Phuentsholing drungkhag court yesterday ruled that Lal Chand of Jatan Prasad Lalchand Prasad (JPLP) departmental store has to pay Nu 14.487M against the evaded tax worth Nu 184M in four years from 2011 to 2014.

The Office of the Attorney General (OAG) filed charges against JPLP in September 2015. OAG determined that the defendant JPLP was liable for tax evasion worth Nu 184M under Section 35.1 and 35.2 of Income Tax Act (ITA), 2001. The prosecutor charged the defendant under Section 283 and 284 of the Penal Code. Going by OAG’s charges, if found guilty, JPLP owner Lalchand Prasad would have got a minimum nine years sentence.

However, court charged the defendant under Anti-Corruption Commission (ACC) Act 2011. JPLP was charged with the “last in time” rule under ACC Act, 2011.

What is last in time rule?

If two legislations are in conflict, the most recently created is applicable. In this case, it is the ACC Act.

The court also applied the Rule of Lenity, a rule of construction of statutes wherein criminal statute ambiguities are resolved in favour of the defendant or accused.

Lalchand Prasad was also asked to pay Nu 7.87M in lieu of imprisonment.

Lalchand Prasad was released on bail amount of Nu 80M by OAG on September 16, 2015 after the ACC detained him for three months and denied his bail as nobody was willing to come forward as his guarantor and pay Nu 184M.

According to the verdict, the court has deducted the purchase cost, which the OAG had contended since the beginning.

Initially, OAG submitted the case of tax evasion of Nu 184M. Defendant then submitted that the prosecutor had included the purchase cost, claiming that it had inflated the amount. The defendant also submitted to the court that OAG had entered same amount twice for 2014 and that the purchase amount for 2011 was overstated.

Upon finding that OAG had made double entry and overstated purchase amount, the court deducted Nu 49M.

However, OAG’s new findings showed that JPLP was still liable for evasion of Nu 126.89M, which included purchase cost.

It has been learnt that ambiguities in the ITA, 2001 led to the prolonging of the case. Confusions arose with Section 35.1 and 35.2 (General Provision) of the ITA 2001.

Lalchand Prasad had submitted that the company was liable for fines and penalties of Nu 8.69M and not Nu 184M as submitted by OAG. OAG representatives, however, said the taxable amount after fines and penalties was determined from what the ACC discovered and what the defendant had declared to the customs office in Phuentsholing.

OAG had submitted that as per the ITA 2001, a 200 percent penalty for the concealment is not imposed directly on the concealed income. First, Business Income Tax (BIT) of 30 percent is levied on the concealed income that is the difference discovered. Only then, a 200 percent penalty is levied on the amount arrived after BIT is computed. Again, a 24 percent late payment is computed on the same figure arrived after a 200 percent penalty.

Section 35.1 of the ITA 2001 states: “A fine equivalent to twice the tax amount sought to be evaded in addition to tax due shall be imposed on concealment of the particulars of income or furnishing inaccurate particulars of income.”

The defendant argued that the purchase cost should be allowed for deduction from the concealed income.

For instance, if an item purchased for Nu 30 is sold at Nu 40, the net profit is Nu 10. Defendant’s contention was that the fines and penalties must be on Nu 10 and not Nu 40. Purchase cost of Nu 30 should be deducted before imposing penalty, the defendant’s legal representatives had submitted.

This means the deductions must be given even after the concealment.

The prosecutor said the deductibles could not be entertained once the “permissible time” for tax payment is exhausted. This is as per the provision of section 35.2 of the ITA 2001 that states: “Expenses related to income under Section 35.1 shall be disallowed as deductions.”

OAG also had explained that taxpayers are allowed 15 days to correct tax returns from the date of filing the returns. For four consecutive years (2011 to 2014), JPLP filed inaccurate tax returns to customs in Phuentsholing.

If the defendant had no intention to conceal this income, the prosecutor had maintained that it should have used the provision. As no corrections were made, the prosecutor pointed out that it was clear that the defendant intentionally evaded taxes.

OAG had also submitted that a verdict to a similar tax evasion case prosecuted in Phuentsholing drungkhag court was given against the defendant. The defendant, a woman was held liable for evading taxes after selling beer bottles to M/s Serzom Beer Agency.

After finding the woman guilty, the income of the beer bottles were considered as concealed income and fines and penalties were imposed as per Section 35.1 and 35.2 of the Act.

Lalchand Prasad will have to pay the tax amount within 10 working days if either party does not appeal the case.

Rajesh Rai | Phuentsholing