Income Tax Dept should allow to file ITR despite Non-payment of Tax – Karnataka HC

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. The deadline for filing Income Tax Return for corporate and other assessee’s who are to get their accounts audited under Income Tax Act 1961 or under any other law for the time being in force is 30th September and for others, it is 31st July every year as have been prescribed under the Act.

Let us refer to the case of Confident Projects (India) Pvt Ltd Vs Income Tax Department (Karnataka High Court), where the assessee was forced to upload the returns by mentioning that the entire amount had been paid since without doing so the returns would not have been accepted by the software system set up by the Income Tax Department.

Facts of the Case:

• The petitioner was a Company carrying on the business of construction of apartments and development and sale of plots.
• The Company followed the accrual accounting system. The sale was entered into the books when the agreement to sell was entered into with the customer rather than when the money/cash was collected.
• Irrespective as to whether the purchaser paid the amount or not, the income was shown in the books of account of the Company and tax is paid thereon.
• The Company had submitted its returns for the assessment year 2013-14 on 30.09.2013 declaring a total income of Rs. 17,98,20,900/-. As per the income declared, the tax payable thereon was Rs. 6,41,89,214.
• However, since the Company did not have the money to make the payment of tax and they had a negative balance in the bank account of the petitioner Company, the said tax amount was not paid.
• The Assessing Officer, i.e., the Deputy Commissioner of Income Tax passed a penalty order under Section 221(1) of the Income Tax Act imposing a penalty of Rs. 46,36,961 and issued two notices

Provisions of Section 277 of Income Tax Act

According to Section 277, if a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable:

• in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds Rs 100,000, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine
• in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.

Observations of High Court (HC)

• Respondent contended that there was reverse burden of proof under Section 277 of the Income Tax Act inasmuch as requiring the assessee to support the statements made in the returns.
• Though that may be the case, it could not be contended that the statements made by the assessee were wrong until proven right.
• For the purposes of contending that there was a misstatement and that misstatement was made to evade tax, it would be required for the Income Tax Department to prove the said circumstances.
• In the present case, the misstatement was stated to be as regards the income tax having been paid even though such payment was not made since the uploaded returns reflected the BSR code, challan number as also the amount paid as income tax.
• It was alleged that if not for the reconciliation, the petitioner-Company would have got away with non-payment of the taxes.
• HC was unable to accept such a submission. It was not that there was non-payment of any tax before uploading of the returns.
• The 26 AS returns indicated payment of substantial amount of money due to tax deduction at source.
• Apart there from, the petitioner-Company also made several payments on account of the income tax dues.
• However, on account of non-availability of funds, the entire amount could not be paid before the returns were to be uploaded and/or filed.
• If at all the petitioner-Company wanted to default on payment, the petitioner- Company could have not even filed its returns and/or filed its return without payment of monies earlier.
• The fact that the petitioner-Company had made payments would indicate and establish the authenticity of the petitioner-Company.
• It was also not disputed that the Petitioner company borrowed money to make payment of the Income tax due, since the amounts accounted on the basis of accrual system of accounting was not received by the Petitioner company.

• It was required for the Income Tax Department who had provided the facility for an assessee to upload its returns with the actual amount paid and for the system to accept the said returns even though the complete amounts had not been paid.
• The assessee in the present case was forced to upload the returns by mentioning that the entire amount was paid since without doing so the returns would not have been accepted by the software system set up by the Income Tax Department.
• Therefore, in HC’s view the said statement made was forced upon the assessee by the Income Tax Department and could not be said to be misstatement within the meaning and definition thereof under Section 277 of the Income Tax Act.
• For an offence to be said to be committed under Section 277 of the Income Tax Act, the misstatement was required to be wilful made with a mala-fide or dishonest intention in order to prosecute the assessee.

The Income Tax Department was directed to consider the provisioning of a facility in its software to upload Income Tax Returns with the actual amount paid and for the system to accept the said returns even though the complete amounts had not been paid. In simple words, ITR software should allow filing of return despite non payment of tax.

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