The Tribunal cancelled my concealment penalty. Can the 276C prosecution still continue?
No. Penalty under s.271(1)(c) and prosecution under s.276C rest on the same fact — concealment. Once the Tribunal, as the final fact-finding authority, holds there was no concealment and cancels the penalty, the substratum of the complaint disappears and quashing follows automatically.
Decided by the Supreme Court (Supreme Court of India — Dr. AR. Lakshmanan and B.N. Agrawal, JJ. (judgment delivered by Dr. AR. Lakshmanan, J.)) on 2004-01-28, reported as (2004) 265 ITR 562 / 135 Taxman 461 / 186 CTR 721 / 179 Taxation 418 (SC); 2004 INSC 65; Criminal Appeal Nos. 212-213 of 1998. It bears on section 276C, section 277, section 278B, section 271(1)(c), section 254 of the Income Tax Act 1961, in Prosecution and Penalty matters.
This is the answer where a criminal complaint is running in parallel with the quantum and penalty appeals. It also tells you where to spend your effort: a Tribunal finding of no concealment is worth more to the criminal case than anything said in the trial court, because those findings are treated as conclusive and a criminal court cannot sit over them. Continuing the prosecution in the teeth of them is an abuse of process.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
The appellant was a partnership firm constructing and selling flats, its projects running from 1981-82 to 1986-87. It returned costs of construction of Rs 4,72,860, Rs 5,77,590, Rs 7,28,531 and Rs 7,03,002 for assessment years 1983-84 to 1986-87. Its business premises and the residences of two partners were searched under s.132 on 20 March 1986. On 4 November 1987, its books having been found defective on cost of construction, it filed revised returns based on an approved valuer's report showing Rs 8,76,000, Rs 5,42,000, Rs 13,47,229 and Rs 10,37,920. The Department accepted the revised returns and completed the assessments on those figures, then treated the difference between original and revised income as concealed income and levied penalty under s.271(1)(c) for all four years; the Commissioner (Appeals) confirmed the penalties on 18 July 1990. On the Chief Commissioner's direction, four complaints were filed before the Additional Chief Metropolitan Magistrate, Egmore, Chennai, under ss.276C, 277 and 278B of the Act and ss.120B, 34, 193, 196 and 420 of the Indian Penal Code. On 24 October 1996 the Tribunal held there was no concealment — the revision of income was a voluntary offer and the assessment rested on estimate — and cancelled the penalties; the Department's reference application was rejected and the order became final. The Assessing Officer cancelled the penalties by order of 27 January 1997. The Magistrate nevertheless declined to stop the trial and the Madras High Court dismissed the criminal revision on 13 August 1997.
The appeals were allowed and the prosecution quashed. Levy of penalty under s.271(1)(c) and prosecution under s.276C are simultaneous, so once the penalties are cancelled on the footing that there is no concealment, quashing of the prosecution under s.276C is automatic. The Tribunal's finding that there was no concealment was conclusive on that question, and under s.254 it supersedes the Assessing Officer's order under s.143(3); once the Assessing Officer had himself cancelled the penalties to give effect to it, the complaint had no subject matter left and further proceedings were illegal and without jurisdiction. It was an empty formality to require the assessee to wait and exhibit the Tribunal's order as a defence document at trial. The Court also held that the conspiracy charge under s.120B IPC was not made out, and that with no fraudulent or dishonest intention at the time of the alleged misrepresentation, no offence of cheating under s.420 IPC arose. Note that what the Tribunal cancelled were the penalties; the assessments themselves stood, having been made on the revised returns the assessee had filed.
The word 'concealment' carries mens rea with it; a mere omission from the return is not concealment or deliberate furnishing of inaccurate particulars without evidence of an intention to hide income. Where the additions on which a concealment penalty rests are deleted, the penalty has no basis and cannot survive; ordinarily a penalty cannot stand if the assessment itself is set aside. On the criminal side the Court applied Uttam Chand v. ITO [1982] 2 SCC 543, where a prosecution for a false return was quashed on the Tribunal's finding that the firm was genuine, and G.L. Didwania v. ITO [1997] 224 ITR 687 (SC), where the Tribunal's finding that a company did not belong to the assessee was held conclusive and the prosecution unsustainable. Didwania was treated as squarely covering the case. Section 254 makes the Tribunal's finding supersede the Assessing Officer's order, and once the finding of concealment was struck down the Assessing Officer's only course was to correct his order under s.154, which he did. A matter adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless the conduct can be described as culpable. The Court also collected a line of High Court decisions holding that a penalty falls with the addition it rests on.
Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276C is automatic.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. Penalty under s.271(1)(c) and prosecution under s.276C rest on the same fact — concealment. Once the Tribunal, as the final fact-finding authority, holds there was no concealment and cancels the penalty, the substratum of the complaint disappears and quashing follows automatically. This was decided by the Supreme Court (Supreme Court of India — Dr. AR. Lakshmanan and B.N. Agrawal, JJ. (judgment delivered by Dr. AR. Lakshmanan, J.)) and bears on section 276C, section 277, section 278B, section 271(1)(c), section 254 of the Income Tax Act 1961. It is reported as (2004) 265 ITR 562 / 135 Taxman 461 / 186 CTR 721 / 179 Taxation 418 (SC); 2004 INSC 65; Criminal Appeal Nos. 212-213 of 1998. This is the answer where a criminal complaint is running in parallel with the quantum and penalty appeals. It also tells you where to spend your effort: a Tribunal finding of no concealment is worth more to the criminal case than anything said in the trial court, because those findings are treated as conclusive and a criminal court cannot sit over them. Continuing the prosecution in the teeth of them is an abuse of process. If it applies to you, the first step is this: Press the penalty appeal to a finding that there was no concealment rather than settling for a reduction, because it is that finding which destroys the complaint.
The appellant was a partnership firm constructing and selling flats, its projects running from 1981-82 to 1986-87. It returned costs of construction of Rs 4,72,860, Rs 5,77,590, Rs 7,28,531 and Rs 7,03,002 for assessment years 1983-84 to 1986-87. Its business premises and the residences of two partners were searched under s.132 on 20 March 1986. On 4 November 1987, its books having been found defective on cost of construction, it filed revised returns based on an approved valuer's report showing Rs 8,76,000, Rs 5,42,000, Rs 13,47,229 and Rs 10,37,920. The Department accepted the revised returns and completed the assessments on those figures, then treated the difference between original and revised income as concealed income and levied penalty under s.271(1)(c) for all four years; the Commissioner (Appeals) confirmed the penalties on 18 July 1990. On the Chief Commissioner's direction, four complaints were filed before the Additional Chief Metropolitan Magistrate, Egmore, Chennai, under ss.276C, 277 and 278B of the Act and ss.120B, 34, 193, 196 and 420 of the Indian Penal Code. On 24 October 1996 the Tribunal held there was no concealment — the revision of income was a voluntary offer and the assessment rested on estimate — and cancelled the penalties; the Department's reference application was rejected and the order became final. The Assessing Officer cancelled the penalties by order of 27 January 1997. The Magistrate nevertheless declined to stop the trial and the Madras High Court dismissed the criminal revision on 13 August 1997. The matter was decided on 2004-01-28 by the Supreme Court (Supreme Court of India — Dr. AR. Lakshmanan and B.N. Agrawal, JJ. (judgment delivered by Dr. AR. Lakshmanan, J.)). On those facts the Supreme Court held as follows. The appeals were allowed and the prosecution quashed. Levy of penalty under s.271(1)(c) and prosecution under s.276C are simultaneous, so once the penalties are cancelled on the footing that there is no concealment, quashing of the prosecution under s.276C is automatic. The Tribunal's finding that there was no concealment was conclusive on that question, and under s.254 it supersedes the Assessing Officer's order under s.143(3); once the Assessing Officer had himself cancelled the penalties to give effect to it, the complaint had no subject matter left and further proceedings were illegal and without jurisdiction. It was an empty formality to require the assessee to wait and exhibit the Tribunal's order as a defence document at trial. The Court also held that the conspiracy charge under s.120B IPC was not made out, and that with no fraudulent or dishonest intention at the time of the alleged misrepresentation, no offence of cheating under s.420 IPC arose. Note that what the Tribunal cancelled were the penalties; the assessments themselves stood, having been made on the revised returns the assessee had filed.
The word 'concealment' carries mens rea with it; a mere omission from the return is not concealment or deliberate furnishing of inaccurate particulars without evidence of an intention to hide income. Where the additions on which a concealment penalty rests are deleted, the penalty has no basis and cannot survive; ordinarily a penalty cannot stand if the assessment itself is set aside. On the criminal side the Court applied Uttam Chand v. ITO [1982] 2 SCC 543, where a prosecution for a false return was quashed on the Tribunal's finding that the firm was genuine, and G.L. Didwania v. ITO [1997] 224 ITR 687 (SC), where the Tribunal's finding that a company did not belong to the assessee was held conclusive and the prosecution unsustainable. Didwania was treated as squarely covering the case. Section 254 makes the Tribunal's finding supersede the Assessing Officer's order, and once the finding of concealment was struck down the Assessing Officer's only course was to correct his order under s.154, which he did. A matter adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless the conduct can be described as culpable. The Court also collected a line of High Court decisions holding that a penalty falls with the addition it rests on. In the words reproduced by the source cited on this page: "Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276C is automatic." The decision followed or applied G.L. Didwania v. ITO [1997] 224 ITR 687 (SC)/[1995] Supp (2) SCC 724 — followed and relied upon; Uttam Chand v. ITO [1982] 2 SCC 543 — prosecution quashed on a conclusive Tribunal finding.
It was decided by the Supreme Court on 2004-01-28 and is reported as (2004) 265 ITR 562 / 135 Taxman 461 / 186 CTR 721 / 179 Taxation 418 (SC); 2004 INSC 65; Criminal Appeal Nos. 212-213 of 1998. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 276C, section 277, section 278B, section 271(1)(c), section 254, 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. The appeals were allowed and the prosecution quashed. Levy of penalty under s.271(1)(c) and prosecution under s.276C are simultaneous, so once the penalties are cancelled on the footing that there is no concealment, quashing of the prosecution under s.276C is automatic. The Tribunal's finding that there was no concealment was conclusive on that question, and under s.254 it supersedes the Assessing Officer's order under s.143(3); once the Assessing Officer had himself cancelled the penalties to give effect to it, the complaint had no subject matter left and further proceedings were illegal and without jurisdiction. It was an empty formality to require the assessee to wait and exhibit the Tribunal's order as a defence document at trial. The Court also held that the conspiracy charge under s.120B IPC was not made out, and that with no fraudulent or dishonest intention at the time of the alleged misrepresentation, no offence of cheating under s.420 IPC arose. Note that what the Tribunal cancelled were the penalties; the assessments themselves stood, having been made on the revised returns the assessee had filed. It arises in Prosecution and Penalty matters, on section 276C, section 277, section 278B, section 271(1)(c), section 254 of the Income Tax Act 1961, and was decided by Supreme Court of India — Dr. AR. Lakshmanan and B.N. Agrawal, JJ. (judgment delivered by Dr. AR. Lakshmanan, 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. Once the Tribunal cancels the penalty, move to quash without delay and place its order on the criminal court's record. Where the Tribunal has also set aside the assessment on which the charge rests, plead that expressly in the quashing petition.
Still good law. Applied by the Jharkhand High Court in M/s A.M. Enterprises v. State of Jharkhand (W.P.(Cr.) No. 577 of 2022) to hold that criminal prosecution under the Income-tax Act does not sustain where the penalty has been struck down. The related proposition - that prosecution cannot proceed contrary to conclusive statutory findings and binding CBDT circulars requiring Tribunal confirmation of the penalty - was reinforced by the Supreme Court in Vijay Krishnaswami (2025 INSC 1048). 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 date is 28 January 2004: the law report carries that date with Criminal Appeal Nos. 212-213 of 1998, so the '28 December 2004' printed by one digest is wrong. Two features of the case do the work and should be pleaded. The Tribunal's finding was that there was no concealment at all, and it became final because the Department's reference application against it was rejected. And the Assessing Officer had already cancelled the penalties to give effect to that finding before the criminal revision was heard, so nothing was left of the charge. Where either feature is missing — the penalty fell for some other reason, or the finding is still under challenge — the case is weaker than its headline suggests, which is the ground on which later High Courts have divided. 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.
The appeals were allowed and the prosecution quashed. Levy of penalty under s.271(1)(c) and prosecution under s.276C are simultaneous, so once the penalties are cancelled on the footing that there is no concealment, quashing of the prosecution under s.276C is automatic. The Tribunal's finding that there was no concealment was conclusive on that question, and under s.254 it supersedes the Assessing Officer's order under s.143(3); once the Assessing Officer had himself cancelled the penalties to give effect to it, the complaint had no subject matter left and further proceedings were illegal and without jurisdiction. It was an empty formality to require the assessee to wait and exhibit the Tribunal's order as a defence document at trial. The Court also held that the conspiracy charge under s.120B IPC was not made out, and that with no fraudulent or dishonest intention at the time of the alleged misrepresentation, no offence of cheating under s.420 IPC arose. Note that what the Tribunal cancelled were the penalties; the assessments themselves stood, having been made on the revised returns the assessee had filed.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?