From Yatin’s Desk: Non tax filing prosecution risk

The Indian tax administration is taking strict action for non compliance under the India tax laws. The authorities have been launching penalty & prosecution proceedings for failure to file a tax return within the due date. While the tax provisions provide for an extended period for filing a belated return (till the end of the assessment year), the tax authorities have been identifying non filers and late filers and initiating penalty & prosecution proceedings, even if filed within the prescribed belated period.

Where prosecution proceedings are launched, the taxpayers may unfortunately have to go through the rigour of long drawn criminal proceedings before the Criminal Court to establish that the failure was not willful and absence of culpable mental state. Tax payers impacted by such action typically attempt as a first recourse quashing of prosecution proceedings through petition before the High Court. This unfortunately is unlikely to have much success considering the courts in such matters do not dwell into fact finding to establish bonafide of the taxpayer, (a domain of the criminal court) established through evaluation of facts and examination of witnesses.

Where penalty proceedings are simultaneously launched, which would ordinarily be the case, a favourable outcome before the Appellate Tribunal, on merits, would have a direct bearing on the prosecution proceedings before the trial court. The Appellate Tribunal being a final fact finding authority, if on appreciation of facts does decided that the tax payer had bonafide reasons for not being able to comply with the filing obligation, such determination would be a significant finding for discharge from criminal proceedings or alternatively quashing of prosecution proceedings through application to the High Court. A tax payer will be better off establishing the facts and circumstance before the Tax Tribunal than the Criminal Court. Proceedings before Criminal Court can rather be intimidating for an ordinary tax payer who may just be overwhelmed by the sheer thought of seeking a bail, examination and cross-examination of witness, the longevity of proceedings, etc.

Given the serious implications of prosecution proceedings, it will be extremely important for the impacted tax payers to have a well thought through strategy to address the challenges of such proceedings.