The Central Board of Direct Taxes (CBDT) has eased some norms relating to prosecution of Income Tax defaulters for delay in depositing TDS (tax deducted at source), under-reporting of income in the tax return or non-filing of I-T return.

Central Board of Direct Taxes circular, issued on Sept 9, sets the limit & time period for proceeding with prosecution in respect of TDS (tax deducted at source) defaults. It states: Cases, where non-payment of TDS is Rs 25 lakh or below & delay in the deposit, is less than 60 days from the due date shall not be processed for prosecution in normal circumstances. However, irrespective of this, recourse will continue to lie against habitual defaulters, with the approval of a “collegium” comprising of two senior-ranking officers.

“I have instructed the revenue secretary to come up with measures to ensure that honest taxpayers are not harassed & those who commit minor or procedural violations are not subjected to disproportionate or excessive action,” said Nirmala Sitharaman, Finance minister of India in a tweet last month.
It may be recalled that Bollywood producer Firoz Nadiadwala had hit the headlines in May when Mumbai’s Magistrate Court sentenced him to rigorous imprisonment of three months for delay in depositing TDS of Rs 8.56 lakh. This was because Section 276B provides for prosecution for a period between 3 months & 7 years, irrespective of the period of delay or the quantum of TDS not deposited in time. Across India, several such sentences have been issued by Magistrate Courts.

Chairperson of the taxation committee at Bombay Chartered Accountants’ Society, Ameet Patel, says: “While CBDT’s circular dated May 28, 1980, had told I-T officials not to launch prosecution in cases where the delay in depositing TDS is less than a year, this instruction was withdrawn in Aug 2013. Now, a leeway of two months has been provided & it is a step in the right direction. Above all setting a threshold of above Rs 25 lakh for initiating prosecution proceedings will help several taxpayers, especially small-medium entrepreneurs.”

CBDT has also relaxed prosecution norms for offences relating to under-reporting (concealing one’s income) in the Income Tax return. Where the amount sought to be evaded or the tax on the under-reported income is Rs 25 lakh or below, a safety net has been built in. In such incidents, the case shall not be taken up for prosecution only after approval of the collegium. For such offences, the Jail term can be up to seven years.

In cases of non-filing of I-T return, if the amount of tax which would have been evaded by not filing is Rs 25 lakh or less, approval of the collegium is required for initiating the prosecution process. The I-T Act had provided a low threshold of Rs 10,000 for launching prosecution for non-filing of I-T returns. Non-filing can result in rigorous imprisonment of up to seven years.

This circular will come into effect immediately & shall apply to all pending cases where the prosecution complaint is yet to be filed by the tax authorities. Tarun Kumar Singhal, a Mumbai-based chartered accountant, says, “Ideally, prosecution process already launched but not in accordance with this new circular also needs to be dropped suo motu.”

In yet another circular issued on Monday, CBDT has relaxed the 12-month time for filing of a compounding application. This is a one-time measure & applications need to be filed with the compounding authorities before December-end. Compounding is a recourse available to taxpayers to pay a stiff compounding penalty in lieu of prosecution. TOI had covered the revised compounding guidelines in its edition of June 17.

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