Prosecution Provisions Under the Income Tax Act, 1961 – Comprehensive FAQ Guide

Criminal proceedings under the Income Tax Act, 1961 are among the most serious consequences an assessee can face for non-compliance. Beyond monetary penalties, prosecution can result in imprisonment, making it critical for assessees, tax professionals, and compliance officers to understand exactly when and how these provisions operate. The following FAQ-based guide covers all major prosecution sections, applicable punishments, monetary thresholds, and important exceptions built into the law.

Section 275A – Non-Compliance During Search and Seizure Operations

Q1. Under what circumstances can prosecution be launched under Section 275A?

When a person fails to comply with an order issued by the competent authority directing that certain goods — which cannot practically be seized — must not be dealt with, prosecution under Section 275A becomes applicable.

Q2. What punishment is prescribed under Section 275A?

An assessee found guilty under this provision is liable to simple imprisonment extending up to 2 years, along with a monetary fine.

Q3. When is prosecution triggered under Section 275B?

Prosecution under Section 275B is initiated when a person refuses or fails to allow the inspection of books of account during the course of a search operation conducted by the tax authorities.

Q4. What is the punishment prescribed under Section 275B?

The offence is punishable with simple imprisonment of up to 6 months, or a fine, or both.

Section 276 – Fraudulent Transfer of Property to Defeat Tax Recovery

Q5. What conduct attracts prosecution under Section 276?

Where an assessee fraudulently removes, conceals, transfers, or hands over any property or interest therein to another person with the intention of preventing recovery of tax dues, prosecution under Section 276 is attracted.

Q6. What penalty does Section 276 impose?

The offence under Section 276 carries simple imprisonment for a term up to 2 years, along with a fine.

Section 276A – Defaults by Liquidators of Companies

Q7. In what situations can prosecution be initiated under Section 276A?

Prosecution under Section 276A may be initiated against a person appointed as the liquidator of a company who commits any of the following defaults:

  • Failure to notify the Assessing Officer of his appointment within 30 days;
  • Failure to set aside the amount communicated by the Assessing Officer to meet the outstanding tax demand;
  • Parting with company assets before receiving notification from the Assessing Officer about the amount to be reserved, without prior approval from the prescribed tax authority;
  • Parting with company assets before the tax demand amount notified by the Assessing Officer has actually been set aside.

Important: No proceedings shall be initiated under Section 276A on or after 01-04-2023, reflecting a significant legislative amendment to the prosecution framework.

Q8. What is the punishment under Section 276A?

The offence attracts rigorous imprisonment extending up to 2 years. Unless the court records special and adequate reasons to the contrary in its judgment, such imprisonment shall not be less than 6 months.

Given that proceedings under this section cannot be initiated on or after 01-04-2023, its practical application is now significantly curtailed.

Section 276B – Failure to Deposit Tax Deducted at Source (TDS)

Q9. What triggers prosecution under Section 276B?

Prosecution under Section 276B is initiated where a person:

  1. Fails to deposit TDS with the Central Government after deducting the same; or
  2. Fails to pay or ensure payment of tax to the Central Government as required under:
    • The proviso to Section 194S(1) concerning consideration received for transfer of Virtual Digital Assets (VDA), excluding consideration that is entirely in kind; or
    • Section 194BA(2) relating to winnings, excluding winnings that are entirely in kind.

Note 1: With effect from 01-10-2024, no prosecution shall be initiated if the TDS amount for a quarter has been deposited with the Central Government at any time on or before the prescribed due date for filing the TDS statement for that quarter.