The Supreme Court has imposed the cost of Rs. 2 Lakhs on the income tax department for initiating prosecution for tax evasion without ITAT confirmation.
The bench of Justice J.K. Maheshwari and Justice Vijay Bishnoi has observed that no explanation has been put forth by the department to demonstrate as to why PDIT or DDIT did not comply with the procedure while lodging prosecution in this case.
“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,” the bench said.
On 24.04.2016, search under Section 1323 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 a 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 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, (PDIT) exercised power under Section 279(1) of the IT Act, and vide order dated 21.06.2018, accorded sanction to Deputy Director of Income Tax (Investigation), Chennai, (DDIT) to initiate prosecution against the appellant. The 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.
The appellant filed quashing petition under Section 482 of Code of Criminal Procedure (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 pending proceedings. Pertinently, the appellant also filed an application under Section 245C of the IT Act on 07.12.2018 before the Settlement Commissioner, Additional Bench, Chennai, (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) of IT Act, partly allowed the said application 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.
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 settlement has been arrived at as per the order of the Settlement Commission. The 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.
The Apex court noted that various circulars issued by the department and also the judgments, 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.
The court allowed the appeals by setting aside the order passed by the High Court. It is directed that prosecution lodged by the Revenue against the appellant shall stand quashed.
The court was inclined to impose costs against the department which is quantified at Rs. 2,00,000 payable to the appellant.
Case Details
Case Title: Vijay Krishnaswami Versus The Deputy Director Of Income Tax (Investigation)
Case No.: SLP (CRL.) NOS. 3618-3620 OF 2024
Date: AUGUST 28th, 2025
