Section 278E

Section 278E — the law in short

What the courts have decided on section 278E, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sasi Enterprises v ACIT Supreme CourtHelps department
  The firm never filed its returns and the assessments were made under s.144. Can we get the s.276CC complaint discharged because the assessment was still being fought?
  No. The Supreme Court held that the s.276CC offence is complete on the failure to furnish the return in due time and is unrelated to the pendency of the assessment. The proviso does not help unless the return was furnished before the end of the assessment year or the tax payable on the total income determined on regular assessment, less advance tax and TDS, is within the statutory figure — and by s.278E the court presumes the culpable mental state, leaving it to the accused to displace it beyond reasonable doubt.
• Sashi Bhusan Prasad Bhuian v State of Jharkhand High CourtHelps departmentValidity unconfirmed
  My clerk filed the return and I am illiterate. Is that a defence to a 277 prosecution?
  No. Under s.278E the court must presume a culpable mental state and it is for the accused to prove he had none. Pleading illiteracy or blaming an office clerk does not discharge that burden, and a conviction and six-month sentence for a refund claim built on a forged TDS certificate and a non-existent housing loan were upheld.
• Dr. Manoj Khanna v ITO High CourtHelps departmentValidity unconfirmed
  You have now paid the TDS. Does that end the prosecution under s.276B?
  Not by itself. Belated deposit does not extinguish criminal liability unless the statute says so. The s.278E presumption of a culpable mental state attaches to a person in managerial charge and can only be rebutted at trial.
• PCIT v Prabodh Kumar Tiwari High CourtCuts both waysValidity unconfirmed
  The department says the section 278E presumption means I must face the whole trial. Has any court actually held the presumption rebutted, and on what material?
  Yes. The Delhi High Court dismissed the department's leave petitions and let an acquittal under section 276CC stand, holding that the statutory presumption of a culpable mental state under section 278E had been rebutted. It applied the burden at its strictest - once the presumption is triggered the accused must disprove wilful default, and to the criminal standard - and still found it discharged on the Commissioner's own findings and the surrounding circumstances. But the Court reached that result on its own reasoning, and expressly rejected the appellate court's ground that cancellation of a penalty under section 271(1)(b) vitiates a prosecution under section 276CC.
• ITO v MKY Constructions P Ltd High CourtHelps taxpayerValidity unconfirmed
  We paid the whole TDS default with interest before the complaint was filed. Can we still be prosecuted under s.276B?
  Not where a reasonable cause for the failure is made out. The Delhi High Court refused the department leave to appeal against an acquittal in three prosecutions under section 276B read with section 278B. Section 278AA carves out an express exception to penal liability under section 276B where the accused establishes a reasonable cause for the failure to deposit. The trial court had found that the company's default was driven by a liquidity crisis caused by legally recoverable payments withheld by contracting parties, that the entire defaulted tax had been deposited with interest under section 201(1A) and late fee under section 234E, and that the default was not deliberate. The High Court held that finding neither perverse nor legally infirm, and declined to disturb it.
• ITO v MKY Constructions Private Limited High CourtHelps taxpayer
  I deducted tax at source but could not deposit it on time because my own contract payments were stuck. I have since paid it with interest. Can I still be prosecuted?
  Not where reasonable cause is proved. The Delhi High Court refused leave to appeal against acquittals under section 276B read with section 278B. Section 278AA opens with a non obstante clause and means that the existence of a reasonable cause operates as a statutory defence to prosecution. The company was a sub-sub-contractor whose large receivables from the main contractor, and refunds from the Department, were stuck, and it deposited the whole of the tax with interest and late fee before the complaints were filed, a fact the Income Tax Officer admitted in cross-examination. That showed the absence of the culpable mental state and the trial court's finding was neither perverse nor legally infirm.
• Manav Menon v Deputy Commissioner of Income Tax High CourtHelps taxpayer
  I never filed my return for the year and the department has launched a prosecution, but my TDS and advance tax more than covered the tax and I am actually due a refund. Can the criminal case go on?
  No. The Madras High Court quashed the prosecution under section 276CC. Clause (ii)(b) of the proviso says a person shall not be proceeded against for failure to furnish the return under section 139(1) if the tax payable on the total income determined on regular assessment, as reduced by advance tax paid and tax deducted at source, does not exceed Rs 3,000. Here the petitioner's advance tax, TDS, TCS and self-assessment tax came to Rs 23,75,066 against total tax and interest of Rs 23,74,610, leaving a refund of Rs 460 claimed. The proviso came to his rescue and the complaint in EOCC No. 168 of 2016 was quashed.
• Vipul Aggarwal v ITO High CourtHelps taxpayerValidity unconfirmed
  The sanction for prosecution names the company as the assessee. Can the complaint proceed against me as its director?
  No. The Delhi High Court quashed the complaint against the director because the sanction placed on record identified only the company; there was no sanction against him, whether as a person, as a director, or as someone responsible for the conduct of the company's business. Without that sanction the department cannot proceed against him for the s.276CC offence.
• Jai Singh Goel v CCIT High CourtHelps taxpayerValidity unconfirmed
  The Commissioner has refused to compound my s.276CC offence. Can I take that refusal to the High Court?
  Yes. The Delhi High Court set aside a rejection of a compounding application for offences under s.276CC read with s.278E. The two reasons given for the refusal — that the application was out of time, and that the applicant stood convicted — had both fallen away, the first because the Board had relaxed the time limit and the second because the conviction had been set aside on appeal. The Court sent the application back to be considered on its merits.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.