[ad_1]
Supreme Court – Daily Orders
Vijay Krishnaswami @ Krishnaswami … vs The Deputy Director Of Income Tax … on 28 August, 2025
Author: J.K. Maheshwari
Bench: J.K. Maheshwari
2025 INSC 1048 REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. OF 2025
(ARISING OUT OF SLP (CRL.) NOS. 3618-3620 OF 2024)
VIJAY KRISHNASWAMI
@ KRISHNASWAMI VIJAYAKUMAR …..APPELLANT(S)
VERSUS
THE DEPUTY DIRECTOR OF
INCOME TAX (INVESTIGATION) ..…
RESPONDENT(S)
JUDGMENT
J.K. MAHESHWARI, J.
1. Leave granted.
2. The appellant invoked the jurisdiction of the High Court 1 in
Crl. OP. No. 28763 of 2018 for quashing of the proceedings of
EOC No. 242 of 2018 initiated by the Revenue, before the
Additional Chief Metropolitan Magistrate (E.O.II), Egmore,
Chennai, for the offence under Section 276C(1) 2 of the Income
Signature Not Verified
Tax Act, 1961, (in short “IT Act”) for assessment year 2017-
Digitally signed by
Gulshan Kumar Arora
Date: 2025.08.28
20:56:48 IST
Reason:
1 High Court of Judicature at Madras.
2 Wilful attempt to evade tax, etc.
1
2018. The High Court vide the impugned judgement dismissed
the quashing petition filed by the appellant. Challenging the
same, he has knocked the doors of this Court preferring the
instant appeals. The consequence of the dismissal of quashing
petition has led to the appellant facing trial for an offence in
which settlement was entered by the Revenue with the appellant,
granting him immunity from levy of penalty.
3. Shorn of unnecessary details, the facts are that, on
24.04.2016, search under Section 132 3 of the IT Act was
conducted at the residence of the appellant, and unaccounted
cash of Rs. 4,93,84,300/- was seized. After taking statement of
the appellant under Section 132(4) of the IT Act, a show-cause
notice was issued on 31.10.2017 as to why prosecution should
not be initiated against him. On assailing the same in the writ
petition filed by the appellant, it was dismissed on 17.11.2017
being premature, observing that issuance of show-cause notice is
an administrative act and in absence of reply, it cannot be
questioned in the writ petition. The said order was put to
challenge in Writ Appeal No. 1617 of 2017 which was dismissed
as infructuous vide order dated 06.09.2020 taking into
3 Search and seizure.
2
consideration the subsequent developments and the order of the
Settlement Commission passed on 26.11.2019. The Division
Bench observed that the complaint filed in furtherance to show-
cause notice was not challenged before the learned Single Judge
in a writ petition, therefore, the said issue cannot be looked into
in this appeal, leaving it open to be decided in the appropriate
proceedings. During pendency, the Principal Director Income Tax
(Investigation), Chennai, (in short “PDIT”) exercised power under
Section 279(1)4 of the IT Act, and vide order dated 21.06.2018,
accorded sanction to Deputy Director of Income Tax
(Investigation), Chennai, (in short “DDIT”) to initiate prosecution
against the appellant. Thereafter, respondent-DDIT filed
complaint on 11.08.2018 against the appellant for an offence
under Section 276C(1) alleging wilful attempt to evade tax with
respect to assessment year 2017-2018 and for not filing the
correct return of income.
4. Being aggrieved, the appellant filed quashing petition under
Section 482 of Code of Criminal Procedure (in short “CrPC”)
being Crl. O.P. No. 28763 of 2018 along with Crl. M.P. Nos. 16786
and 16787 of 2018 praying for quashing of the complaint and
4 Prosecution to be at instance of Principal Chief Commissioner or Chief Commissioner] or
Principal Commissioner or Commissioner.
3
pending proceedings. Pertinently, the appellant also filed an
application under Section 245C 5 of the IT Act on 07.12.2018
before the Settlement Commissioner, Additional Bench, Chennai,
(in short “Settlement Commission”) disclosing the entire
additional income and sought immunity from levy of penalty as
well as prosecution in the matter of alleged evasion of proposed
tax. The Settlement Commission in exercise of powers under
Section 245D(4)6 of IT Act, partly allowed the said application
vide order dated 26.11.2019 and granted immunity from levy of
penalty, refraining itself to grant immunity from prosecution due
to pendency of quashing petition before the High Court of
Madras.
5. By the order impugned, the High Court dismissed the
quashing petition and referring the averments of the complaint
observed that for the assessment year 2017-2018, the amount
seized has not been shown in earnings, which may amount to
evasion of proposed tax. The defence put forth by the appellant
was that the seized amount was an earning of the assessment
year 2016-2017 and not of assessment year 2017-2018 for which
5 Application for settlement of cases.
6 Procedure on receipt of an application under Section 245 C.
4
settlement has been arrived at as per the order of the Settlement
Commission. The said defence did not find favour on the pretext
that it can be taken by the appellant during trial. It was also
observed that the complaint was filed prior and the application
before the Settlement Commission was subsequent, therefore, the
stand of the appellant indicating that the seized amount was
income of the assessment year 2016-2017 may also be looked
into during trial. The question of competence of DDIT to initiate
the prosecution against the appellant under Section 279(1) of the
IT Act also did not turn in favour of the appellant in the order
impugned.
ARGUMENTS OF THE APPELLANT
6. Mr. Preetesh Kapur, learned senior counsel for the appellant
has strenuously urged that the order passed by the Settlement
Commission in exercise of power under Sub-Section (4) of Section
245D shall be conclusive unless reopened as per Section 245D(6)
within the time specified in sub-section (6B) of IT Act. In the
present case, on receiving an application under Section 245C, the
Settlement Commission passed an order granting immunity
against levy of penalty in favour of the appellant, though rejected
5
the plea for immunity from prosecution due to pendency of quash
petition before the High Court. It is urged that the order of the
Settlement Commission is conclusive in terms of Section 245-I 7,
with respect to the matters specified therein.
7. It is further urged that the guidelines dated 24.04.2008
issued by Ministry of Finance, Government of India, for
‘streamlining the procedure and to identify the cases for
processing to lodge prosecution under Direct Tax law – matter
reg.’, (in short “2008 circular”), has not been complied with by
DDIT. Referring to clause (iii), it is said that in all cases where
the penalty under Section 271(1)(C) exceeding Rs. 50,000/- is
imposed and confirmed by Income Tax Appellate Tribunal (in
short “ITAT”), the complaints may be filed within a period of 60
days of the receipt of the order of ITAT and not prior. Further, as
per the ‘Prosecution Manual, 2009’, Clause 1.4 of Chapter III
clearly stipulates when can prosecution be initiated. As per the
Manual, it was advised that the initiation of prosecution under
Section 276C(1) shall be only after confirmation of concealment
and penalty by the ITAT. Recently on 09.09.2019, the Ministry of
Finance, Government of India, issued another notification laying
7 Order of settlement to be conclusive.
6
down ‘procedure for identification and processing of cases for
prosecution under Direct Tax Laws-reg.’ (in short “2019
circular’), whereby if the tax liability is below Rs. 25 lakhs, such
cases shall not be processed for prosecution except with the
previous administrative approval of the Collegium consisting of
CCIT/DGIT rank officers and only after confirmation of the order
imposing penalty by the ITAT.
8. In the instant case, the prosecution is with respect to the
assessment year 2017-2018. As per the order of the Settlement
Commission, the total undisclosed income has been shown as Rs.
61,50,000/-, to which the tax liability would come to less than
Rs. 25 lakhs, therefore, without the permission of the Collegium,
lodging of prosecution for the allegation below the said threshold
lacked competence. Lastly, it is urged that after grant of immunity
from the penalty by the Settlement Commission, continuation of
the prosecution in violation of the guidelines would amount to
gross abuse of the process of law, therefore, order impugned
passed by the High Court may be set-aside quashing the
complaint lodged by Revenue.
ARGUMENTS OF THE RESPONDENTS
7
9. Per contra, Ms. Nisha Baghchi, learned senior counsel for
the revenue has vociferously contended that the complaint was
filed by the respondent-DDIT prior to filing of application under
Section 245C of the IT Act, therefore, in terms of the first proviso
to Section 245H(1)8, appellant cannot be given any immunity
from the prosecution. It is urged that the prosecution under
Section 276C(1) against a person is for wilful attempt to evade
any tax imposable or penalty or interest chargeable under the IT
Act, and is penal in nature. In the facts of the present case,
unaccounted cash was found at the residence of the appellant
which was not disclosed in the return of the assessment year
2017-2018. Therefore, even after passing an order by the
Settlement Commission, prosecution initiated prior to filing an
application under Section 245C of IT Act are saved from granting
immunity and can be proceeded with, however, the High Court
was justified in dismissing the quash petition filed by the
appellant.
ISSUES FOR CONSIDERATION
8 Power of Settlement Commission to grant immunity from prosecution and penalty.
8
10. On the basis of the submissions as advanced by the learned
senior counsel for the parties, in our view on the facts, the
following questions fall for consideration:
i) Whether continuation of the prosecution initiated by the
revenue under Section 276C(1) against the appellant
after passing an order by the Settlement Commission,
would amount to abuse of process of Court?
ii) Whether in the facts of the present case, the High Court
was justified to dismiss the quashing petition filed by
the appellant, and if not, what relief can be granted?
ANALYSIS AND APPRECIATION
11. Since both the said questions are inter-connected, therefore,
the facts and legal points are appreciated simultaneously. In this
relation, some of the relevant provisions of the IT Act are required
to be referred, which are reproduced as under –
“276C. Wilful attempt to evade tax, etc.—(1) If a person
wilfully attempts in any manner whatsoever to evade any tax,
penalty or interest chargeable [or imposable, or under reports his
income,] under this Act, he shall, without prejudice to any penalty
that may be imposable on him under any other provision of this
Act, be punishable,—
(i) in a case where the amount sought to be evaded [or
tax on under-reported income] exceeds [twenty-five
hundred thousand rupees], with rigorous imprisonment for
9
a term which shall not be less than six months but which
may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a
term which shall not be less than three months but which
may extend to [two years] and with fine.
(2) If a person wilfully attempts in any manner whatsoever to
evade the payment of any tax, penalty or interest under this Act,
he shall, without prejudice to any penalty that may be imposable
on him under any other provision of this Act, be punishable with
rigorous imprisonment for a term which shall not be less than
three months but which may extend to [two years] and shall, in
the discretion of the court, also be liable to fine.
Explanation.—For the purposes of this section, a wilful attempt
to evade any tax, penalty or interest chargeable or imposable
under this Act or the payment thereof shall include a case where
any person—
(i) has in his possession or control any books of
account or other documents (being books of account or
other documents relevant to any proceeding under this Act)
containing a false entry or statement; or
(ii) makes or causes to be made any false entry or
statement in such books of account or other documents; or
(iii) wilfully omits or causes to be omitted any relevant
entry or statement in such books of account or other
documents; or
(iv) causes any other circumstance to exist which will
have the effect of enabling such person to evade any tax,
penalty or interest chargeable or imposable under this Act
or the payment thereof.”
12. From the above, it is clear that Section 276C deals with two
situations. Sub-section (1) pertains to a wilful attempt to evade
tax, penalty, or interest that is ‘chargeable’, ‘imposable’, or related
10
to ‘under-reporting of income’. In contrast, sub-section (2)
addresses the wilful attempt to evade the ‘payment’ of any tax,
penalty, or interest under the Act. Therefore, both sub-sections
operate in separate spheres and different stages. The
fundamental distinction between the applicability of sub-section
(1) and sub-section (2) lies to the stage at which the offence
allegedly occurs. Section 276C(1) is primarily intended to deter
and penalize wilful and deliberate attempts by an assessee for
evasion of taxes, penalties and interest prior to their imposition
or charging. The provision applies where there is a conscious and
intentional effort to evade tax liability, distinguishing such
conduct from bona-fide errors or differences in interpretation.
The gist of the offence under sub-section (1) of Section 276C lies
in the wilful attempt to evade the very imposition of liability, and
what is made punishable under this sub-section is not the
‘actual evasion’ but the ‘wilful attempt’ to evade as described in
the proviso to Section 276C.
13. For the allegations as alleged against appellant, prosecution
under Section 279(1) was initiated by respondent-DDIT in
accordance with sanction given by PDIT. The appellant also
challenged the jurisdiction of the DDIT before the High Court,
11
contending that she was not competent to initiate prosecution
under Section 279(1) of the IT Act. In the said context, it is
relevant to refer Section 279 of IT Act, which is reproduced below
for ready reference as thus:
“279. Prosecution to be at instance of Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner. —(1) A person shall not be proceeded against for an offence
under section 275A, [ section 275B,] section 276, section 276A,
section 276B, section 276BB, section 276C, section
276CC,section 276D, 7[section 277 , section 277A or section
278] except with the previous sanction of the [Principal
Commissioner or Commissioner] or Commissioner (Appeals) or
the appropriate authority:
Provided that the [Principal Chief Commissioner or Chief
Commissioner] or, as the case may be, [Principal Director
General or Director] General may issue such instructions or
directions to the aforesaid income-tax authorities as he may
deem fit for institution of proceedings under this sub-section.
Explanation.—For the purposes of this section, “appropriate
authority” shall have the same meaning as in clause (c) of
section 269UA.](1A) A person shall not be proceeded against for an offence
under section 276C or section 277 in relation to the assessment
for an assessment year in respect of which the penalty imposed
or imposable on him under [section 270A or] clause (iii) of sub-
section (1) of section 271 has been reduced or waived by an
order under section 273A.]
(2) Any offence under this Chapter may, either before or after
the institution of proceedings, be compounded by the [Principal
Chief Commissioner or Chief Commissioner] or a [Principal
Director General or Director General].
12
(3) Where any proceeding has been taken against any person
under sub-section (1), any statement made or account or other
document produced by such person before any of the income-tax
authorities specified in [clauses (a) to (g)] of section 116 shall
not be inadmissible as evidence for the purpose of
such proceedings merely on the ground that such statement
was made or such account or other document was produced in
the belief that the penalty imposable would be reduced or
waived, [under section 273A] or that the offence in respect of
which such proceeding was taken would be compounded.
[Explanation.—For the removal of doubts, it is hereby declared
that the power of the Board to issue orders, instructions or
directions under this Act shall include and shall be deemed
always to have included the power to issue instructions or
directions (including instructions or directions to obtain the
previous approval of the Board) to other income-tax authorities
for the proper composition of offences under this section.]”
14. From the above, in addition to the other offences, looking to
the allegations of the present case, the prosecution under Section
276C may be lodged with permission of the PDIT. Sub-section (1)
(a) creates a bar that the person shall not be proceeded under
Section 276C in relation to the assessment for the assessment
year of which penalty imposed or imposable on him, has been
reduced or waived.
15. It is also pertinent to refer that the IT Act envisages a robust
settlement mechanism under Chapter XIXA, which is titled –
‘Settlement of Cases’. It was inserted by means of the Taxation
Laws (Amendment) Act, 1975 (41 of 1975) w.e.f. 01.04.1976. The
13
said amendment was brought pursuant to the recommendations
of the ‘Direct Taxes Enquiry Committee’, popularly known as the
‘Wanchoo Committee’, report of December, 1971. ‘Chapter 2’ of
the said report, titled ‘Black Money and Tax Evasion’, in
particular paragraphs 2.32 to 2.34 can be gainfully referred to in
order to understand the intent and purpose behind setting up a
settlement mechanism under the IT Act:
“Settlement Machinery
2.32 This, however, does not mean that the door for
compromise with an errant taxpayer should forever remain
closed. In the administration of fiscal laws, whose primary
objective is to raise revenue, there has to be room for
compromise and settlement. A rigid attitude would not only
inhibit a one-time tax-evader or an unintending defaulter from
making a clean breast of his affairs, but would also
unnecessarily strain the investigational resources of the
Department in cases of doubtful benefit to revenue, while
needlessly proliferating litigation and holding up collections. We
would, therefore, suggest that there should be a provision in the
law for a settlement with the taxpayer at any stage of the
proceedings. In the United Kingdom, the ‘confession’ method has
been in vogue since 1923. In the U.S. law also, there is a
provision for compromise with the taxpayer as to his tax
liabilities. A provision of this type facilitating settlement in
individual cases will have this advantage over general
disclosure schemes that misuse thereof will be difficult and the
disclosure will not normally breed further tax evasion. Each
individual case can be considered on its merits and full
disclosures not only of the income but of the modus operandi of
its buildup can be insisted on, thus sealing off chances of
continued evasion through similar practices.
14
2.33 To ensure that the settlement is fair, prompt and
independent, we would suggest that there should be a high-
level machinery for administering the provisions, which would
also incidentally relieve the field officer of an onerous
responsibility and the risk of having to face adverse criticism
which, we are told, has been responsible for the slow rate of
disposal of disclosure petitions. We would, therefore,
recommend that settlements may be entrusted to a separate
body within the Department, to be called the Direct Taxes
Settlement Tribunal. It will be a permanent body with three
members. The strength of the Tribunal can be increased later,
depending on the work-load. To ensure impartial and quick
decisions, and to encourage officers with integrity and wide
knowledge and experience to accept assignments on the
Tribunal, we recommend that its members should be given the
same status and emoluments as the members of the Central
Board of Direct Taxes.
Any taxpayer will be entitled to move a petition before the
Tribunal for settlement of his liability under the direct tax laws.
We do not think that it is necessary to provide for cases being
referred to the Tribunal by the Department. However, we wish
to emphasize that the Tribunal will proceed with the petition
filed by a taxpayer only if the Department raises no objection to
its being so entertained. We consider that this will be a salutary
safeguard, because otherwise the Tribunal might become an
escape route for tax evaders who have been caught and who
are likely to be heavily penalised or prosecuted. Once a case is
admitted for adjudication, the Tribunal will have exclusive
jurisdiction over it and it will no longer be open to the taxpayer
to withdraw the petition. The Tribunal will take a decision after
hearing both the assessee and the Department. The Tribunal
should be vested with full powers as regards discovery and
inspection, enforcing the attendance of any person, compelling
production of books of account or any other documents and
issuing commissions. It should also have the power to
investigate cases by itself or, in the alternative, to have
investigation carried out on any specific point or generally, in
any case through the Income-tax Department. The terms of the
award will be set down in writing and it will be open to the
Tribunal to determine not only the amount of tax, penalty or
interest but also to fix a date or dates of payment. The quantum
15
of penalty and interest will be in the discretion of the Tribunal.
Similarly, the Tribunal may also in its discretion grant immunity
from criminal prosecution in suitable cases. The award will be
binding both on the petitioner and on the Department. The
application of its decisions on questions of law, will, however,
be confined to the case under settlement and will not in any
way interfere with the interpretation of law in general. No
appeal will lie against the decision of the Tribunal by the
petitioner or the Department, whether on questions of fact or of
law.
2.34 The success of this measure will, to a very large
extent, depend on the confidence which this Tribunal can
inspire in the minds of the taxpayers as to its fairness and
impartiality. For this reason, we consider it to be of paramount
importance that only persons who are known for their integrity
and high sense of justice and fairness are selected for
appointment on the Tribunal.”
16. In furtherance to recommendations of the Wanchoo
Committee, an amendment was brought adding Section 245H,
specifying the power of the Settlement Commission to grant
immunity from prosecution and penalty. The said provision is
relevant, therefore, reproduced as thus:
“245H. Power of Settlement Commission to grant
immunity from prosecution and penalty.— (1) The
Settlement Commission may, if it is satisfied that any person
who made the application for settlement under section 245C
has co-operated with the Settlement Commission in the
proceedings before it and has made a full and true disclosure of
his income and the manner in which such income has been
derived, grant to such person, subject to such conditions as it
may think fit to impose [for the reasons to be recorded in
writing], immunity from prosecution for any offence under this
Act or under the Indian Penal Code (45 of 1860) or under any
other Central Act for the time being in force [and also (either16
wholly or in part) from the imposition of any penalty] under this
Act, with respect to the case covered by the settlement:
[Provided that no such immunity shall be granted by the
Settlement Commission in cases where the proceedings for the
prosecution for any such offence have been instituted before the
date of receipt of the application under section 245C:][Provided further that the Settlement Commission shall not
grant immunity from prosecution for any offence under the
Indian Penal Code (45 of 1860) or under any Central Act other
than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a
person who makes an application under section 245C on or
after the 1st day of June, 2007.]
17. Bare reading of the above and the recommendations of the
Wanchoo Committee, it is clear that the assessee from whom the
recovery of the unaccounted money has been allegedly reported,
may apply before the Settlement Commission disclosing full and
true income and the manner in which such income was derived.
On such application, the Commission as it thinks fit, may grant
immunity from penalty and prosecution of any offence under the
IT Act or under the Indian Penal Code or under any other Central
Act on such terms and conditions with respect to the subject
matter covered under the settlement. Indeed, the proviso to
Section 245H(1) is an exception from granting immunity in case
where the complaint has been lodged before the date of receipt of
application for settlement. At the same time, we cannot lose sight
that the prosecution in either situation of Section 276C(1) ought
17
to be for wilful attempt to evade or pay tax. On literal
construction of the first proviso, the prosecution initiated before
the date of receipt of the application under Section 245C is saved,
and the second proviso restrict the Settlement Commission to
grant immunity from the prosecution as specified therein.
18. The aforesaid provisions do not, in any manner, affect the
basic principles of criminal law that the prosecution has to prove
the case on its own. In the facts, for an offence under Section
276C(1), for which a prosecution was lodged, wilful attempt to
evade tax or penalty, which may be imposable or chargeable,
mens rea of the assessee is required to be proved. In absence,
lodging such prosecution would result into futility. Therefore, the
ancillary question which arises is about the efficacy of the
continuation of the complaint lodged, even though saved under
the first proviso to Section 245H, hampering the power of the
Settlement Commission to grant immunity from prosecution.
19. Mr. Preetesh Kapur, learned senior counsel, submits that as
per the order of the Settlement Commission, it is clear that the
assessee has disclosed all the facts, material for computation of
his additional income without any suppression of account,
18
therefore, in exercise of order passed under Section 245D(4),
immunity from levy of penalty was granted. It is not a case
wherein due to the fraud or misrepresentation, the case of the
appellant was reopened as per Section 245D(6) within the time as
specified. In such circumstances, there cannot be any mens rea
or wilful attempt to evade tax, which may be brought against the
appellant to prove the allegation as alleged by prosecution.
Learned senior counsel referring to Section 245-I of the IT Act
submits, the order of the Settlement Commission shall be
conclusive as to the matters stated therein. Section 245-I is
relevant, which reads thus:
“245-I. Order of settlement to be conclusive.—Every
order of settlement passed under sub-section (4) of section
245D shall be conclusive as to the matters stated therein
and no matter covered by such order shall, save as
otherwise provided in this Chapter, be reopened in any
proceeding under this Act or under any other law for the
time being in force.”
20. Perusing the backdrop, from the recommendations of
Wanchoo Committee till the date amendment was brought
introducing Section 245H in the IT Act granting power of
immunity to Settlement Commission, the Revenue was facing the
challenge of minimal prosecution and also for effectively proving
19
the prosecution, what recourse ought to be taken was an issue
before them. Simultaneously, the assessee who in bona-fide
manner had disclosed the excess earning specifying the source
without any suppression, were facing unnecessary prosecution.
Therefore, to streamline the said situation the revenue has issued
guidelines time and again. In the guidelines, it was specified that
when an assessee is making an attempt to evade tax or its
payment or penalty, if established, it is incumbent on the officers
of the revenue to lodge the prosecution. In this regard, circular
dated 24.04.2008 was published. Clause 3.3.1(iii) of the said
circular deals with the offences under Section 276C(1) of IT Act.
The relevant clause of the said circular is reproduced as under: –
“(iii) Offences u/s 276C(1): Wilful attempt to evade taxes
All cases where penalty u/s 271(1)(C) exceeding
Rs.50,000/- is imposed and confirmed by the ITAT (if any
second appeal has been filed) shall be processed for filing
prosecution complaint.
The case for prosecution under this section shall be
processed by the A.O. preferably within 60 days of receipt of the
ITAT’s order, if any.”The intent of the above scheme is indicative of the fact that
the Department shall proceed to file prosecution/complaint only
in those cases wherein penalty exceeding Rs. 50,000/- has been
imposed by ITAT, within 60 days from the date of order of ITAT.
20
21. The Directorate of Income Tax, (PR PP & OL) has also
published the Prosecution Manual, 2009, prescribing the
‘procedure for launching prosecution’. In Clause 1.4 of Chapter
III, specifying when the prosecution can be initiated. The said
clause is relevant hence reproduced as under:
“1.4 When can prosecution be initiated?
A case should be processed for launching prosecution
immediately after the commission of offence comes to the notice
of the authority concerned. However, if some more evidences
can be gathered during any proceedings, it would be advisable
to complete such proceedings to gather all relevant evidences
before initiating the prosecution. The Apex Court has laid down
that if penalty for concealment fails then the prosecution
initiated on same material/basis must also fail (M/s K.C.
Builders Ltd Vs CIT [265 ITR 344]). Therefore, it is advisable to
initiate prosecution under section 276C(1) only after
confirmation of concealment penalty by the ITAT.
xx xx xx xx”
22. The said guideline was based on a judgment of ‘M/s K.C.
Builders Ltd. Vs. CIT’9, wherein this Court laid down that if
penalty for concealment fails, the initiation of the prosecution on
the basis of the same material also fails, therefore, it was advised
that after confirmation of concealment of penalty by ITAT, the
prosecution may be lodged in terms as specified in the above
circular dated 24.04.2008.
9 (2004) 2 SCC 731
21
23. Similarly, on 09.09.2019, the Central Board of Direct Taxes
(in short “CBDT”) in exercise of power under Section 119 of IT
Act issued clarification qua the criteria to be followed for
launching prosecution in respect of certain categories of offence
under the IT Act, including Section 276C(1). The relevant portion
is referred as under –
“iii. Offences u/s 276C(1): Wilful attempt to evade tax,
etc.
Cases where the amount sought to be evaded or tax on
under-reported income is Rs. 25 Lakhs or below, shall not be
processed for prosecution except with the previous
administrative approval of the Collegium of two CCIT/DGIT
rank officers as mentioned in Para 3.
Further, prosecution under this Section shall be launched
only after the confirmation of the order imposing penalty by the
Income Tax Appellate Tribunal.”
24. As such, the departmental circular dated 24.04.2008,
Prosecution Manual, 2009, and CBDT’s circular dated
09.09.2019, provide when the prosecution ought to be lodged by
Revenue. The said Circulars have been issued to regulate the
lodging of prosecution in genuine cases and to weed out the
problems of the tax payers, and also to understand when can the
prosecution for Section 276 ought to be lodged and continued.
The said circular and clarification have been brought after the
statutory scheme of Section 245H(1) and the appended proviso.
22
In this situation, it is imperative for us to understand the binding
nature of the departmental circular, Prosecution Manual, 2009,
and CBDT’s clarification.
25. Reflecting on the said issue, in ‘Ranadey Micronutrients
Vs. CCE’10, while dealing with a case concerning interpretation of
circulars providing for classification of micronutrients for the
purpose of imposition of excise duty, this Court held –
“15. There can be no doubt whatsoever, in the
circumstances, that the earlier and later circulars were issued
by the Board under the provisions of Section 37-B, and the fact
that they do not so recite does not mean that they do not bind
Central Excise officers or become advisory in character. There
can be no doubt whatsoever that after 21-11-1994, excise duty
could be levied upon micronutrients only under the provisions of
Heading 31.05 as “other fertilisers”. If the later circular is
contrary to the terms of the statute, it must be withdrawn. While
the later circular remains in operation the Revenue is bound by
it and cannot be allowed to plead that it is not valid.
16. We reject the submission to the contrary made by
the learned counsel for the Revenue and in the affidavit by M.K.
Gupta, working as Director in the Department of Revenue,
Ministry of Finance. One should have thought that an officer of
the Ministry of Finance would have greater respect for circulars
such as these issued by the Board, which also operates under
the aegis of the Ministry of Finance, for it is the Board which is,
by statute, entrusted with the task of classifying excisable
goods uniformly. The whole objective of such circulars is to
adopt a uniform practice and to inform the trade as to how a
particular product will be treated for the purposes of excise
duty. It does not lie in the mouth of the Revenue to repudiate a
circular issued by the Board on the basis that it is inconsistent
with a statutory provision. Consistency and discipline are of far
10 (1996) 10 SCC 387
23
greater importance than the winning or losing of court
proceedings.”
26. Further, in ‘Paper Products Ltd. Vs. CCE’11, where the
dispute related to classification of products for the purpose of tax,
in the context of circulars issued and in that regard, this Court
observed as thus –
“4. The question for our consideration in these appeals is :
what is the true nature and effect of the circulars issued by the
Board in exercise of its power under Section 37-B of the Central
Excise Act, 1944? This question is no more res integra in view of
the various judgments of this Court. This Court in a catena of
decisions has held that the circulars issued under Section 37-B
of the said Act are binding on the Department and the
Department cannot be permitted to take a stand contrary to the
instructions issued by the Board. These judgments have also
held that the position may be different with regard to an
assessee who can contest the validity or legality of such
instructions but so far as the Department is concerned, such
right is not available.”
27. Likewise, in ‘UCO Bank Vs. CIT’12, this Court while dealing
with the question as to whether there can be interest on the loan
whose recovery is doubtful, and whether such can be included in
the income of the assessee, observed as under –
“12. A similar view of CBDT circulars has been taken in
the case of K.P. Varghese v. ITO [(1981) 4 SCC 173 (at p. 188)]
by a Bench of two Judges consisting of P.N. Bhagwati and E.S.
Venkataramiah, JJ. The Bench has held that circulars of the
Central Board of Direct Taxes are legally binding on the
Revenue and this binding character attaches to the circulars
11 (1999) 7 SCC 84
12 (1999) 4 SCC 599
24
even if they be found not in accordance with the correct
interpretation of the section and they depart or deviate from
such construction. Citing the decision of Navnit Lal C. Javeri v.
K.K. Sen [AIR 1965 SC 1375] this Court observed that circulars
issued by the Central Board of Direct Taxes under Section 119
of the Act are binding on all officers and persons employed in
the execution of the Act even if they deviate from the provisions
of the Act. In Keshavji Ravji and Co. v. CIT [(1990) 2 SCC 231] a
Bench of three Judges of this Court has also taken the view that
circulars beneficial to the assessee which tone down the rigour
of the law and are issued in exercise of the statutory powers
under Section 119 are binding on the authorities in the
administration of the Act. The benefit of such circulars is
admissible to the assessee even though the circulars might have
departed from the strict tenor of the statutory provision and
mitigated the rigour of the law. This Court, however, clarified
that the Board cannot pre-empt a judicial interpretation of the
scope and ambit of a provision of the Act. Also a circular cannot
impose on the taxpayer a burden higher than what the Act
itself, on a true interpretation, envisages. The task of
interpretation of the laws is the exclusive domain of the courts.
However, the Board has the statutory power under Section 119
to tone down the rigour of the law for the benefit of the assessee
by issuing circulars to ensure a proper administration of the
fiscal statute and such circulars would be binding on the
authorities administering the Act.”
28. The Constitution Bench in the case of ‘Commissioner of
Central Excise, Bolpur Vs. Ratan Melting & Wite Industries,13
on a reference made by three Judge Bench, addressing the
conflict of difference of interpretation of a circular by the Central
Board of Excise and Customs, and by this Court coupled with
binding nature of the same, observed as follows –
13 (2008) 13 SCC 1
25
“7. Circulars and instructions issued by the Board are no
doubt binding in law on the authorities under the respective
statutes, but when the Supreme Court or the High Court
declares the law on the question arising for consideration, it
would not be appropriate for the court to direct that the circular
should be given effect to and not the view expressed in a
decision of this Court or the High Court. So far as the
clarifications/circulars issued by the Central Government and
of the State Government are concerned they represent merely
their understanding of the statutory provisions. They are not
binding upon the court. It is for the court to declare what the
particular provision of statute says and it is not for the
executive. Looked at from another angle, a circular which is
contrary to the statutory provisions has really no existence in
law.”
29. Similarly, in ‘J.K. Lakshmi Cement Limited Vs.
Commercial Tax Officer, Pali’14, this Court while dealing with a
case where the assessee was a cement company seeking
advantage of a 1986 notification granting partial tax exemption
and a 2000 notification offering a lower tax rate of 6% but also
explicitly stating that any dealer using its benefit would be
ineligible for the 1986 exemption, harmoniously construed both
and observed that circulars are binding on tax authorities. The
Court observed as follows –
“31. Circulars issued under tax enactments can tone
down the rigour of law, for an authority which wields power for
its own advantage is given right to forego advantage when
required and considered necessary. This power to issue
circulars is for just, proper and efficient management of the
work and in public interest. It is a beneficial power for proper
14 (2016) 16 SCC 213
26
administration of fiscal law, so that undue hardship may not be
caused. Circulars are binding on the authorities administering
the enactment but cannot alter the provision of the enactment,
etc. to the detriment of the assessee. Needless to emphasize
that a circular should not be adverse and cause prejudice to the
assessee. (See UCO Bank v. CIT [UCO Bank v. CIT, (1999) 4
SCC 599])”
30. In the recent pronouncement of this Court in
‘Commissioner of Central Excise and Service Tax, Rohtak
Vs. Merino Panel Product Limited’15, in an appeal against order
passed by CESTAT which had set-aside the show-cause notice
issued by the Revenue, placing reliance on the judgements in
Ranadey (supra) and Paper Products Ltd. (supra) and
considering the binding nature of circulars, in paragraph 22
observed as follows:
“22. Thus, the starting point of our analysis on this
question is that the CBEC Circular of 1-7-2002 is binding on the
Revenue. If the show-cause notice issued by the Revenue is
found to be contrary to the Circular, it would prima facie result
in abrogation of the uniformity and consistency which is
strongly emphasised upon in Ranadey Micronutrients [Ranadey
Micronutrients v. CCE, (1996) 10 SCC 387] . It goes without
saying that the Revenue’s stance against its own circular can
potentially lead to a chaotic situation where, with one hand, the
Revenue would lay down instructions on how to interpret the
relevant statutes and rules, and with the other hand, it would
promptly disobey those very directions. Maintaining
predictability in taxation law is of utmost importance and, for
this reason, the Court should not accept an argument by the15 (2023) 2 SCC 597
27
Revenue that waters down its own Circular as this would fall
squarely within the contours of the prohibition outlined in Paper
Products [Paper Products Ltd. v. CCE, (1999) 7 SCC 84].”
31. From the above precedents, this Court unambiguously held
that that the circulars issued by the Revenue are binding on the
authorities, and can tone down the rigour of the statutory
provision. Therefore, it can be concluded that the circulars as
discussed above are binding on the authorities who are
administering the provisions of the IT Act.
32. After perusal of the provisions of the IT Act, various
circulars issued by the department and also the judgments
referred hereinabove, it can be safely culled out that if an
assessee has made suppression of income without disclosing the
manner in which the excess amount was earned and concealed
the account making wilful attempt to evade the tax which may be
imposable and chargeable or payable, he/she is required to be
prosecuted. Therefore, the recourse to lodge prosecution was
made permissible subject to the department’s circular dated
24.04.2008 which provided for confirmation by ITAT in case the
penalty imposed under Section 276C(1) is exceeding Rs.
50,000/-. It is relevant here to note that the said circular was in
28
vogue on the date of the grant of sanction by PDIT to DDIT for
lodging the prosecution against the appellant. The said circular
has been reaffirmed by the Prosecution Manual, 2009 and the
clarification issued by the CBDT in 2019. As such, the circulars
discussed above, were binding on the authorities and required to
be adhered to while lodging the prosecution by the Revenue.
33. Admittedly, in the present case, the complaint was filed by
DDIT after sanction of PDIT before the Additional Chief
Metropolitan Magistrate (E.O.II), Egmore, Chennai, on
11.08.2018. Application under Section 245(C) was filed by the
appellant before the Settlement Commission later. On the date of
lodging the prosecution, the finding of concealment of income or
imposition of the penalty of more than Rs. 50,000/- has not been
recorded by the ITAT. Nothing has been brought on record to
show that any wilful attempt to evade the payment of tax by
assessee was made. No explanation has been put forth by
Revenue to demonstrate as to why PDIT or DDIT did not comply
the procedure while lodging prosecution in this case. Therefore,
in our view, the act of the authority in continuing prosecution is
in blatant disregard to their own binding circular dated
24.04.2008 and in defiance to the guidelines of the Department.
29
34. In contradistinction, the Settlement Commission passed an
order under Section 245D(4) on 26.11.2019. The said order is
relevant, therefore, reproduced as thus:
“GOVERNMENT OF INDIA
INCOME TAX SETTLEMENT COMMISSION
ADDITIONAL BENCH
640, ANNA SALAI, NANDANAM, CHENNAI-600 035.
******
PROCEEDINGS BEFORE THE ADDITIONAL BENCH OF THE
INCOME TAX SETTLEMENT COMMISSION, CHENNAI
———————————————————————————————–
–
Settlement Application No. : TN/CN54/2018-19/53-IT
Date of filing of the application : 07.12.2018
———————————————————————————————–
–
xx xx xx xx
PRAYER:
Immunity from penalty and prosecution
6.1 The applicant has prayed for grant of immunity from levy
of penalty and prosecution. It could be seen that proceedings
u/s 276C(1) of the Income Tax Act, 1961 are pending before the
Hon’ble High Court of Madras. In the circumstances, the
applicant cannot be granted immunity waiver from prosecution,
for the assessment years which are settled in this order.
6.2 However, the applicant has co-operated during the
settlement proceedings. The applicant has disclosed all the
facts, material to the computation of his additional income.
Thus, the applicant has fully satisfied the provisions of section
245H. The overall additional income is not on account of any
suppression of any material facts in the application. The
additional income offered does not disclose any variance from
the manner in which the additional income had been earned.
Hence, the applicant is entitled to immunity from penalties
under the Income-tax Act for the assessment years which are
settled in this order.
30
6.3 Immunity granted to the applicant by this order may be
withdrawn, if he fails to pay including interest within the time
and the manner as specified in this order or fails to comply with
other conditions, if any, subject to which the immunity is
granted and, thereupon, the provisions of the Income-tax Act
shall apply as if such immunity had not been granted.
6.4 Immunity granted to the applicant, may at any time be
withdrawn, if the Commission is satisfied that the applicant
had, in the course of settlement proceedings, concealed any
particulars, material to the settlement or had given false
evidence and, thereupon, the applicant may be tried for the
offence with respect to which the immunity was granted or for
any other offence of which the applicant appear to have been
guilty in connection with the settlement, and the applicant shall
become liable to the imposition of any penalty and/or
prosecution under the Act, to which the applicant would have
been liable had not such immunity been granted.
7. The order shall be void u/s 245D(6) if it is subsequently
found that it has been obtained by fraud or misrepresentation
of facts.
Sd- Sd-
(ASHOK KUMAR SINHA) (T.P. KRISHNAKUMAR)
MEMBER VICE CHAIRMAN
Date: 26.11.2019
xx xx xx xx”
35. Perusal of the said order makes it clear that in the
settlement proceedings, assessee has disclosed all the facts
material to the computation of his additional income and fully
satisfied the provisions of Section 245H. The Commission
recorded a finding that overall additional income is not on
account of any suppression of any material facts and it does not
31
disclose any variance from the manner in which the said income
had been earned. As such the immunity from penalty under IT
Act was granted in exercise of powers under Section 245H. From
perusal of Section 245-I, it is clear that every order of settlement
shall be conclusive as to the matters stated therein and no matter
covered by such order shall, save as otherwise provided, be
reopened in any proceeding under the Act or under any other law
for the time being in force.
36. In view of the foregoing discussions in conclusion we can
safely hold that the prosecution lodged with the help of proviso to
sub-section (1) to Section 245H was in defiance to the circular
dated 24.04.2008, which was in vogue. It was the duty of the
PDIT and DDIT to look into the facts that in absence of any
findings of imposition of penalty due to concealment of fact, the
said prosecution cannot be proved against the assessee. It seems,
even after passing the order by the Settlement Commission on
26.11.2019, it was brought to the notice of the High Court, but
the authorities were persistent to pursue the prosecution without
looking into the procedural lapses on their part. Such an act
cannot be construed in right perspective and the Revenue have
acted in blatant disregard to binding statutory instructions. Such
32
willful non-compliance of their own directives reflects a serious
lapse, and undermines the principles of fairness, consistency,
and accountability, which in any manner cannot be treated to be
justified or lawful.
37. It must also be noted that, in terms of Section 245-I, the
findings of the Settlement Commission are conclusive with
respect to the matters stated therein. Once such an order was
passed, it was incumbent upon the authorities to inform the High
Court that continuation of the prosecution would amount to an
abuse of the process of law, in particular when the Settlement
Commission did not record any finding of wilful evasion of tax by
the appellant. Even otherwise, it was the duty of the High Court
to examine the facts of the case in their right context and assess
whether, in light of the above circumstances, the continuation of
the prosecution would serve any meaningful purpose in
establishing the alleged guilt. Upon a holistic consideration of the
matter, we are of the view that the conduct of the authorities
lacks fairness and reasonableness, and the High Court’s
approach appears to be entirely misdirected, having failed to
appreciate the factual and legal position in right earnest.
33
38. In view of the foregoing discussions, we are constrained to
allow these appeals setting aside the order impugned passed by
the High Court. It is directed that prosecution lodged by the
Revenue against the appellant shall stand quashed. In the facts
and circumstances of the case as discussed hereinabove, we are
inclined to impose costs against the Revenue which is quantified
at Rs. 2,00,000/- payable to the appellant. Pending
application(s), if any, shall stand disposed of.
..………….……………….J.
(J.K. MAHESHWARI)
..………….……………….J.
(VIJAY BISHNOI)
NEW DELHI;
AUGUST 28th, 2025.
34
[ad_2]
Source link