Prosecution Provisions for Income-tax Offences: A Detailed Practical Guide

The Income Tax Act 1961 does not stop at imposing monetary penalties; it also empowers the Department to launch criminal prosecution for a wide range of wilful and serious contraventions. These provisions are meant to deter deliberate non-compliance, concealment, misreporting, and obstruction of the tax administration machinery.

This guide explains, in a structured and practical manner, the key offences under the Income-tax Act that can lead to prosecution, the relevant sections, and the circumstances in which such action may be initiated.

Important: Section numbers, rule references and statutory wording from the Act must always be referred to in their original form while advising or taking compliance decisions. This guide only rephrases and explains the concepts for easier understanding.

1. Offences Relating to Search and Seizure under Section 132

1.1 Dealing with Seized Assets Contrary to Orders – Section 275A

Under Section 132, authorised officers may conduct search operations and seize money, bullion, jewellery and other valuable articles or things. In many cases, such assets are taken into physical custody by the Department.

However, if due to size, weight, dangerous nature, or other practical constraints, the Department cannot move the assets, the second proviso to section 132(1) allows “deemed seizure” at the assessee’s premises itself.

In such a situation:

  • The authorised officer issues an order to the owner or person in immediate possession or control of the asset.
  • This order restrains that person from removing, transferring, parting with, or dealing in any manner with the asset without prior permission.
  • A similar mechanism exists under section 132(3) where, for reasons other than those in the second proviso to section 132(1), it is not practicable to seize books, documents or valuables.

If the person violates the restraint order issued under section 132(1) (second proviso) or section 132(3), such contravention is an offence punishable under section 275A.

Note: This offence is triggered by non-compliance with the specific order regarding seized or deemed-seized assets or records during a search.

1.2 Non-cooperation in Accessing Electronic Books and Records – Section 275B

During a search under section 132, the authorised officer may require a person, under Section 132(1)(iib), to provide necessary facilities to inspect:

  • Books of account, or
  • Other documents

maintained in electronic form as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000.

If such a person fails to provide the required facility for inspection of electronic books or documents, he is liable for prosecution under section 275B, which prescribes:

  • Rigorous imprisonment, and
  • Fine.

This provision ensures that digital records cannot be withheld or obstructed during a valid search operation.

2. Fraudulent Disposal or Concealment of Property to Defeat Tax Recovery – Section 276

When an assessee does not pay outstanding tax dues, the Department is empowered to recover such taxes by attaching movable and immovable property of the assessee.

If the assessee, fraudulently and with intent to defeat tax recovery:

  • Removes,
  • Conceals,
  • Transfers, or
  • Delivers to any person

any property or any interest in such property which could be attached for recovery, then prosecution can be initiated under section 276.

This provision targets deliberate attempts to make assets unavailable for tax recovery.

3. Defaults by Company Liquidator or Receiver – Section 276A

3.1 Statutory Duties under section 178

Under section 178(1), every person who:

  • Is the liquidator of a company under winding up (by Court or otherwise), or
  • Is appointed as receiver of assets of a company,

must, within 30 days of appointment, intimate such appointment to the income-tax authority having jurisdiction over the assessment of the company.

Under section 178(3), the liquidator:

  1. Cannot part with assets or properties of the company without prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, until notified by the Assessing Officer.
  2. Once notified, must set aside the amount indicated by the Assessing Officer and, till that amount is set aside, cannot part with company assets or properties.

The above restrictions do not prevent the liquidator from disposing of assets for:

  • Paying taxes of the company,
  • Paying secured creditors having priority over Government dues on the date of liquidation, or
  • Meeting winding-up costs and expenses considered reasonable by the concerned Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner.

3.2 Prosecution for Non-compliance – Section 276A

Section 276A provides for prosecution where the liquidator:

  • Fails to give notice as required under section 178(1), or
  • Fails to set aside the amount as per section 178(3), or
  • Parts with any assets or properties in contravention of section 178(3).

However, no new prosecution under section 276A shall be initiated on or after 01-04-2023.

4. Failure to Deposit TDS or Specified Taxes to Government – Section 276B

Section 276B covers serious defaults in deducting and depositing tax at source and certain other taxes.

Prosecution may be launched where a person fails to: