Non-filing of ITR and non-payment of taxes can cause prosecution u/s Section 276 C, which provides that a person who willfully attempts to evade tax, penalty, or interest under the Income Tax Act, 1961, or under-reports income, may be subject to rigorous imprisonment and fines. If the amount evaded or tax on under-reported income exceeds Rs 25 Lakhs, imprisonment ranges from 6 months to 7 years with a fine; otherwise, imprisonment ranges from 3 months to 2 years with a fine. Willful evasion includes possession or control of false accounting records, making false entries, omitting relevant entries, or causing circumstances enabling tax evasion. The court may impose fines at its discretion.
These provisions apply without prejudice to other penalties under the Act. As per the provisions of the Income Tax Act, there is a difference between "willful evasion" and "failure" to pay tax.
There are certain kinds of taxes that, if not paid, then that itself is sufficient to attract penal provisions of the Income Tax Act. E.g., TDS, whereas in the case of 'willful evasion,' there must be an averment that the assessee deliberately and intentionally attempted to evade the tax, and it must be substantiated. However, as per the provisions of 278 E 'relating to presumption as to culpable State' - the burden lies on the assessee to establish that failure was not on account of willful intention.
Now, in hindsight, it needs to be seen that Section 276-B will be applicable when the tax deducted at the source is not credited to the government. This is one of the contingencies. 'Failure to credit' itself is sufficient. It need not be willful. Because once you have deducted a tax from the income of another person (who is liable), such person is bound to credit it. That omission itself is an offence without the addition of willfulness/intention, but the legislatures have cautiously used the word 'willful evasion' in Section 276-C of the Income Tax Act. It indicates there may be cases wherein there is a genuine case for not paying tax on or before the due date, even though the return is submitted. In case submitted, a failure cannot be considered as a willful evasion.
Such cases will be outside the clutches of Section 276-C of the Income Tax Act, as was held in the case of VILAS BABANRAO KALOKHE vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), PUNE [2025-VIL-290-BOM-DT]. Hence, taxpayers who disclose in their ITRs specifically tax payable need to be very sure that they have paid such taxes. A lapse may land them in deep trouble.
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