amendment by TDS wing is that now even a
single day delay in deposit of TDS will attract launch of prosecution u/s
276B/276BB.
Regarding the earlier instructions in
force on the subject, there is no modification. It is important to bring to Your
Honours kind attention the old Instruction F. No. 255/339/79-IT(Inv.) dated
28.05.1980 issued by Ministry of Finance. The relevant text of this Instruction
reads as under :
“The
prosecution under section 276B should not normally be proposed when the amount
involved and/or the period of default is not substantial and the amount in
default has also been deposited in the meantime to the credit of the
Government. No such consideration will, of course, apply to levy of interest
under Section 201(1A).”
The above Instruction is
still in force and the same has not been withdrawn. Regarding the amount
involved, some light has been thrown by new Instruction dated 07.02.2013. But
regarding the period of default, if not substantial, the above Instruction
dated 28.05.1980 holds good as on date also. Delays of one day or even less
than a month should not be held to be “substantial” attracting prosecution
proceedings. The above Instruction dated 28.05.1980 and especially the above
cited relevant Para of this Instruction came to notice of Hon’ble
P& HC in the case of Bee Gee Motors vs. ITO (supra) and on
interpretation, the Hon’ble Court quashed the prosecution proceedings.
Further,
Instruction
No. 5051 dated 07.02.1991 lays down that if interest u/s 201(1A)
chargeable is less than Rs. 10,000/-, prosecution proceedings u/s 276B/276BB
need not be initiated. Hence, the Board has already considered the cases from
perspective of “Reasonableness”. But
the field officers are ignoring the test of reasonableness and materiality
while issuing relevant SCNs.
It is
an undisputed fact since long and even the Board through Instruction F.No.
285/90/2008 dated 16.05.2008 has stated that offence u/s 276B/276BB is a
technical offence. Hence, the said offence, even if any, should be viewed
liberally and benefit of doubt on Interpretation of a Technical issue be taken
in favour of the assessee.
- Retrospective :
The instructions issued on
07.02.2013 cannot be and should not be applied to cases
happening before the date of these instructions. The Hon'ble Supreme Court of India in the case of Commissioner of
Central Excise, Bangalore vs. Mysore Electricals Industries Ltd. (Appeal Civil)
4488 of 2005) has held that any amendment or withdrawal of instruction can't have
retrospective effect and can have effect only from the date of its amendment. The
Hon'ble Court has held that only a beneficial circular
can be applied retrospectively while an oppressive circular
has to be applied prospectively. However, the field
officials are
issuing notices even for the cases pertaining to period before the date of this instruction i.e. 07.02.2013. The SCNs are being issued for AYs 2010-11 and onwards. We request your honour to instruct the field officers that modified instructions issued on 7th Feb., 2013 not be given retrospective affect. Applicability of these instructions should be restricted to F. Y. 2013-14 and onwards and not for the earlier years. The default for the earlier years may be examined in accordance with the law/instruction then in force. Rather the prosecution proceedings be initiated in cases where the TDS amount is not deposited even after reminders by the department and certainly not in cases where the TDS amount is deposited voluntarily earlier to the notice from the department.
issuing notices even for the cases pertaining to period before the date of this instruction i.e. 07.02.2013. The SCNs are being issued for AYs 2010-11 and onwards. We request your honour to instruct the field officers that modified instructions issued on 7th Feb., 2013 not be given retrospective affect. Applicability of these instructions should be restricted to F. Y. 2013-14 and onwards and not for the earlier years. The default for the earlier years may be examined in accordance with the law/instruction then in force. Rather the prosecution proceedings be initiated in cases where the TDS amount is not deposited even after reminders by the department and certainly not in cases where the TDS amount is deposited voluntarily earlier to the notice from the department.
It is further submitted that
Instruction dated 24.04.2008 as well as 07.02.2013 says that Prosecution
proceedings should be initiated within 60 days of detection. The instances of
delay in deposit for earlier years are already within the knowledge of field
formations as notices for recovery of interest u/s 201(1A) and notices under
other relevant provisions were served on assessees in almost all cases. Hence,
the detection has already been done more than 2-3 years ago. But the
prosecution proceedings are being initiated in violation of Board guidelines
issued through Instruction dated 24.04.2008. Regarding reasonableness of
limitation period for initiating prosecution proceedings, we rely upon ratio of
law laid down by Hon’ble Calcutta High Court's
in the case of Vinar
& Co. & Anr. vs. ITO & Ors.
(1992) 193 ITR 300 (Cal).
- Para 2 of the recent instruction clearly says that period of default of 12 months is being reduced in order to check circumvention of provisions of TDS/TCS by certain deductors/collectors who deposit the same just before the expiry of period of 12 months from the date of deduction. Sir, that does not mean that default of even one day should be considered as circumvention of law and the deductor be prosecuted. Failure to pay has to be construed as refusal to pay and will not cover cases of mere delayed payment. It was so held by the Hon’ble Madras High Court in Rayala Corporation (P) Ltd. vs. V.M. Muthuramalingam, ITO (1981) 129 ITR 675 (Mad).
- The directions by the Board are that such defaults must be processed for prosecution, not compulsory prosecution in all such cases. At the time of processing of such cases, judicious application of mind is of utmost importance so as to examine the reasonableness and causes of such delay. In other words, the instruction does not suggest using the provisions in a mechanical manner. Any law in a civil society will punish the wilful defaulters and not just the occasional defaulters more so when the provisions have already been complied with voluntarily.
- Discrimination on amount:We hereby bring to your Honours kind notice the paragraphs 3.1(i) and (ii) of Instruction F.No.285/90/2008-IT(Inv.)/05 dated 24.04.2008 pertaining to guidelines/procedure for identification and processing of potential prosecution cases pertaining to offences u/s. 276B and 276BB of the Income Tax Act, 1961 which have been modified vide F.No.285/90/2013-IT(Inv.) dated 07.02.2013. The earlier instruction was to process cases for offences u/s.276B/276BB if assessee defaults/delays for a period of more than 12 month in deposit of TDS after deduction. Now, the Board has specifically mentioned that where tax deducted is Rs.100000/- or more and the same is not
deposited by the due date prescribed under the Act, shall
mandatorily be processed for prosecution and where such
amount is between Rs.25000/- and Rs.100000/- the same
may be processed for prosecution depending upon facts and
circumstances of the case. The discrimination only on the
basis of amount of default without considering the facts of case might not be justified in all the cases.
4. Text of section 276 B
It is worthwhile examining the wording of the relevant
provision closely. The text is as follows :
“276B. Failure to pay tax to the
credit of Central Government under Chapter XIID or XVIB
If a person fails to pay to the credit
of the Central Government,
(a) the tax deducted at source by him
as required by or under the provisions of Chapter XVII B; or
(b) the tax payable by him, as
required by or under,
(i) s/s (2) of section 115 – O; or
(ii) the second proviso to section
194B,
he shall be punishable with rigorous
imprisonment for a term which shall not be less than three months but which may extend to
seven years and with fine.”
Firstly, the very heading suggests that there should be a
failure to pay the tax. Secondly, the placement of clause (a) in the section makes
it clear that it pertains to ‘tax
deducted as per the provisions of
Chapter XVII B’ – and not the ‘payment
as per provisions of Chapter XVII
B’. Thus, failure to pay is on
a different footing. Put differently, payment need not be within the time specified
in that Chapter.
In short, the section contemplates total failure and not
mere delay. As against this, even if the tax is already paid with interest, the
notices for prosecution are being issued. The notices also mention the fact of
prior payment. This then, is clearly against the wording and spirit of the
provision.
It is necessary to compare the text of section 276B with
provisions of section 40(a)(ia) also. Section 40(a)(ia) contemplates a time
limit for the payment of tax as well; and not merely the deduction as per
Chapter XVII B. For mere delay, there are already adequate provisions viz.
section 40(a) (ia) disallowance; 201(1A) – interest, 271 C and 221 – penalty.
Thus, section 276B clearly applies to total failure and not a mere delay.
Incidentally, even under Service Tax, the Central Board of
Excise & Customs has issued a circular no. 14/2011 dated 12.05.2011 stating
that, “provisions relating to prosecution”
are to be exercised with due diligence, caution and responsibility after
carefully weighing all the facts on record. Prosecution should not be launched
merely on matters of technicalities. Evidence
regarding the specified offence should be beyond reasonable doubt, to obtain
conviction. The sanctioning authority should record detailed reasons for its
decision to sanction or not to sanction prosecution, on file. In its
introductory paragraphs, it also
mentions the purpose of prosecution stating that, “While minor technical
omissions or commissions have been made punishable with simple penal measures,
prosecution is meant to contain and tackle
certain specified serious violations” It
is all the more unfair that in certain jurisdiction, the limit fixed for prosecution
is as low as Rs. 25,000/-.
5. PRACTICAL
SITUATION: Your Honours kind attention is also invited to some
of the following circumstances that happen in actual life and
which need to be considered while processing and deciding any
case for initiating proceedings u/s.276B/276BB:-
(i) Sometimes
No Govt. Money Is withheld by Assessee: -
Many a times the TDS is deposited by the
assessee from his own pocket e.g. first in case of EMI payments and
secondly where TDS is to be deposited by the deductor
even where payment has not been made to the deductee on
account of routine credit period in trade. So the notion that deductor deducted
the amount from deductee and used the Govt. money
might not apply in every case.
(ii) Assessee
being ignorant about TDS Provisions:-
Law relating to TDS is very
technical and sometimes assessee is ignorant
about TDS Provisions. Where it comes to the knowledge
of the assessee e.g. at the time when pointed by the
auditor, Tax is deducted and deposited at that point of time by assessee. Sir, it is important to mention here that Finance
Act, 2010, to further encourage voluntary compliance of TDS Provisions by assessee amended provisions of section 40(a)(ia) to provide that
where any sum on which tax is deducted
and paid on or before the due date specified in section 139
(1) such
expenditure shall be allowed as
deduction in computing the income of
the previous year.
(iii) Persons
Responsible to comply may be Different person:-
Generally persons who are responsible for complying with TDS provisions are different from the person who is
issued
the show cause notice for prosecution. Like in case of a mall enterprise, it is the part-time accountant and in
case of a large enterprise, it is the employee who is entrusted the job of compliance of TDS Provisions. But ultimately, it is the assessee who has to suffer the agony of prosecution.
the show cause notice for prosecution. Like in case of a mall enterprise, it is the part-time accountant and in
case of a large enterprise, it is the employee who is entrusted the job of compliance of TDS Provisions. But ultimately, it is the assessee who has to suffer the agony of prosecution.
(iv) Effects on
Social Life:-
Launching
of prosecution is a social disqualification and
prospect of landing in imprisonment cause great disturbance to
the person and his family as well. This will discourage the
morale of assesses at large.
(v) Focus
of Tax Administration:- Focus should be to catch hold of Habitual/wilful defaulters and Non- depositors instead of
prosecuting those who
have voluntarily complied with the law may be
a little late.
(vi) Not a source
of Revenue:- Prosecution provisions and consequent
compounding fees are not and should not be
used as a source of revenue collection. At present, it has
taken the shape of a impression in the mind of general public (The assessees) and the members of the BAR association that the proceedings under sections 276B and 276BB particularly for the earlier years (more than 2 years old cases), are being initiated as a mode of revenue collection- that too when voluntary compliance, albeit late, has already been made and due taxes along with interest thereon has already been deposited.
used as a source of revenue collection. At present, it has
taken the shape of a impression in the mind of general public (The assessees) and the members of the BAR association that the proceedings under sections 276B and 276BB particularly for the earlier years (more than 2 years old cases), are being initiated as a mode of revenue collection- that too when voluntary compliance, albeit late, has already been made and due taxes along with interest thereon has already been deposited.
(vii) Compounding
Fee : For the above discussed offence u/s 276B/276BB for late deposit
of TDS by some days, the compounding fees has been prescribed @ 5% p.m. for
period of delay plus establishment expenses which are minimum of Rs. 10,000/-
and maximum of Rs. 50,000/-. Relegating the assessee, for this limited delay on
account of a technical offence, charge of compounding fee is unjust, harsh and
unreasonable on the part of field formations. Even on the issue of
quantification of period of delay, the interpretation given to the Board
Instruction by the field formations is that 1 day delay in deposit of TDS is
taken as 2 months for the purposes of computing the compounding fees. This, in
our opinion, is not in consonance with the intent of Board Instruction and
ratio of law laid down by Hon’ble Gujarat HC in the case of CIT
vs. Arvind Mills Ltd. (2012) 204 Taxman 38.
SUGGESTIONS:
- From the above it is obvious that while prosecution instils fear in the mind of public but at the same time it breeds harassment also which ultimately leads to more non-compliance. If a law-abiding person paying tax all his life happens to commit a mistake once, he should not be put behind the bars. His conduct should be seen on overall basis.
- The prosecution provisions should be given wide publicity so that public at large is educated. Though the provisions relating to prosecution are in the statute book since long yet the department has started using the same in large number of cases only recently.
- It is suggested that the same should be used only after giving wide publicity.
- Instructions and guidelines of the Board be interpreted reasonably and liberally and not with a pre-conceived notion to initiate prosecution proceedings in a mechanical manner.
- Instructions and guidelines should also be issued to the effect that the reasonableness of reply should be examined in depth at the AO(TDS) and JCIT(TDS) level. It is only when, in their opinion, the case is considered fit, the matter be brought before the CIT(TDS) for seeking approval for prosecution.
Hon’ble Sir, Your early
action in the matter is solicited. It will reduce unnecessary
litigation and harassment to the assessee on this score and
create goodwill and also ensure natural justice.
Thanking You,
Yours Sincerely,
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