Sections 278AB and 278B of Income Tax Act 1961: Immunity from Prosecution and Offences by Companies
Section 278AB provides a special route by which the Principal Commissioner or Commissioner may grant immunity from prosecution in specified cases where settlement proceedings have abated. Section 278B deals with criminal liability where an offence under the Income Tax Act is committed by a company and identifies the company and responsible persons who may be proceeded against.
Section 278AB - Power to grant immunity from prosecution
Section 278AB permits a person to apply to the Principal Commissioner or Commissioner for immunity from prosecution where that person had made an application for settlement under Section 245C and the settlement proceedings abated under Section 245HA.
When can an application under Section 278AB be made?
- The person must have made an application for settlement under Section 245C.
- The settlement proceedings must have abated under Section 245HA.
- The application for immunity cannot be made after prosecution proceedings have been instituted following the abatement.
Conditions for grant of immunity
The Principal Commissioner or Commissioner may grant immunity, subject to conditions considered appropriate, if satisfied that after abatement the applicant cooperated with the income-tax authority and made a full and true disclosure of income and the manner in which that income was derived.
Special proviso for older settlement applications
Where the settlement application under Section 245C was made before 1 June 2007, the proviso to Section 278AB(3) extends the statutory power to grant immunity to offences under the Income Tax Act and, as applicable to the relevant period, the general penal law or another Central Act in force. For a pre-BSA and pre-new-criminal-codes historical analysis, the original reference was to the Indian Penal Code, 1860.
Withdrawal of immunity
Immunity granted under Section 278AB is not necessarily permanent. It stands withdrawn if the person fails to comply with a condition subject to which immunity was granted. The Principal Commissioner or Commissioner may also withdraw immunity if satisfied that, in proceedings after abatement, the person concealed particulars material to the assessment or gave false evidence. The person may then be tried for the offence for which immunity had been granted or another connected offence disclosed by the proceedings.
Section 278B - Offences by companies
Section 278B attributes liability in specified circumstances when an offence under the Income Tax Act is committed by a company. The provision addresses the liability of the company itself, persons in charge of and responsible for its business, and directors, managers, secretaries or other officers whose consent, connivance or neglect is connected with the offence.
Section 278B(1) - Company and persons in charge
Where a company commits an offence, the company and every person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business are deemed guilty and may be proceeded against and punished according to law.
The proviso protects such a person from punishment if the person proves either that the offence was committed without his or her knowledge or that all due diligence was exercised to prevent its commission.
Section 278B(2) - Consent, connivance or neglect
Independently of sub-section (1), where the company's offence is proved to have been committed with the consent or connivance of, or to be attributable to neglect by, a director, manager, secretary or other officer, that person is also deemed guilty and may be proceeded against and punished accordingly.
Section 278B(3) - Punishment of the company
Where an offence committed by a company carries imprisonment and fine, the company itself is punishable with fine. This operates without prejudice to proceedings and punishment, in accordance with the Act, against the responsible individuals covered by sub-sections (1) and (2).
Definitions under Section 278B
| Expression | Statutory meaning |
|---|---|
| Company | A body corporate and, for Section 278B, includes a firm and an association of persons or body of individuals, whether incorporated or not. |
| Director - firm | In relation to a firm, "director" means a partner in the firm. |
| Director - AOP or BOI | In relation to an association of persons or body of individuals, "director" means a member controlling its affairs. |
Key requirements in a company prosecution
Section 278B does not make every director, partner or officer automatically punishable merely because of a designation. The statutory route relied upon must be examined. Under sub-section (1), the relevant question includes whether the person was in charge of and responsible to the company for conduct of its business at the time of the offence. Under sub-section (2), the prosecution concerns consent, connivance or neglect attributable to the specified officer.
Due diligence and absence of knowledge
The proviso to Section 278B(1) expressly permits a person within that sub-section to avoid punishment by proving that the offence occurred without his or her knowledge or that all due diligence was exercised to prevent it. The available evidence will depend on the facts, responsibilities, internal controls and conduct relevant to the alleged offence.
Section 278AB and Section 278B - Different purposes
| Section 278AB | Section 278B |
|---|---|
| Concerns a special statutory power to grant immunity from prosecution after specified settlement proceedings have abated. | Concerns liability where an offence under the Act has been committed by a company. |
| Requires the settlement and abatement conditions specified by the section and an application before prosecution is instituted after abatement. | Examines the company's offence and the statutory basis for liability of persons connected with its business or management. |
| Immunity may be conditional and can be withdrawn in the circumstances specified by the section. | Sub-section (1) includes protection where absence of knowledge or due diligence is proved. |
Evidence law before Bharatiya Sakshya Adhiniyam, 2023
For proceedings governed by the general evidence law before the Bharatiya Sakshya Adhiniyam, 2023 came into force on 1 July 2024, the Indian Evidence Act, 1872 was the general evidence statute, subject to the special provisions of the Income Tax Act and the criminal procedure law then applicable. Relevant material in a Section 278AB matter could include the settlement application, order recording abatement, assessment material, disclosure and cooperation records, immunity application and immunity order. In a Section 278B prosecution, relevant material may include corporate records, partnership documents, board records, allocation of responsibilities, statutory filings, correspondence, accounts and evidence concerning knowledge, due diligence, consent, connivance or neglect.
Prosecution, sanction and compounding
Section 279 contains the statutory framework concerning sanction for prosecution for specified offences and compounding under the Income Tax Act. Where a company and its officers are prosecuted, the requirements of the substantive offence, Section 278B and the applicable sanction must be examined together.
Income-tax Act 2025 transition
The Income-tax Act, 2025 came into force on 1 April 2026. It contains its own prosecution and immunity framework. Historical conduct, proceedings and liabilities arising under the Income Tax Act, 1961 must therefore be considered with the repeal, savings and transition provisions and the statutory law applicable on the relevant dates.
Official references
- Income Tax Acts and official resources - Income Tax Department
- Income Tax Act 1961 as amended by Finance Act 2025 - official PDF
- Section 278AB - Income Tax Department
- Section 278B - Income Tax Department
- Income-tax Act 2025 as amended by Finance Act 2026 - official PDF
- Income Tax e-Filing Portal
- India Code - Central legislation
Important: Section 278AB depends on the statutory history of the settlement proceeding, its abatement and the timing of the immunity application. Section 278B is fact-sensitive and requires examination of the underlying company offence, the role of each accused person and the precise statutory basis on which individual liability is alleged.