They sanctioned prosecution and filed the complaint while my appeal was still pending before the Tribunal. Is the launch itself bad?
The Bombay High Court held that it was, and quashed the complaint. The CBDT's own guidelines require a case under s.276C(1) to be processed for prosecution where the s.271(1)(c) penalty exceeding Rs 50,000 has been imposed AND confirmed by the Tribunal, and launching prosecution before that confirmation is contrary to instructions that bind the officers of the Revenue.
Decided by the High Court (Prithviraj K. Chavan J) on 2024-06-26, reported as Criminal Writ Petition (Stamp) No. 321 of 2024 (Bombay High Court, Criminal Appellate Jurisdiction); reserved 18 June 2024. It bears on section 276C, section 277, section 278B, section 278E, section 271(1)(c) of the Income Tax Act 1961, in Prosecution, Penalty and Appeals matters.
Two distinct grounds are stacked here and both are worth carrying. The first is the ordinary K.C. Builders ground: the penalty was later deleted by the Tribunal, no appeal was filed, limitation expired and the order attained finality, so the prosecution could not survive. The second is independent of what the Tribunal eventually did — the launch was premature because the CBDT guidelines of 24 April 2008, F.No. 285/90/2008-IT(Inv-I)/05, require confirmation by the Tribunal before a s.276C(1) case is processed, and beneficial circulars and instructions in the administration of the Act bind the officers of the Revenue. The petitioner had actually written to the Principal Commissioner before sanction, telling him the matter was pending before the Tribunal, and sanction was granted anyway. That letter is the kind of document that makes this ground available, and a practitioner facing a sanction notice should create it. The other feature of this case that will not repeat often but is worth knowing is that the department itself, on affidavit, accepted that the prosecution did not survive and was to be withdrawn, citing CBDT instruction F.No. 285/16/90-IT(Inv.-I)43 dated 14 May 1996 — so the affidavit in reply is worth reading before assuming the department will contest.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
Nirlon Ltd, a company registered under the Companies Act 1956 with its office at Goregaon (East), Mumbai, and its directors and principal officers, were prosecuted under s.276C, s.277, s.278B and s.278E on the ground of wilful evasion of tax. For assessment year 2009-10 the company transferred part of its land at Goregaon East which had been revalued in 2006-07. The original return declared a loss of Rs 1,61,95,625 in the regular computation and book profit of Rs 3,50,33,096 under s.115JB; a revised return declared the same loss and book profit of Rs 3,75,80,558. By order under s.143(3) dated 26 December 2011 the Assessing Officer took Rs 4,88,32,034 as the revalued cost of land and book profits at Rs 8,64,12,592. The Principal Commissioner granted sanction to prosecute on 30 March 2017 and the complaint (C.C. No. SW/189 of 2017) was filed on 27 April 2017 before the Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai. The Magistrate issued process on 9 December 2019 and summons on 13 January 2023. The addition had been confirmed by the CIT(A) before the prosecution was launched, but the petitioner had informed the Principal Commissioner by a communication dated 27 March 2017 that the matter was pending before the Tribunal. The tax liability was subsequently deleted and the Tribunal set aside the penalty by order dated 12 February 2019; no appeal was preferred against that order and limitation to file one had expired. The department, in its affidavit in reply, stated that following the deletion of the quantum addition and the s.271(1)(c) penalty the prosecution did not survive and was to be withdrawn, referring to CBDT instruction F.No. 285/16/90-IT(Inv.-I)43 dated 14 May 1996.
The petitions were allowed. All the impugned orders and the complaint were quashed and set aside and rule was made absolute. Launching the prosecution was bad in law as contrary to binding CBDT instructions, and once the penalty had been set aside by the Tribunal the prosecution proceedings on the same facts ought to be automatically quashed (paras 18, 20 and the Order).
The Court held that the law is no longer res integra and applied K.C. Builders for the proposition that concealment inherently carries the element of mens rea and that penalty cannot stand if the assessment is set aside by the Tribunal (para 16). It accepted that beneficial circulars and instructions issued in the administration of the Act have binding force, relying on Keshavji Ravji & Co. v. CIT and UCO Bank v. CIT (para 17). It identified the CBDT guidelines of 24 April 2008, F.No. 285/90/2008-IT(Inv-I)/05, prescribing the time frame for processing cases for prosecution, under which all cases are to be processed for prosecution under s.276C(1) where penalty under s.271(1)(c) exceeding Rs 50,000 is imposed and confirmed by the Tribunal; since the petitioner had informed the Principal Commissioner on 27 March 2017 that the matter was pending before the Tribunal, the prosecution was launched in contravention of those instructions and in a premature and hasty manner (paras 18 and 19). It then held that because the Tribunal had set aside the penalty on 12 February 2019 the prosecution on the same facts ought automatically to be quashed (para 20), and reinforced this with Dharmendra Textile Processors: penalty is a civil liability for which wilful concealment is not an essential ingredient, unlike a prosecution under s.276C, so where mens rea is sine qua non and the Tribunal has deleted the penalty the prosecution cannot continue (para 21). K.C. Builders was applied again for the proposition that when the penalty is deleted there is no question of prosecuting under s.276C(1), s.277 and s.278B (para 22). The Court recorded that no appeal had been preferred against the Tribunal's order, limitation had expired and it had attained finality (para 23), and applied the seven propositions in Radheshyam Kejriwal, in particular that where exoneration in adjudication is on merits the criminal prosecution on the same facts cannot continue (para 24).
The prosecution appears to have been launched in premature and hasty manner without penalty being confirmed by the ITAT which is in contravention of the binding instructions of the CBDT.
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 WhatsAppThe Bombay High Court held that it was, and quashed the complaint. The CBDT's own guidelines require a case under s.276C(1) to be processed for prosecution where the s.271(1)(c) penalty exceeding Rs 50,000 has been imposed AND confirmed by the Tribunal, and launching prosecution before that confirmation is contrary to instructions that bind the officers of the Revenue. This was decided by the High Court (Prithviraj K. Chavan J) and bears on section 276C, section 277, section 278B, section 278E, section 271(1)(c) of the Income Tax Act 1961. It is reported as Criminal Writ Petition (Stamp) No. 321 of 2024 (Bombay High Court, Criminal Appellate Jurisdiction); reserved 18 June 2024. Two distinct grounds are stacked here and both are worth carrying. The first is the ordinary K.C. Builders ground: the penalty was later deleted by the Tribunal, no appeal was filed, limitation expired and the order attained finality, so the prosecution could not survive. The second is independent of what the Tribunal eventually did — the launch was premature because the CBDT guidelines of 24 April 2008, F.No. 285/90/2008-IT(Inv-I)/05, require confirmation by the Tribunal before a s.276C(1) case is processed, and beneficial circulars and instructions in the administration of the Act bind the officers of the Revenue. The petitioner had actually written to the Principal Commissioner before sanction, telling him the matter was pending before the Tribunal, and sanction was granted anyway. That letter is the kind of document that makes this ground available, and a practitioner facing a sanction notice should create it. The other feature of this case that will not repeat often but is worth knowing is that the department itself, on affidavit, accepted that the prosecution did not survive and was to be withdrawn, citing CBDT instruction F.No. 285/16/90-IT(Inv.-I)43 dated 14 May 1996 — so the affidavit in reply is worth reading before assuming the department will contest. If it applies to you, the first step is this: Before sanction, write to the sanctioning authority recording that the quantum or penalty appeal is pending before the Tribunal, and keep proof of dispatch — that letter is the foundation of the premature-launch ground.
Nirlon Ltd, a company registered under the Companies Act 1956 with its office at Goregaon (East), Mumbai, and its directors and principal officers, were prosecuted under s.276C, s.277, s.278B and s.278E on the ground of wilful evasion of tax. For assessment year 2009-10 the company transferred part of its land at Goregaon East which had been revalued in 2006-07. The original return declared a loss of Rs 1,61,95,625 in the regular computation and book profit of Rs 3,50,33,096 under s.115JB; a revised return declared the same loss and book profit of Rs 3,75,80,558. By order under s.143(3) dated 26 December 2011 the Assessing Officer took Rs 4,88,32,034 as the revalued cost of land and book profits at Rs 8,64,12,592. The Principal Commissioner granted sanction to prosecute on 30 March 2017 and the complaint (C.C. No. SW/189 of 2017) was filed on 27 April 2017 before the Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai. The Magistrate issued process on 9 December 2019 and summons on 13 January 2023. The addition had been confirmed by the CIT(A) before the prosecution was launched, but the petitioner had informed the Principal Commissioner by a communication dated 27 March 2017 that the matter was pending before the Tribunal. The tax liability was subsequently deleted and the Tribunal set aside the penalty by order dated 12 February 2019; no appeal was preferred against that order and limitation to file one had expired. The department, in its affidavit in reply, stated that following the deletion of the quantum addition and the s.271(1)(c) penalty the prosecution did not survive and was to be withdrawn, referring to CBDT instruction F.No. 285/16/90-IT(Inv.-I)43 dated 14 May 1996. The matter was decided on 2024-06-26 by the High Court (Prithviraj K. Chavan J). On those facts the High Court held as follows. The petitions were allowed. All the impugned orders and the complaint were quashed and set aside and rule was made absolute. Launching the prosecution was bad in law as contrary to binding CBDT instructions, and once the penalty had been set aside by the Tribunal the prosecution proceedings on the same facts ought to be automatically quashed (paras 18, 20 and the Order).
The Court held that the law is no longer res integra and applied K.C. Builders for the proposition that concealment inherently carries the element of mens rea and that penalty cannot stand if the assessment is set aside by the Tribunal (para 16). It accepted that beneficial circulars and instructions issued in the administration of the Act have binding force, relying on Keshavji Ravji & Co. v. CIT and UCO Bank v. CIT (para 17). It identified the CBDT guidelines of 24 April 2008, F.No. 285/90/2008-IT(Inv-I)/05, prescribing the time frame for processing cases for prosecution, under which all cases are to be processed for prosecution under s.276C(1) where penalty under s.271(1)(c) exceeding Rs 50,000 is imposed and confirmed by the Tribunal; since the petitioner had informed the Principal Commissioner on 27 March 2017 that the matter was pending before the Tribunal, the prosecution was launched in contravention of those instructions and in a premature and hasty manner (paras 18 and 19). It then held that because the Tribunal had set aside the penalty on 12 February 2019 the prosecution on the same facts ought automatically to be quashed (para 20), and reinforced this with Dharmendra Textile Processors: penalty is a civil liability for which wilful concealment is not an essential ingredient, unlike a prosecution under s.276C, so where mens rea is sine qua non and the Tribunal has deleted the penalty the prosecution cannot continue (para 21). K.C. Builders was applied again for the proposition that when the penalty is deleted there is no question of prosecuting under s.276C(1), s.277 and s.278B (para 22). The Court recorded that no appeal had been preferred against the Tribunal's order, limitation had expired and it had attained finality (para 23), and applied the seven propositions in Radheshyam Kejriwal, in particular that where exoneration in adjudication is on merits the criminal prosecution on the same facts cannot continue (para 24). In the words reproduced by the source cited on this page: "The prosecution appears to have been launched in premature and hasty manner without penalty being confirmed by the ITAT which is in contravention of the binding instructions of the CBDT." The decision followed or applied K.C. Builders and another v. Assistant Commissioner of Income Tax — followed; Radheshyam Kejriwal v. State of West Bengal and another — applied; Union of India and others v. Dharmendra Textile Processors and others — applied; Keshavji Ravji & Co. v. CIT — relied on for the binding force of beneficial circulars; UCO Bank v. CIT — relied on for the binding force of beneficial circulars; Videocon Industries Limited and another v. State of Maharashtra and others — cited for the petitioners.
It was decided by the High Court on 2024-06-26 and is reported as Criminal Writ Petition (Stamp) No. 321 of 2024 (Bombay High Court, Criminal Appellate Jurisdiction); reserved 18 June 2024. 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 277, section 278B, section 278E, section 271(1)(c), 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 petitions were allowed. All the impugned orders and the complaint were quashed and set aside and rule was made absolute. Launching the prosecution was bad in law as contrary to binding CBDT instructions, and once the penalty had been set aside by the Tribunal the prosecution proceedings on the same facts ought to be automatically quashed (paras 18, 20 and the Order). It arises in Prosecution, Penalty and Appeals matters, on section 276C, section 277, section 278B, section 278E, section 271(1)(c) of the Income Tax Act 1961, and was decided by Prithviraj K. Chavan 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. Obtain the sanction order and check its date against the date the Tribunal disposed of the appeal. Plead the CBDT instruction requiring the s.271(1)(c) penalty to be imposed and confirmed by the Tribunal before a s.276C(1) case is processed, and plead that such instructions bind the officers of the Revenue (Keshavji Ravji and UCO Bank). If the penalty has since been deleted, check whether any appeal was filed and whether limitation has expired; finality was material to the Court's reasoning here. Read the department's affidavit in reply before arguing — in this case it conceded the prosecution was to be withdrawn. Use Dharmendra Textile Processors the way this Court did: penalty is a civil liability not requiring mens rea, so the deletion of a penalty that does not even require mens rea is fatal to a prosecution that does.
Validity check could not be completed. Validity check could not be completed — I did not search for any special leave petition or later treatment. Two cautions for a reader. First, the CBDT instruction the Court applied is dated 24 April 2008 and the compounding and prosecution landscape has moved since; the current compounding guidelines are those dated 17 October 2024. I did not verify whether the 2008 prosecution-processing instruction remains in force in the same terms, and a practitioner must check that before pleading it. Second, the department conceded in this case that the prosecution was to be withdrawn, so the premature-launch ground was not contested as hard as it would be in a live dispute. 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 report contains a clear internal inconsistency about the deletion dates. Para 10 says the Deputy Commissioner deleted the tax liability by order dated 25 October 2018 and that the Tribunal set aside the penalty by order dated 12 February 2019. The department's affidavit extracted at para 16 refers to 'the deletion of quantum addition and penalty levied under section 271(1)(c) ... by the Hon'ble ITAT vide its order dated 29.11.2017 read with Order dated 12.02.2019'. Both cannot be right about 25 October 2018 / 29 November 2017; the date the Court's own reasoning turns on is 12 February 2019, which is used consistently at paras 10, 20 and 23. Para 18 refers to 'the instructions of 2008 Circular No.24 of 2019', which conflates two documents; para 19 identifies the instruction the Court is actually applying as F.No. 285/90/2008-IT(Inv-I)/05 dated 24 April 2008. The extract of s.276C(1) at para 14 reads 'to evade any tax, penalty or interest chargeable or under this Act', which is defective — do not take it as the statutory text. The extract of Dharmendra Textile Processors at para 21 does not name the section it refers to as 'the said section'. This is a batch of petitions decided by a common order; the lead petition is Criminal Writ Petition (Stamp) No. 321 of 2024 and the co-petitioners (Rama Verma, Jai Shroff, Aruna Makhan, Kunal V Sagar, Rajani M Bhagat, Moosa Raza) appear on indiankanoon as separate documents of the same date. 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 petitions were allowed. All the impugned orders and the complaint were quashed and set aside and rule was made absolute. Launching the prosecution was bad in law as contrary to binding CBDT instructions, and once the penalty had been set aside by the Tribunal the prosecution proceedings on the same facts ought to be automatically quashed (paras 18, 20 and the Order).
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 penalty notice does not say whether I concealed income or filed inaccurate particulars. Does that matter?