Chapter XXII (Section 275 to 280) deals with offences and prosecutions under the Income Tax Act, 1961. Section 234 A, 234 B and 234 C deals with levy of interest. Further, there are certain provisions which determine penalties for taxpayers in certain cases such as default in payment of tax, failure to disclose income, failure to maintain books of accounts, failure to furnish information.
The Income Tax Act itself confers power on the Commissioner of the Income Tax Authority to waive/reduce the interest, penalty or other proceedings. The tax-payers can make use of these provisions only when a “genuine hardship” is caused to the assessee for payment of Tax.
Thus, though there are certain provision which protect the taxpayers from levy of penalty, interest and prosecution, there arose a necessity to establish Settlement Commission. The Settlement Commission protects assessee from penalty and prosecution proceedings. The Settlement Commission was inserted through Taxation Laws Amendment Act, 1975 based on the recommendation of Wanchoo Committee.
The Wanchoo Committee assumed that the primary objective of fiscal laws is to increase the revenue of nation. Further, rigid attitude on the part of the State would prevent the tax-evader to come forward with clean hands. Also, the rigid attitude would lead to unnecessary litigations. The Wanchoo committee report recommended the implementation of “Settlement Commission” for settlement of enormous tax disputes and immunity from criminal prosecution in suitable cases. The wanchoo Committee titled this chapter as “Black Money and Tax Evasion”.
Waiver of Interest
According to Section 220(2A) of the Income Tax Act, the Commissioner has authority to reduce or waive the amount of interest paid or payable by the Assessee only if following conditions are satisfied. They are
- Payment of such tax has caused or would cause genuine hardship to the assessee.
- Default in payment of amount on which interest is payable was due to circumstances beyond the control of assessee.
- The Assessee has co-operated in any inquiry relating to the assessment or any proceeding for recovery of any amount due from him.
In B.M.Malani Vs. Commissioner of Income Tax and Other(2008), the Supreme Court had observed that a statutory authority must act within the four corners of the statute. Indisputably, the Commissioner has the discretion not to accede to the request of the assessee, but that discretion must be judiciously exercised. There should be a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest.
In Mansukhlal Pitalia Vs. Principal Commissioner of Income Tax (2019), the assessee, defaulter, had suppressed his income. Only after seizure and search operations, department found the concealment of income. Therefore, High Court held that assessee had willfully evaded to pay Income Tax. Hence such wilful evasion can never be said to be due to circumstances beyond the control of assessee.
Immunity From Penalty And Other Proceedings
Section 273A(4) confers powers on the Principal Commissioner or Commissioner to either waive or reduce any penalty payable by the assessee under this Act or to stay or compound any proceedings for recovery of amount.
The immunity under this section can be granted only if the authority is satisfied that
- Genuine hardship is caused to the assessee
- The taxpayer has co-operated in any inquiry relating to the assessment or any proceeding with regards to the recovery of any amount due from him.
If the penalty amount exceeds Rs. 1,00,000 then prior approval of Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General is required
Section 273A(5) provides that any order passed under this section is final and cannot be questioned by any court or any authority
Settlement Commission (Section 245A to Section 245 M)
The settlement Commission is a quasi-judicial body established under the Income Tax Act, 1961. The settlement Commission has power to grant immunity from penalty and prosecution proceedings. When an order is passed by the Settlement Commission, then immunity is granted against any offence under this Act, IPC, central Act and also from imposition of penalty.
If the settlement commission is satisfied that assessee has co-operated with the proceedings before the Settlement Commission, true and full disclosure of income is made and the manner in which income is derived. Provided that application must be made during the pendency of assessment proceedings and the additional tax payable should be greater than Rs. 10,00,000 and Rs. 50,00,000 in search and seizure cases.
|Section 220A||Section 273A(4)|
Immunity is granted only to waive interest
Immunity is granted for reducing or waiving penalty or to stay or compound other proceedings
|Immunity is granted from penalty and prosecution proceedings|
|When Application can be made|
When the assessee is liable to pay interest after issuing notice of demand under Section 156
|After levy of penalty under this Act||During pendency of proceedings|
|Conditions to be satisfied|
1. Payment of such tax has caused or would cause genuine hardship to the assessee.
2. Default in payment of amount on which interest is payable was due to circumstances beyond the control of assessee.
3. The Assessee has co-operated in any inquiry relating to the assessment or any proceeding for recovery of any amount due from him.
|1. Genuine hardship is caused to the assessee|
2. The taxpayer has co-operated in any inquiry relating to the assessment or any proceeding with regards to the recovery of any amount due from him.
|1. Full and true disclosure of income|
2. Manner in which income was derived
3. No assessment order was passed
4. The additional tax should be greater than Rs. 10,00,000
The additional tax should be greater than Rs. 50,00,000
|Order is final and cannot be questioned by any court or any authority||Order is final and not appealable. But subject to judicial review.|
|Such application can be made any number of times by the assessee||Such application can be made once in a lifetime of tax-payer/assessee|
Power to grant immunity after Abatement by the Settlement Commission
Section 273AA and Section 278 AB confers power to the Principal Commissioner or Commissioner to grant immunity from penalty even the application for settlement is abated by the settlement Commission. Provided that assessing authority is satisfied that after abatement, the tax payer has co-operated in all proceedings before the income-tax authority and has made full and true disclosure of income.
Direct Tax Vivad se Viswas Act, 2020
As on the 30th November, 2019, the amount of disputed direct tax arrears is Rs. 9.32 lakh crores. Further, the settlement of tax disputes consumes lot of time. Inorder to collect timely revenue, there arises a necessity to reduce the pending litigation.
The objective of ‘Vivad se Viswas’ is to reduce the pending income tax litigation, generating timely revenue of Government and also benefiting the tax-payers. DTVSV Scheme (“Direct Tax Vivad se Vishwas Scheme”) was announced by the Finance Minister in the 2020 Budget. Subsequently, the Direct Tax Vivad se Viswas Act came into force on March 2020 after receiving its assent from the president.
Under this Act, the Tax arrears were distributed into three categories and accordingly they determined the amount of tax payable to each category before 31st March 2020 and after April 1st 2020/last date of payment. The three categories are tax arrears are
- Tax, Interest and Penalty based on Section 132 or 132 A
- Amount of disputed tax, penalty and interest chargeable on disputed Tax
- Disputed interest, disputed penalty or disputed fee
The amount payable is determined on the basis on which category the arrears of tax falls. Incase of appeal, writ or SLP pending or decision passed is in favour of the assessee, then the amount determined will be only half of the amount. The designated authority shall pass an order within 15 days of receipt of application and grant an certificate prescribing the amount to be paid. No appellate forum or arbitration can be made against this declared amount. It further provides immunity from penalty, interest and prosecution proceedings.
If the taxpayer agrees to pay the above determined amount, then declaration can be filed. Once declaration filed, the appeal before the ITAT is deemed to be withdrawn. If the case is pending before the HC or SC or arbitration, then such appeal/claim should be withdrawn.
However, it shall not apply to certain cases such as if the amount of disputed tax exceeds Rs. 5 Crores(when assessment is made under Section 143(3) or 144 or 153(A) 153(C) in which search proceedings is initiated under 132/132A)
Initially, the last date filing of declaration was fixed as 31.3.2020. But now it was extended till 31.3.2021.
Discontinuance of Settlement Commission
In 2021 Budget it was proposed to discontinue the Income Tax Settlement Commission and to constitute Interim Board of settlement for pending cases. No application can be made under Settlement Commission after 1st February 2021. The amendment is retrospective in nature.
Pending applications before the Settlement Commission can be withdrawn by the applicants within a period of three months from the amendment came into force. If the applications are not withdrawn, it will be transferred to a interim Board constituted for settlement
Now the question arises is whether there is a need for settlement commission.
Settlement Commission protects one-time tax evader from penalty and prosecution proceedings if they have made a true disclosure. However, the amount of additional tax should be at Rs. 10 lakhs or Rs. 50 lakhs in search cases. Thus Settlement Commission doesnot apply to all assessee. It protects only certain category of persons.
On the other hand, DTVSV Act grant immunity from penal, prosecution and interest proceedings to all assessee. Provided that if the disputed tax is less than Rs. 5 crores in case of search and seizure proceedings. Further, declaration can be made under this Act only till 31st march 2021.
At this stage, if settlement commission is dissolved then immunity from granting from granting penalty, prosecution or compounding other proceedings can be made in accordance with Section 273A(1) & 273A(4) and waiver of interest in accordance with Section 220(2A). Under these provisions immunity would be granted only if there arises a “genuine hardship” to the assessee to repay the amount and the assessee has co-operated in all proceedings.
After 31.3.2021, when there is neither Settlement Commission nor DTVSV Act. Therefore, the number of pending proceedings before the Tribunals, HC and SC would gradually increase. Hence there arises to need to setup a Commission which would take into consideration of all matters irrespective of whether it is pending or assessment order is passed and also notwithstanding what is the disputed tax amount or additional tax amount. This commission should protect the assessee aswellas generating the revenue of Government. The order made by this Commission should be final and should not be subject to any appeal or judicial review. The working of this commission should be in such a way where tax should be collected by providing immunity from penal, prosecution and interest similar to the Vivad se Viswas Scheme. The amount of disputed tax amount, penalty and interest should be reduced based on the amount of tax, amount of penalty and interest levied.
Therefore, the immunity from penalty, interest and tax should be used as a weapon to make the assessee to pay the tax.