I filed my return but could not pay the self-assessment tax on time; I paid it later with interest in instalments. The Department has launched a prosecution under s.276C(2) and says s.278E presumes a culpable mental state. Is that right?
On the Kerala High Court's view, no. A mere failure to pay the tax due, later paid with interest, is not a wilful attempt to evade the payment of tax within s.276C(2) where there is no concealment of a source of income, no false particulars and no circumstance created to enable evasion. And s.278E does not fill the gap: the presumption of a culpable mental state is a rule of evidence that comes into play only once the basic ingredients constituting the offence are disclosed, not to supply them.
Decided by the High Court (P. Somarajan J) on 2021-02-11, reported as Crl.M.C. Nos. 5669 and 5671 of 2020 (High Court of Kerala at Ernakulam), arising out of C.C. Nos. 2655/2019 and 2654/2019 of the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam. It bears on section 276C, section 276C(2), section 278E of the Income Tax Act 1961, in Prosecution, Evidence & Burden of Proof and Demand, Recovery & Stay matters.
This is the limit on s.278E, and it is the answer to the Department's usual move of treating the presumption as making mens rea irrelevant. The presumption is powerful once the offence is prima facie made out — the accused must then displace it, and s.278E(2) requires him to prove the absence of the mental state beyond reasonable doubt, not on a preponderance of probability — but it does not convert a failure to pay into an attempt to evade. The reach of the point is contested: this judgment also reads the Explanation to s.276C as applying to sub-section (2) as well as sub-section (1), and holds that an earlier Kerala decision to the contrary is no longer good law, while other High Courts have sustained s.276C(2) prosecutions for late payment of self-assessment tax. Check the position in your own High Court before relying on it as settled.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Two connected petitions were filed by two companies and their Managing Director and a Director to quash complaints alleging an offence under s.276C(2). At the time the returns were submitted on self-assessment, the self-assessment tax was not remitted. It was subsequently remitted with interest, the petitioners having availed of an instalment facility. Penalty was imposed and an appeal against the penalty was pending before the appellate authority when the petitions were heard. The petitioners contended that a mere failure to pay tax in time under a self-assessment return does not fall within any of clauses (i) to (iv) of the Explanation to s.276C and so no criminal liability arises. The Department contended that non-payment of self-assessment tax falls within 'evade the payment of tax' in s.276C(2), that the Explanation applies only to sub-section (1) because the word 'payment' is absent from sub-section (1), and relied on G. Viswanathan v. Income Tax Officer (1987) 167 ITR 103. The Department also argued that s.278E raises a presumption of a culpable mental state which attaches to any failure or non-payment, relying on Prakash Nath Khanna v. CIT (2004) 266 ITR 1.
Both petitions were allowed and the complaints and further proceedings were quashed. A mere failure to pay the amount due — tax, interest or penalty — does not satisfy the requirement constituting the offence under s.276C(2), where there is no concealment of a source of income or of a taxable item, no circumstance created with the aim of evading tax, and no furnishing of inaccurate particulars regarding assessment or payment. The Explanation to s.276C applies to sub-section (2) as well as sub-section (1), because it was placed after both sub-sections and not before sub-section (2). The presumption under s.278E has no application where the basic ingredients constituting the offence are not disclosed.
On the construction point, the Court held that the position of the Explanation, placed after both sub-sections rather than before sub-section (2), prima facie shows that the legislature intended it to apply to both, and that a conjoint reading of sub-sections (1) and (2) with clauses (i) to (iv) shows that the legislature never intended to exclude sub-section (2) from its operation (para 4). It then applied Prem Dass v. Income Tax Officer (1999) 5 SCC 241, quoting paras 8 and 9, for the proposition that a wilful attempt to evade under s.276C is a positive act that must be proved, that necessary mens rea must be established, and that the Tribunal's finding of a difference of opinion as to estimates rather than concealment defeated the prosecution (para 5). In the light of Prem Dass, the earlier Kerala decision in G. Viswanathan, which had confined the Explanation to sub-section (1), was held no longer to be good law (para 6). On s.278E, which the Court set out in full, it held that the presumption operates only in a prosecution for an offence 'which requires a culpable mental state', that the section is really a rule of evidence regarding the existence of mens rea by drawing a rebuttable presumption, and that it does not apply where the basic requirements constituting the offence are not disclosed (paras 8 and 9). Prakash Nath Khanna was distinguished as concerning s.276CC and the wilful failure to furnish a return, the expression 'failure' there relating to submission of the return and not being equatable with a failure to pay tax in time (para 10).
The presumption can be applied only when the basic ingredient which would constitute any offence under the Act is disclosed.
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Handle my notice → Ask a CA on WhatsAppOn the Kerala High Court's view, no. A mere failure to pay the tax due, later paid with interest, is not a wilful attempt to evade the payment of tax within s.276C(2) where there is no concealment of a source of income, no false particulars and no circumstance created to enable evasion. And s.278E does not fill the gap: the presumption of a culpable mental state is a rule of evidence that comes into play only once the basic ingredients constituting the offence are disclosed, not to supply them. This was decided by the High Court (P. Somarajan J) and bears on section 276C, section 276C(2), section 278E of the Income Tax Act 1961. It is reported as Crl.M.C. Nos. 5669 and 5671 of 2020 (High Court of Kerala at Ernakulam), arising out of C.C. Nos. 2655/2019 and 2654/2019 of the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam. This is the limit on s.278E, and it is the answer to the Department's usual move of treating the presumption as making mens rea irrelevant. The presumption is powerful once the offence is prima facie made out — the accused must then displace it, and s.278E(2) requires him to prove the absence of the mental state beyond reasonable doubt, not on a preponderance of probability — but it does not convert a failure to pay into an attempt to evade. The reach of the point is contested: this judgment also reads the Explanation to s.276C as applying to sub-section (2) as well as sub-section (1), and holds that an earlier Kerala decision to the contrary is no longer good law, while other High Courts have sustained s.276C(2) prosecutions for late payment of self-assessment tax. Check the position in your own High Court before relying on it as settled. If it applies to you, the first step is this: Separate the two arguments and take them in order: first, that the basic ingredients of s.276C(2) are not disclosed on the complaint; only then does s.278E arise at all.
Two connected petitions were filed by two companies and their Managing Director and a Director to quash complaints alleging an offence under s.276C(2). At the time the returns were submitted on self-assessment, the self-assessment tax was not remitted. It was subsequently remitted with interest, the petitioners having availed of an instalment facility. Penalty was imposed and an appeal against the penalty was pending before the appellate authority when the petitions were heard. The petitioners contended that a mere failure to pay tax in time under a self-assessment return does not fall within any of clauses (i) to (iv) of the Explanation to s.276C and so no criminal liability arises. The Department contended that non-payment of self-assessment tax falls within 'evade the payment of tax' in s.276C(2), that the Explanation applies only to sub-section (1) because the word 'payment' is absent from sub-section (1), and relied on G. Viswanathan v. Income Tax Officer (1987) 167 ITR 103. The Department also argued that s.278E raises a presumption of a culpable mental state which attaches to any failure or non-payment, relying on Prakash Nath Khanna v. CIT (2004) 266 ITR 1. The matter was decided on 2021-02-11 by the High Court (P. Somarajan J). On those facts the High Court held as follows. Both petitions were allowed and the complaints and further proceedings were quashed. A mere failure to pay the amount due — tax, interest or penalty — does not satisfy the requirement constituting the offence under s.276C(2), where there is no concealment of a source of income or of a taxable item, no circumstance created with the aim of evading tax, and no furnishing of inaccurate particulars regarding assessment or payment. The Explanation to s.276C applies to sub-section (2) as well as sub-section (1), because it was placed after both sub-sections and not before sub-section (2). The presumption under s.278E has no application where the basic ingredients constituting the offence are not disclosed.
On the construction point, the Court held that the position of the Explanation, placed after both sub-sections rather than before sub-section (2), prima facie shows that the legislature intended it to apply to both, and that a conjoint reading of sub-sections (1) and (2) with clauses (i) to (iv) shows that the legislature never intended to exclude sub-section (2) from its operation (para 4). It then applied Prem Dass v. Income Tax Officer (1999) 5 SCC 241, quoting paras 8 and 9, for the proposition that a wilful attempt to evade under s.276C is a positive act that must be proved, that necessary mens rea must be established, and that the Tribunal's finding of a difference of opinion as to estimates rather than concealment defeated the prosecution (para 5). In the light of Prem Dass, the earlier Kerala decision in G. Viswanathan, which had confined the Explanation to sub-section (1), was held no longer to be good law (para 6). On s.278E, which the Court set out in full, it held that the presumption operates only in a prosecution for an offence 'which requires a culpable mental state', that the section is really a rule of evidence regarding the existence of mens rea by drawing a rebuttable presumption, and that it does not apply where the basic requirements constituting the offence are not disclosed (paras 8 and 9). Prakash Nath Khanna was distinguished as concerning s.276CC and the wilful failure to furnish a return, the expression 'failure' there relating to submission of the return and not being equatable with a failure to pay tax in time (para 10). In the words reproduced by the source cited on this page: "The presumption can be applied only when the basic ingredient which would constitute any offence under the Act is disclosed." The decision followed or applied Prem Dass v. Income Tax Officer, AIR 1999 SC 1079 = (1999) 5 SCC 241 — applied, paras 8 and 9 quoted; G. Viswanathan v. Income Tax Officer (1987) 167 ITR 103 — held no longer good law; Prakash Nath Khanna v. CIT (2004) 266 ITR 1 = (2004) 9 SCC 686 — distinguished.
It was decided by the High Court on 2021-02-11 and is reported as Crl.M.C. Nos. 5669 and 5671 of 2020 (High Court of Kerala at Ernakulam), arising out of C.C. Nos. 2655/2019 and 2654/2019 of the Additional Chief Judicial Magistrate (Economic Offences), Ernakulam. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 276C, section 276C(2), section 278E, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both petitions were allowed and the complaints and further proceedings were quashed. A mere failure to pay the amount due — tax, interest or penalty — does not satisfy the requirement constituting the offence under s.276C(2), where there is no concealment of a source of income or of a taxable item, no circumstance created with the aim of evading tax, and no furnishing of inaccurate particulars regarding assessment or payment. The Explanation to s.276C applies to sub-section (2) as well as sub-section (1), because it was placed after both sub-sections and not before sub-section (2). The presumption under s.278E has no application where the basic ingredients constituting the offence are not disclosed. It arises in Prosecution, Evidence & Burden of Proof and Demand, Recovery & Stay matters, on section 276C, section 276C(2), section 278E of the Income Tax Act 1961, and was decided by P. Somarajan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show on the record that the tax was in fact paid, with interest, and identify the instalment facility or extension relied on — the payment history is what made this a failure to pay rather than an attempt to evade. Test the complaint against clauses (i) to (iv) of the Explanation to s.276C: possession of books containing a false entry, making a false entry, wilfully omitting an entry, or causing a circumstance to exist enabling evasion. If none is alleged, say so in terms. If the Department invokes s.278E, put in issue whether the offence charged is one that 'requires a culpable mental state' and whether the basic ingredients are disclosed; do not concede the presumption and then try to rebut it. If you must rebut, plan for s.278E(2): the defence has to prove the absence of the mental state to the criminal standard, so lead evidence, do not merely argue.
Validity check could not be completed. Validity check could not be completed. No differing decision was retrieved or read on this pass and none is named here, so no conflict is certified. The proposition that a failure to pay self-assessment tax, later paid with interest, cannot found a prosecution under s.276C(2) is understood not to be accepted uniformly, and the library's own entries on S.P. Velayutham v ACIT (28.01.2022) and Vilas Babanrao Kalokhe v PCIT (16.10.2025) cover s.276C(2) and s.140A from the other direction; those two entries should be read against this one and the conflict resolved on a later pass. No check of later treatment of this judgment itself was carried out. The separate holding, that s.278E cannot supply an ingredient of the offence, is consistent with the way s.278E is described in the Karnataka High Court's judgment in Rajkumar Agarwal, read on the same pass, which applies the presumption only after the ingredients of s.276CC are made out. Note also that a single Judge here held an earlier decision of the same High Court (G. Viswanathan) no longer to be good law, so the position within Kerala should also be checked. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The reproduction of s.276C(1) in para 3 is corrupt: the bracketed words '[or imposable, or under-reports his income,]' appear twice, the second time in place of the word 'imposable' in the phrase 'any penalty that may be imposable on him', and the punishment threshold is printed as 'twenty-five hundred thousand rupees'. Do not use that paragraph as a clean text of s.276C. The reproduction of s.278E in para 8 is clean and matches the reproduction in a later Karnataka High Court judgment read on the same pass. Note also that a single Judge here declined to follow G. Viswanathan v. Income Tax Officer (1987) 167 ITR 103, an earlier decision of the same High Court, on the ground that it does not survive Prem Dass; the mechanism by which that was done (a single Judge holding an earlier decision of the Court not to be good law) is worth a practitioner's attention. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both petitions were allowed and the complaints and further proceedings were quashed. A mere failure to pay the amount due — tax, interest or penalty — does not satisfy the requirement constituting the offence under s.276C(2), where there is no concealment of a source of income or of a taxable item, no circumstance created with the aim of evading tax, and no furnishing of inaccurate particulars regarding assessment or payment. The Explanation to s.276C applies to sub-section (2) as well as sub-section (1), because it was placed after both sub-sections and not before sub-section (2). The presumption under s.278E has no application where the basic ingredients constituting the offence are not disclosed.
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