Offence and prosecution – Wilful attempt to evade tax – Section 276C, read with section 132

Offence and prosecution – Wilful attempt to evade tax – Section 276C, read with section 132

During a search, the assessee tore a piece of paper containing details of alleged unaccounted loan transactions. It was found that the assessee had advanced huge amount of loan to these persons / entities. He did not disclose the said unaccounted financial transactions in his returns of income and further, the statements of several persons disclosed that the assessee had received huge amount of interest on the said unaccounted loan, which was not reflected in the books of accounts or in the returns of income.

The Revenue filed complaints before the Special Court; the only circumstance relied on by the Revenue / complainant in support of the alleged charges was that during the search action, certain unaccounted loan transactions with several persons / entities were detected and the said unaccounted financial transactions were not disclosed in the returns of income for the relevant years and that the assessee had received huge amount of interest on the said unaccounted loans. The Special Court discharged the assessee mainly on the ground that the ‘complaints filed by the complainant estimating the undisclosed income of the accused and launching the prosecution is without jurisdiction’ and that the piece of paper torn by the respondent / accused was not a document lawfully compelled to be produced as evidence and that the same was not ‘obliterated, nor rendered illegible’ making out the offences under sections 201 and 204 of IPC but reserved the Revenue’s liberty to launch fresh prosecution after estimating the undisclosed income of the assessee / accused by the jurisdictional A.O. on the basis of the materials produced by the authorised officer for the search and such other materials as were available with him. Accordingly, the Special Court had discharged the assessee of the charges.

On the criminal revision petition filed by the petitioner / Revenue, the High Court observed that the allegations, even if accepted as true, did not prima facie constitute offences u/s 276C(1). The gist of the offence under this section is the wilful attempt to evade any tax, penalty or interest chargeable or imposable or underreporting of income. What is made punishable is ‘attempt to evade tax, penalty or interest’ and not the ‘actual evasion of the tax’. The expression ‘attempt’ is nowhere defined under the Act or IPC. In legal parlance, an ‘attempt’ is understood to mean ‘an act or movement towards commission of an intended crime’. It is doing ‘something in the direction of commission of offence’. Viewed in that sense ‘in order to render the accused / respondent guilty of attempt to evade tax, penalty or interest, it must be shown that he has done some positive act with an intention to evade any tax, penalty or interest’ as held by the Supreme Court in Prem Dass vs. ITO [1999] 5 SCC 241 that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence u/s 276C(2).

The Court further held that there is no presumption under law that every unaccounted transaction would lead to imposition of tax, penalty or interest. Until and unless it is determined that unaccounted transactions unearthed during search are liable for payment of tax, penalty or interest, no prosecution could be launched on the ground of attempt to evade such tax, penalty or interest. Therefore, the prosecution initiated against the assessee was bad in law and contrary to procedure prescribed under the Code of Criminal Procedure and the provisions of the Income-tax Act and, thus, the revision petitions were dismissed.