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.
• Prakash Nath Khanna v CIT Supreme CourtHelps department
  I missed the due date but I did file the return under s.139(4) before the assessment. Doesn't that mean I filed 'in due time' and cannot be prosecuted under s.276CC?
  No. The only place the Act fixes a time for furnishing the return is s.139(1); s.139(4) merely permits a belated return, and filing one does not wipe out the infraction of having missed the s.139(1) date. Whether the failure was wilful is a question for the trial court, where s.278E requires the court to presume a culpable mental state and leaves it to you to prove its absence.
• Sashi Bhusan Prasad Bhuian v State of Jharkhand High CourtHelps departmentNo later treatment found
  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.
• Saumya Chaurasia v Union of India High CourtHelps departmentNo later treatment found
  CBDT Circular 24/2019 says prosecution under s.276C(1) is to be launched only after the ITAT confirms the penalty. My appeal is still before the CIT(A). Can the sanction under s.279(1) be quashed on that ground?
  Not where the amount sought to be evaded exceeds Rs.25 lakh. On the Delhi High Court's reading of Circular No.24/2019 dated 09.09.2019 as clarified by Circular No.5/2020 dated 23.01.2020, the requirement of prior administrative approval of a collegium of two CCIT/DGIT rank officers, and the direction that prosecution be launched only after the ITAT confirms the penalty, are addressed to cases at or below the Rs.25 lakh threshold; above it the approval of the sanctioning authority, the Principal Commissioner, suffices and no pre-condition is attached. The challenge to Circular 5/2020 under Article 14 was rejected.
• Dr. Manoj Khanna v ITO High CourtHelps departmentNo later treatment found
  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.
• Nagendra Choudhary v Union of India High CourtHelps taxpayer
  The Tribunal deleted the penalty, but the department has filed an appeal under s.260A and it has been admitted. Can they keep the s.276C prosecution alive until that appeal is decided?
  Not without a stay. The Rajasthan High Court quashed a s.276C(1)(i) prosecution after the Tribunal had deleted the s.271AAB penalty, holding that the mere pendency of the department's s.260A appeal, even one admitted on substantial questions of law, does not resurrect factual findings that have been set aside. The Court expressly preserved the department's liberty to seek revival if the Tribunal's exoneration is reversed.
• Vilas Babanrao Kalokhe v Principal Commissioner of Income Tax (Central), Pune High CourtHelps taxpayerNo later treatment found
  I filed my return but could not pay the self-assessment tax with it. I paid it a couple of months later. They have prosecuted me under s.276C(2). Can that stand?
  On these facts, no. The Bombay High Court quashed the complaint and the order issuing process, holding that s.276C(2) punishes a wilful attempt to evade payment of tax and not a mere failure to pay, and that the averments in the complaint fell short of any inference of wilfulness where the assessee had pleaded financial difficulty and had in fact paid the tax with interest.
• Anurag Dalmia v Income Tax Office High CourtHelps taxpayerNo later treatment found
  The Tribunal has deleted the additions and the penalty has been cancelled. The criminal complaint is still pending on exactly the same allegations. Does it survive?
  No, where the complaint rests on the same material. The Delhi High Court quashed complaints under s.276C(1)(i), s.277(1) and s.276D, holding that once the Tribunal had set aside the additions on merits and the penalty had been cancelled, no offence survived and quashing of the prosecution followed automatically. It also held that the presumption of a guilty mind under s.278E arises only if a prima facie case is disclosed in the complaint.
• PCIT v Prabodh Kumar Tiwari High CourtCuts both waysNo later treatment found
  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 taxpayerNo later treatment found
  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.
• Rajkumar Agarwal v Income Tax Department High CourtHelps departmentNo later treatment found
  I filed my returns late but only after a notice, and I paid the penalty for the delay. Does the proviso to s.276CC save me, and can I get the prosecution quashed by explaining the delay?
  No on both counts. The proviso to s.276CC refers only to a return under s.139(1); s.142(1)(i) and s.148 are conspicuously absent from it, so the benefit is available only to voluntary filing and not to a return filed after the failure has been detected and a notice issued. Payment of penalty under Chapter XXI does not exonerate the assessee from prosecution under Chapter XXII, and because s.278E requires the court to presume the culpable mental state, the explanation for the delay must be led as evidence before the Magistrate and cannot be accepted at the quashing stage.
• Nirlon Ltd v Deputy Commissioner of Income Tax High CourtHelps taxpayerNo later treatment found
  They sanctioned prosecution and filed the complaint while my appeal was still pending before the Tribunal. Is the launch itself bad?
  The Bombay High Court held that it was, and quashed the complaint. The CBDT's own guidelines require a case under s.276C(1) to be processed for prosecution where the s.271(1)(c) penalty exceeding Rs 50,000 has been imposed AND confirmed by the Tribunal, and launching prosecution before that confirmation is contrary to instructions that bind the officers of the Revenue.
• Income Tax Officer v Rajendra Prasad Vaish High CourtHelps taxpayerNo later treatment found
  The Department has appealed against my acquittal on a s.276CC charge. Given the presumption in s.278E, how much has the Department still to prove?
  It still has to prove the wilfulness. The Rajasthan High Court dismissed the Department's appeal against an acquittal for a 28-month delay in filing a return, holding that even with the presumption in s.278E the complainant must bring home the mens rea, that the accused's explanation together with payment of the tax and penalty rebutted it, and that in an appeal against acquittal, where two views are plausible, the view favouring innocence prevails.
• 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.
• Sada Kesava Reddy v Dy CIT High CourtHelps departmentNo later treatment found
  My belated return showed a refund due, so no tax was payable on regular assessment and the proviso to s.276CC protects me. Can I be discharged on that ground before trial?
  Not on this authority. The Telangana High Court held that whether the accused was entitled to a refund, whether there was wilful failure to furnish the return in due time, and whether the notice was validly served are all matters to be decided only after a full trial, and refused to interfere with the dismissal of the discharge application. It also applied the settled position that the benefit of the proviso is available only to a voluntary return under s.139(1) filed before the failure is detected, and not once a notice under s.142(1)(i) or s.148 has been issued.
• Vipul Aggarwal v ITO High CourtHelps taxpayerNo later treatment found
  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 taxpayerNo later treatment found
  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.
• Forzza Projects Private Limited v Principal Commissioner of Income Tax High CourtHelps taxpayer
  I filed my return but could not pay the self-assessment tax on time; I paid it later with interest in instalments. The Department has launched a prosecution under s.276C(2) and says s.278E presumes a culpable mental state. Is that right?
  On the Kerala High Court's view, no. A mere failure to pay the tax due, later paid with interest, is not a wilful attempt to evade the payment of tax within s.276C(2) where there is no concealment of a source of income, no false particulars and no circumstance created to enable evasion. And s.278E does not fill the gap: the presumption of a culpable mental state is a rule of evidence that comes into play only once the basic ingredients constituting the offence are disclosed, not to supply them.

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.