The Madras High Court has asserted that where the Income Tax Department fails to determine tax payable on regular assessment, prosecution under Section 276CC for non-filing of return is misconceived and cannot proceed. The High Court acquitted an assessee who had been convicted under Section 276CC of the Income Tax Act for failing to file her return of income for Assessment Year 2014-15, holding that the prosecution itself was misconceived in the absence of any determination of tax payable by the department.
The Court reiterated the bar under proviso (ii)(b) to Section 276CC, which prohibits prosecution where the tax payable by a person, not being a company, on the total income determined on regular assessment does not exceed the prescribed threshold, and held that this protection applies even where no assessment has been carried out.
The Court further held that the statutory presumption of culpable mental state under Section 278E was effectively rebutted by the assessee through her own testimony and documentary evidence showing that the property was jointly held with her husband, who had funded the purchase and received the sale consideration, leaving no room to infer wilful non-filing.
Briefly, the petitioner, Manivannan Umarani, was prosecuted under Section 276CC of the Income Tax Act, for allegedly failing to file her return of income for Assessment Year 2014-15. The Income Tax Department detected that during Financial Year 2013-14, she had received rent of Rs. 55.50 lakhs and had sold an immovable property for Rs. 74 lakhs. A show cause notice was issued on 26 July 2017, to which she replied on 7 August 2017 stating that her husband was based in Dubai and that she was entitled to a refund of Rs. 37,000.
The trial court convicted her on 22 December 2021 and sentenced her to one year of rigorous imprisonment along with a Rs. 50,000 fine. On appeal, the Principal Sessions Court, Chennai, confirmed the conviction but reduced the sentence to three months of rigorous imprisonment.
A Single Judge Bench of Justice Sunder Mohan noted that the admitted position was that no assessment under Section 143 or 144 of the Income Tax Act had been made in this case, as the violation was detected only in 2017, well beyond the 21-month limitation period. The Court observed that the respondent department had not even stated in the complaint that the assessee was liable to pay any tax.
The Court further observed that the petitioner had rebutted the statutory presumption under Section 278E of the Act by examining herself as witness and producing defence documents showing that the property was jointly purchased with her husband, who had funded the purchase and received the sale consideration. The Court also noted that the petitioner had no other source of income and that there was no intention to evade tax.
