Supreme Court upholds initiation of prosecution for failure to file return (Sasi Enterprises)

Supreme Court of India (SC) in the case of Sasi Enterprises (Taxpayer) v. ACIT where the SC held that prosecution can be initiated against a taxpayer who fails to furnish return of income (ROI) within the statutory due date or in response to a notice issued by Tax Authority. The SC also reiterated that, in the prosecution proceedings for failure to file ROI on time, the initial burden lies on the taxpayer to prove the circumstances which prevented the taxpayer from filing ROI on time and it is not for Tax Authority to prove that taxpayer had wilfully committed the default. Further, the fact that taxpayer’s assessment has not become final due to pendency of appeal proceedings would not act as bar against initiating prosecution proceedings.

The SC ruling emphasizes the need for strict adherence to statutory due date for furnishing ROI. This is imperative not only for claiming certain benefits such as of carry forward of losses and/or claiming tax holiday benefit but also for avoiding risk of prosecution. Furnishing of ROI in due time in response to Tax Authority’s notice assumes greater importance due to absence of protection against prosecution even if substantial taxes have been paid.

Directors of company and partners of firm/LLP need to be particularly mindful of the harsh consequence of personal prosecution for default by the company/firm/LLP.