The Settlement Commission accepted my disclosure. Can the department still prosecute me for evasion?
No. Every order of settlement is conclusive under s.245-I, so where the Commission has recorded full and true disclosure the factual foundation for a wilful attempt to evade under s.276C(1) is gone and continuing the prosecution is an abuse of process. The prosecution was quashed and costs of Rs. 2,00,000 were imposed on the Revenue.
Decided by the Supreme Court (Supreme Court of India (J.K. Maheshwari and Vijay Bishnoi, JJ.)) on 2025-08-28, reported as [2025] 177 taxmann.com 807 (SC)/[2025] 479 ITR 467 (SC); 2025 INSC 1048; Criminal Appeal Nos. 3777 to 3779 of 2025 and Diary No. 7093 of 2024, setting aside the Madras High Court order in Crl. O.P. No. 28763 of 2018 dated 27 November 2023. It bears on section 276C, section 279, section 132, section 245C, section 245D, section 245H, section 245I of the Income Tax Act 1961, in Prosecution and Penalty matters.
Two things to take from it. First, the Commission's refusal of prosecution immunity does not save the complaint if it has positively recorded full and true disclosure. Second, the Court held the department's own directives — the circular of 24 April 2008, the Prosecution Manual 2009 and the clarification of 9 September 2019, which condition a s.276C(1) prosecution on ITAT confirmation of the penalty above the threshold or Collegium approval — to be binding on its officers, and treated their breach as a serious lapse undermining fairness.
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A search under section 132 at the appellant's residence on 24 April 2016 led to the seizure of unaccounted cash of Rs 4,93,84,300, which he admitted in a sworn statement as income earned through mediating contracts and acting as a commission agent, while his return for assessment year 2017-18 declared nil income. The Principal Director sanctioned prosecution under section 279(1) and the Deputy Director filed a complaint on 11 August 2018 before the Additional Chief Metropolitan Magistrate (E.O. II), Egmore, Chennai, in EOC No. 242 of 2018, for an offence under section 276C(1) for assessment year 2017-18. The appellant filed Crl. O.P. No. 28763 of 2018 in the Madras High Court to quash it. While that was pending he applied to the Settlement Commission under section 245C, disclosing the additional income and seeking immunity from both penalty and prosecution. By order under section 245D(4) dated 26 November 2019 the Commission recorded that the additional income was not on account of any suppression of material facts and disclosed no variance from the manner in which it had been earned, granted immunity from penalty under section 245H, and declined immunity from prosecution because the quashing petition was pending. The High Court nonetheless dismissed the quashing petition on 27 November 2023.
The appeals were allowed, the High Court's order set aside and the prosecution quashed, with costs of Rs 2,00,000 imposed on the Revenue and payable to the appellant. Two things carried the result. First, the sanction and complaint were in defiance of the Department's circular of 24 April 2008, reaffirmed by the Prosecution Manual 2009 and the clarification of 9 September 2019, which conditions prosecution under section 276C(1) on a concealment penalty exceeding Rs 50,000 confirmed by the Tribunal; on the date the complaint was lodged there was no such finding and nothing on record showed a wilful attempt to evade payment of tax. Second, under section 245-I the findings of the Settlement Commission are conclusive on the matters stated in them, and once the Commission had found full disclosure and recorded no finding of wilful evasion, it was incumbent on the authorities to tell the High Court that continuing the prosecution would be an abuse of the process of law. The Court did not hold that a settlement order of itself extinguishes a prosecution: it accepted that on a literal construction of the first proviso to section 245H a prosecution lodged before the settlement application is saved, and decided the case on the futility of continuing this one and on the Revenue's disregard of its own binding directions.
The Court began by separating the two limbs of section 276C: sub-section (1) reaches a wilful attempt to evade tax, penalty or interest before it is charged or imposed, and what is punishable is the wilful attempt, not actual evasion (para 12). It set out Chapter XIX-A and the Wanchoo Committee background to section 245H, and accepted that the first proviso saves a prosecution lodged before the settlement application, so the Commission could not grant immunity here (paras 15-17). That did not end matters: the prosecution still had to prove mens rea, a wilful attempt to evade, and the question became whether continuing a complaint that could not be proved served any purpose (para 18). The Court then reviewed the line of authority on departmental circulars - Ranadey Micronutrients, Paper Products, UCO Bank, Ratan Melting & Wire Industries, J.K. Lakshmi Cement and Merino Panel Product - and held at para 31 that circulars issued by the Revenue bind the authorities and can tone down the rigour of a statutory provision (paras 25-31). Applying that, the circular of 24 April 2008 was in force when the Principal Director sanctioned the prosecution, and required Tribunal confirmation of a concealment penalty above Rs 50,000; no such finding existed, no explanation was offered for the omission, and the authorities pressed on even after the settlement order was brought to the High Court's notice (paras 32-33, 36). Under section 245-I the Commission's findings were conclusive, and the Commission had recorded full disclosure and no wilful evasion, so the authorities should have told the High Court the prosecution had become an abuse of process, and the High Court should itself have asked whether continuing it could serve any purpose (paras 35, 37).
Once such an order was passed, it was incumbent upon the authorities to inform the High Court that continuation of the prosecution would amount to an abuse of the process of law, in particular when the Settlement Commission did not record any finding of wilful evasion of tax by the appellant.
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Handle my notice → Ask a CA on WhatsAppNo. Every order of settlement is conclusive under s.245-I, so where the Commission has recorded full and true disclosure the factual foundation for a wilful attempt to evade under s.276C(1) is gone and continuing the prosecution is an abuse of process. The prosecution was quashed and costs of Rs. 2,00,000 were imposed on the Revenue. This was decided by the Supreme Court (Supreme Court of India (J.K. Maheshwari and Vijay Bishnoi, JJ.)) and bears on section 276C, section 279, section 132, section 245C, section 245D, section 245H, section 245I of the Income Tax Act 1961. It is reported as [2025] 177 taxmann.com 807 (SC)/[2025] 479 ITR 467 (SC); 2025 INSC 1048; Criminal Appeal Nos. 3777 to 3779 of 2025 and Diary No. 7093 of 2024, setting aside the Madras High Court order in Crl. O.P. No. 28763 of 2018 dated 27 November 2023. Two things to take from it. First, the Commission's refusal of prosecution immunity does not save the complaint if it has positively recorded full and true disclosure. Second, the Court held the department's own directives — the circular of 24 April 2008, the Prosecution Manual 2009 and the clarification of 9 September 2019, which condition a s.276C(1) prosecution on ITAT confirmation of the penalty above the threshold or Collegium approval — to be binding on its officers, and treated their breach as a serious lapse undermining fairness. If it applies to you, the first step is this: Put the settlement order on record and point to the recorded finding of full and true disclosure as the answer to the 'wilful attempt to evade' ingredient.
A search under section 132 at the appellant's residence on 24 April 2016 led to the seizure of unaccounted cash of Rs 4,93,84,300, which he admitted in a sworn statement as income earned through mediating contracts and acting as a commission agent, while his return for assessment year 2017-18 declared nil income. The Principal Director sanctioned prosecution under section 279(1) and the Deputy Director filed a complaint on 11 August 2018 before the Additional Chief Metropolitan Magistrate (E.O. II), Egmore, Chennai, in EOC No. 242 of 2018, for an offence under section 276C(1) for assessment year 2017-18. The appellant filed Crl. O.P. No. 28763 of 2018 in the Madras High Court to quash it. While that was pending he applied to the Settlement Commission under section 245C, disclosing the additional income and seeking immunity from both penalty and prosecution. By order under section 245D(4) dated 26 November 2019 the Commission recorded that the additional income was not on account of any suppression of material facts and disclosed no variance from the manner in which it had been earned, granted immunity from penalty under section 245H, and declined immunity from prosecution because the quashing petition was pending. The High Court nonetheless dismissed the quashing petition on 27 November 2023. The matter was decided on 2025-08-28 by the Supreme Court (Supreme Court of India (J.K. Maheshwari and Vijay Bishnoi, JJ.)). On those facts the Supreme Court held as follows. The appeals were allowed, the High Court's order set aside and the prosecution quashed, with costs of Rs 2,00,000 imposed on the Revenue and payable to the appellant. Two things carried the result. First, the sanction and complaint were in defiance of the Department's circular of 24 April 2008, reaffirmed by the Prosecution Manual 2009 and the clarification of 9 September 2019, which conditions prosecution under section 276C(1) on a concealment penalty exceeding Rs 50,000 confirmed by the Tribunal; on the date the complaint was lodged there was no such finding and nothing on record showed a wilful attempt to evade payment of tax. Second, under section 245-I the findings of the Settlement Commission are conclusive on the matters stated in them, and once the Commission had found full disclosure and recorded no finding of wilful evasion, it was incumbent on the authorities to tell the High Court that continuing the prosecution would be an abuse of the process of law. The Court did not hold that a settlement order of itself extinguishes a prosecution: it accepted that on a literal construction of the first proviso to section 245H a prosecution lodged before the settlement application is saved, and decided the case on the futility of continuing this one and on the Revenue's disregard of its own binding directions.
The Court began by separating the two limbs of section 276C: sub-section (1) reaches a wilful attempt to evade tax, penalty or interest before it is charged or imposed, and what is punishable is the wilful attempt, not actual evasion (para 12). It set out Chapter XIX-A and the Wanchoo Committee background to section 245H, and accepted that the first proviso saves a prosecution lodged before the settlement application, so the Commission could not grant immunity here (paras 15-17). That did not end matters: the prosecution still had to prove mens rea, a wilful attempt to evade, and the question became whether continuing a complaint that could not be proved served any purpose (para 18). The Court then reviewed the line of authority on departmental circulars - Ranadey Micronutrients, Paper Products, UCO Bank, Ratan Melting & Wire Industries, J.K. Lakshmi Cement and Merino Panel Product - and held at para 31 that circulars issued by the Revenue bind the authorities and can tone down the rigour of a statutory provision (paras 25-31). Applying that, the circular of 24 April 2008 was in force when the Principal Director sanctioned the prosecution, and required Tribunal confirmation of a concealment penalty above Rs 50,000; no such finding existed, no explanation was offered for the omission, and the authorities pressed on even after the settlement order was brought to the High Court's notice (paras 32-33, 36). Under section 245-I the Commission's findings were conclusive, and the Commission had recorded full disclosure and no wilful evasion, so the authorities should have told the High Court the prosecution had become an abuse of process, and the High Court should itself have asked whether continuing it could serve any purpose (paras 35, 37). In the words reproduced by the source cited on this page: "Once such an order was passed, it was incumbent upon the authorities to inform the High Court that continuation of the prosecution would amount to an abuse of the process of law, in particular when the Settlement Commission did not record any finding of wilful evasion of tax by the appellant." The decision followed or applied Ranadey Micronutrients v. CCE [1996] 87 ELT 19 (SC); Paper Products Ltd. v. CCE [2001] 247 ITR 128/115 Taxman 147 (SC); UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 (SC); CCE, Bolpur v. Ratan Melting & Wire Industries [2008] 12 STR 416 (SC); J.K. Lakshmi Cement Ltd. v. Commercial Tax Officer, Pali (2016) 16 SCC 213; CCE and Service Tax v. Merino Panel Product Ltd. (2023) 2 SCC 597.
It was decided by the Supreme Court on 2025-08-28 and is reported as [2025] 177 taxmann.com 807 (SC)/[2025] 479 ITR 467 (SC); 2025 INSC 1048; Criminal Appeal Nos. 3777 to 3779 of 2025 and Diary No. 7093 of 2024, setting aside the Madras High Court order in Crl. O.P. No. 28763 of 2018 dated 27 November 2023. 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 279, section 132, section 245C, section 245D, section 245H, section 245I, 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, the High Court's order set aside and the prosecution quashed, with costs of Rs 2,00,000 imposed on the Revenue and payable to the appellant. Two things carried the result. First, the sanction and complaint were in defiance of the Department's circular of 24 April 2008, reaffirmed by the Prosecution Manual 2009 and the clarification of 9 September 2019, which conditions prosecution under section 276C(1) on a concealment penalty exceeding Rs 50,000 confirmed by the Tribunal; on the date the complaint was lodged there was no such finding and nothing on record showed a wilful attempt to evade payment of tax. Second, under section 245-I the findings of the Settlement Commission are conclusive on the matters stated in them, and once the Commission had found full disclosure and recorded no finding of wilful evasion, it was incumbent on the authorities to tell the High Court that continuing the prosecution would be an abuse of the process of law. The Court did not hold that a settlement order of itself extinguishes a prosecution: it accepted that on a literal construction of the first proviso to section 245H a prosecution lodged before the settlement application is saved, and decided the case on the futility of continuing this one and on the Revenue's disregard of its own binding directions. It arises in Prosecution and Penalty matters, on section 276C, section 279, section 132, section 245C, section 245D, section 245H, section 245I of the Income Tax Act 1961, and was decided by Supreme Court of India (J.K. Maheshwari and Vijay Bishnoi, JJ.). 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. Ask the department in writing to show compliance with its own prosecution directives, including ITAT confirmation of the concealment penalty or Collegium approval. Where those directives were not followed, plead the breach as a separate ground for quashing and ask for costs.
Still good law. A Supreme Court judgment of 28.08.2025 reported at (2025) 479 ITR 467 (SC); the itatonline digest records it as reversing the Madras High Court decision at (2025) 479 ITR 442 (Mad). No later adverse treatment was found in the sources I fetched. That finding was checked against a published source, which is linked on this page, on 2026-08-25. 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 judgment does not mention s.278E at all, so it is not authority on the presumption of a culpable mental state. It also does not decide whether the Deputy Director was competent to initiate prosecution under s.279(1): the Court set out the provision and noted the challenge at para 13, and disposed of the appeal on other grounds. Two limits are worth stating plainly. The Court accepted at para 17 that, on a literal construction of the first proviso to s.245H, a prosecution lodged before the settlement application is saved and the Commission cannot grant immunity from it - so this is not authority that a settlement order automatically ends a prosecution. And the result rests heavily on the Revenue's unexplained failure to comply with its own circular of 24 April 2008, which required Tribunal confirmation of a concealment penalty above Rs 50,000 before a s.276C(1) prosecution. The order set aside is the Madras High Court's in Crl. O.P. No. 28763 of 2018, dated 27 November 2023. The certified date of this judgment is 28 August 2025. The judgment does not discuss s.278E, so it is not authority on the culpable-mental-state presumption. It does not decide whether the sanction under s.279(1) suffered from non-application of mind, or whether the Deputy Director was a competent authority to launch the complaint - that challenge is recorded at para 13 and left undecided. It also does not say what would follow where the Department has complied with its circular and the Settlement Commission has still declined prosecution immunity: the reasoning turns on the combination of non-compliance and the absence of any finding of wilful evasion. 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, the High Court's order set aside and the prosecution quashed, with costs of Rs 2,00,000 imposed on the Revenue and payable to the appellant. Two things carried the result. First, the sanction and complaint were in defiance of the Department's circular of 24 April 2008, reaffirmed by the Prosecution Manual 2009 and the clarification of 9 September 2019, which conditions prosecution under section 276C(1) on a concealment penalty exceeding Rs 50,000 confirmed by the Tribunal; on the date the complaint was lodged there was no such finding and nothing on record showed a wilful attempt to evade payment of tax. Second, under section 245-I the findings of the Settlement Commission are conclusive on the matters stated in them, and once the Commission had found full disclosure and recorded no finding of wilful evasion, it was incumbent on the authorities to tell the High Court that continuing the prosecution would be an abuse of the process of law. The Court did not hold that a settlement order of itself extinguishes a prosecution: it accepted that on a literal construction of the first proviso to section 245H a prosecution lodged before the settlement application is saved, and decided the case on the futility of continuing this one and on the Revenue's disregard of its own binding directions.
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