Income Tax 2025

Appearance

Prosecution to be at instance of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. ​

491(1) ​

A person shall not be proceeded against for an offence under section 473, 474, 475, 476, 477, 478, 479, 480, 481, 482, 483, or 484 except with the previous sanction of the Principal Commissioner or Commissioner or Joint Commissioner (Appeals) or Commissioner (Appeals).

491(2) ​

The Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General may issue such instructions or directions to the income-tax authorities mentioned in sub-section (1) as he considers fit for institution of proceedings under that sub-section.

491(3) ​

A person shall not be proceeded against for an offence under section 478 or 482 in relation to the assessment for a tax year for which the penalty imposed or imposable on him under section 439 has been reduced or waived by an order under section 469.

491(4) ​

Any offence under this Chapter may be compounded, either before or after the institution of proceedings, by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or Director General.

491(5) ​

Where any proceeding has been taken against any person under sub-section (1), any statement made or account or other document produced by such person before any income-tax authority specified in section 236(a) to (k) shall not be inadmissible as evidence for the purpose of such proceedings merely on the ground that—

  • (a) such statement was made or such account or document was produced in the belief that the penalty imposable would be reduced or waived, under section 469; or
  • (b) the offence for which such proceeding was taken would be compounded.

491(6) ​

The power of the Board to issue orders, instructions or directions under this Act shall include the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section.

Explanation

Section Summary: ​

Section 491 of the new income tax law outlines the conditions and authorities responsible for initiating prosecution for specific tax offences. It also provides guidelines for compounding offences (settling disputes without prosecution) and ensures that statements or documents submitted during proceedings remain admissible as evidence, even if made under certain assumptions (e.g., penalty reduction or waiver). The section aims to streamline the prosecution process and provide clarity on the roles of various tax authorities.

Key Changes: ​

  1. Sanction Requirement: Prosecution for offences under sections 473 to 484 now requires prior approval from higher authorities like the Principal Commissioner, Commissioner, or Joint Commissioner (Appeals). This adds a layer of oversight compared to earlier provisions.
  2. Compounding of Offences: The section explicitly allows for compounding (settlement) of offences by higher authorities like the Principal Chief Commissioner or Chief Commissioner, either before or after prosecution begins.
  3. Admissibility of Evidence: Statements or documents submitted during proceedings cannot be dismissed as evidence solely because they were made under the belief of penalty reduction or waiver.
  4. Board’s Authority: The Central Board of Direct Taxes (CBDT) can issue instructions or directions to tax authorities regarding the compounding of offences, ensuring uniformity in enforcement.

Practical Implications: ​

  1. For Taxpayers:

    • Taxpayers cannot be prosecuted for certain offences without prior approval from senior tax authorities, reducing the risk of arbitrary prosecution.
    • Offences can be settled through compounding, providing a way to resolve disputes without lengthy legal proceedings.
    • Statements or documents submitted during proceedings remain valid as evidence, even if made under specific assumptions.

  2. For Tax Authorities:

    • Higher authorities (e.g., Principal Chief Commissioner) now have the power to issue instructions or directions for initiating prosecution or compounding offences.
    • The CBDT can issue guidelines to ensure consistent application of the law.

  3. For Businesses:

    • Businesses facing potential prosecution for tax offences can seek compounding to avoid legal consequences, provided they meet the conditions.
    • The requirement for prior sanction before prosecution adds a safeguard against unwarranted legal action.

Critical Concepts: ​

  1. Compounding of Offences: This refers to settling a tax offence by paying a specified amount, avoiding prosecution. It is a way to resolve disputes without going to court.
  2. Sanction for Prosecution: Prosecution for certain offences cannot begin without prior approval from designated senior tax authorities.
  3. Admissibility of Evidence: Statements or documents submitted during proceedings cannot be excluded as evidence merely because they were made under the belief of penalty reduction or waiver.

Compliance Steps: ​

  1. For Taxpayers:

    • Ensure compliance with tax laws to avoid offences under sections 473 to 484.
    • If facing prosecution, explore the option of compounding by approaching the relevant authority (Principal Chief Commissioner or Chief Commissioner).
    • Maintain accurate records and documents, as they may be used as evidence in proceedings.

  2. For Tax Authorities:

    • Obtain prior sanction from the Principal Commissioner or Commissioner before initiating prosecution.
    • Follow instructions or directions issued by the CBDT or higher authorities regarding compounding of offences.
    • Ensure that statements or documents submitted by taxpayers are considered as evidence, regardless of the taxpayer’s assumptions.

Examples: ​

  1. Example of Compounding:

    • A business is found to have underreported income, leading to a potential prosecution under section 478. Instead of facing legal action, the business approaches the Principal Chief Commissioner and agrees to pay a compounding fee. The offence is settled, and prosecution is avoided.

  2. Example of Sanction Requirement:

    • A taxpayer is accused of falsifying documents under section 482. The tax officer cannot initiate prosecution without obtaining prior approval from the Principal Commissioner. This ensures that the decision to prosecute is reviewed by a senior authority.

  3. Example of Admissibility of Evidence:

    • During an audit, a taxpayer submits documents believing that penalties will be waived under section 469. Later, prosecution is initiated. The documents remain admissible as evidence, even though they were submitted under the assumption of penalty waiver.

This section provides a structured approach to prosecution and compounding of tax offences, balancing taxpayer rights with enforcement needs.