Ch 4: PENALTIES AND PROSECUTIONS — Previous Year Exam Questions (PYQ)

1(a): When Assessee becomes Liable for Prosecution

5 Marks

Vasudevan Consultants Ltd. was liable to make e-payment of service tax of ₹ 8,00,000, which it had collected from its customers, for the month of July, 2016. However, it electronically paid the tax on 06.11.2016. Calculate the amount of interest payable by the assessee under section 75 of the Finance Act, 1994. The value of taxable services provided by Vasudevan Consultants Ltd. during the financial year 2025-26 was ₹ 98.30 lakhs and during the FY 2025-26 was ₹ 75 lakhs. Will your answer be the same, if the value of services provided by it during the financial year 2025-26 was ₹ 54.80 lakhs?

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1(b): When Assessee becomes Liable for Prosecution

5 Marks

A When imported goods are damaged, there will be abatement of customs duty. In respect of pilfered goods, customs duty is not payable and when goods are destroyed, there will be remission of duty. (ii) B The greatest number of units sold at a particular price is 1,000 units. Therefore, the unit price in the greatest aggregate quantity is ₹ 190. (iii) D The first three are specifically covered by section 9A(1A) of the Customs Tariff Act, 1975. Import by a SEZ unit will not attract any anti-dumping duty.

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2(a): When Assessee becomes Liable for Prosecution

5 Marks

Stay granted by the Tribunal after the expiry of 365 days Issue involved The issue under consideration is whether the stay order can be automatically vacated upon the expiry of extended period of stay of 365 days, where the delay in disposing of the appeal is not attributable to the assessee. (OR) The issue under consideration is whether the action of the AO in asking the assesseee to pay the tax on the ground that the stay granted by the ITAT automatically got vacated after the expiry of extended period of stay of 365 days. Provisions applicable Where the appeal filed by an assessee before the Appellate Tribunal is not disposed of within the period of stay or extended period of stay granted by the Tribunal, the order of stay shall stand vacated after the expiry of 365 days, even if the delay in disposing of the appeal is not attributable to the assessee. [Third proviso to sec 254(2A)] Analysis of the issue The vacation of stay in favour of the Department would lead to a scenario where even if the Department is itself responsible for the delay in hearing the appeal and there is no fault on the assessee, the assessee is liable to pay tax demand. This will cause undue hardship to the assessee, even where the assessee is not at fault. In this sense, the provision is arbitrary and disproportionate so far as the assesse is concerned. 9 of 9 Conclusion Hence the action of the AO is not valid in law. The Apex Court in Dy. CIT v. Pepsi Foods Ltd (2021) 433 ITR 295 (SC) pointed out that the proviso would lead to automatic vacation of stay upon the expiry of 365 days and even if the tribunal could not take up of the appeal in time for no fault of the assessee. Further vacation of stay in favour of the Department would ensue even if the Department is itself responsible for the delay in hearing the appeal. In this sense, the proviso is manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned. Accordingly, the apex court held that the third proviso to section 254(2A) has to be read without the word „even‟ and the word „not‟ appearing after the words „delay in disposing of the appeal‟. It would be “the order of stay shall stand vacated after the expiry of such period or periods, if the delay in disposing of the appeal is attributable to the assessee”. Thus, any order of stay shall stand vacated after the expiry of the period or periods mentioned in the section, only if the delay in disposing of the appeal is attributable to the assessee.

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2(b): Power to Reduce or Waive Penalty, etc., in Certain Cases

5 Marks

Brahma Ltd., discarded certain number of assets forming part of a block of assets during the previous year 2025-26. The Assessing Officer has disallowed the depreciation pertaining to such discarded assets. Discuss whether such action of the Assessing Officer is tenable in law.

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3(a): Penalty for Under-reporting and Misreporting of Income

5 Marks

India Telephones Ltd. paid ₹ 15 lakhs per annum to Bharat Mobiles Ltd. for each of the mobile towers used by it. During the financial year 2025-26, India Telephones Ltd. paid ₹ 435 lakhs to Bharat Mobiles Ltd. It deducted tax at source under section 194C and whereas the Assessing Officer claimed that the assessee must have deducted tax at 10% under section 194-I. Decide the correctness of the action of assessee vis-a- vis the Assessing Officer. Answer:

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3(b): Penalties

5 Marks

With reference to the statutory framework governing 'Penalties' under Direct Tax Laws and International Taxation (CMA Final), critically examine the substantive legal provisions, scope, and applicability thresholds. Specifically elucidate: (i) the governing statutory sections/rules/standards; (ii) eligibility conditions, numerical limits, and compliance parameters; and (iii) consequences of non-compliance or procedural default.

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