[Section 278AB]: Power of Principal Commissioner or Commissioner to Grant Immunity from Prosecution

Here’s a detailed analysis of Section 278AB of the Income Tax Act, 1961, which empowers the Principal Commissioner or Commissioner to grant immunity from prosecution in specific cases:

1. Overview of Section 278AB

Section 278AB provides a discretionary power to the Principal Commissioner/Commissioner to grant immunity from prosecution when:

• A taxpayer’s settlement application under Section 245Cabates (terminates) under Section 245HA due to non-prosecution or non-compliance.
• Prosecution proceedings have not yet been institutedpost-abatement.

Objective: To encourage cooperation and full disclosure of income after failed settlement attempts, reducing litigation.

2. Eligibility and Conditions

1. When Can Immunity Be Sought?

• • The taxpayer must apply before prosecution beginsafter abatement.
  • If prosecution was already initiated before/during settlement, the taxpayer can still apply, but must do so before formal charges are filed.

1. Granting Immunity

The Commissioner may grant immunity if satisfied that the taxpayer:

1. Cooperated fullywith tax authorities post-abatement.
2. Made a full and true disclosureof income and its sources.
3. Complied with any conditions imposed(e.g., payment of taxes in installments).

3. Procedural Aspects

• Application: No prescribed form, but must include evidence of cooperation and disclosure.
• Timeline: The Commissioner must pass an order within 12 monthsof receiving the application.
• Hearing Mandatory: No rejection without giving the taxpayer an opportunity to be heard.

4. Withdrawal of Immunity

Immunity may be withdrawn if:

• The taxpayer violates conditions(e.g., non-payment of taxes).
• Conceals material factsor submits false evidence post-immunity.
• Effect: Prosecution resumes as if immunity was never granted.

5. Key Comparisons

6. Practical Implications

• Strategic Use: Ideal for taxpayers who genuinely cooperatedbut faced abatement due to procedural issues.
• Documentation: Maintain records of disclosures and correspondence with tax authorities.
• Limitation: No immunity for willful fraud(e.g., fake invoices)