Tax Evasion Prosecution Not Liable To Be Terminated If IT Penalty Set Aside On Technical Grounds: Kerala High Court

The Kerala High Court has reiterated that criminal prosecutions for alleged tax evasion under the Income Tax Act do not automatically fail merely because penalty proceedings were set aside on technical grounds, and that such prosecutions can validly continue where allegations disclose wilful and deliberate concealment of income.

The ruling was delivered by Justice G. Girish while dismissing a batch of criminal miscellaneous petitions filed by Dr. P.H. Abdul Majeed, who had sought the quashing of multiple criminal complaints initiated by the Income Tax Department for offences under Sections 276C(1) and 277 of the Income Tax Act.

Section 276C(1) of the Income Tax Act, 1961 penalises a willful attempt to evade any tax, penalty, or interest. Section 277 penalises making false statements, declarations, or accounts in verification, knowingly or believing them to be untrue.

The cases stemmed from a search and seizure operation conducted on December 18, 2013 at several medical stores run by Majeed, his residences, and related business premises. According to the Department, the search revealed documents and books of accounts indicating suppression of income for assessment years 2008–09 to 2013–14.

Following notices issued under Sections 153A and 142(1) of the Act, the petitioner filed returns showing substantially higher income than disclosed in the original returns, following which the Department initiated criminal prosecutions after obtaining statutory sanction.

Before the High Court, the petitioner argued that the prosecutions were liable to be quashed since the Commissioner of Income Tax (Appeals) had set aside the penalty proceedings against him in March 2025.

Relying on the Supreme Court's decision in K.C. Builders and Others v The Assistant Commissioner of Income Tax (2004), Majeed argued that once penalties are annulled, criminal proceedings cannot continue.

Rejecting this contention, the High Court noted that the appellate authority had set aside the penalty proceedings only on technical grounds and not on merits. 

Placing reliance on the Supreme Court's three-judge bench ruling in Radheshyam Kejriwal v State of West Bengal and Another (2011), the Court observed that criminal prosecution can continue where exoneration in adjudication proceedings is only on technical grounds and not on merits.

The court found that the complaints clearly alleged willful, conscious, and deliberate attempts at tax evasion and that such allegations warranted adjudication by the trial court.

The bench stated that "the penalty proceedings against the petitioner were found to be void and unsustainable for the reason that the notices issued to the petitioner by the Assessing Officer for imposing penalty under Section 271(1)(c) has not specifically mentioned whether the penalty is proposed in respect of concealment of income or for furnishing inaccurate particulars of income. Thus, it is obvious that the petitioner got exonerated by the appellate order in the adjudication proceedings merely on technical grounds and not on merit. That being so, the criminal prosecutions initiated against the petitioner are not liable to be terminated in view of the law laid down by the three Judges Bench of the Apex Court in Radheshyam Kejriwal (supra)."

The bench disagreed with the petitioner that the criminal prosecutions launched against him were liable to be closed since he had been exonerated in the adjudication proceedings by the appellate order passed by the Commissioner of Income Tax on technical grounds.

Concluding that no case was made out for the exercise of inherent powers under Section 482 of the Code of Criminal Procedure, the Court dismissed all the petitions.

For Petitioner: Advocates Binisha Baby, Anil D. Nair, Telma Raju and Aaditya Nair 

For Respondent: Senior Advocate P.K. Ravindranatha Menon; Advocates Jose Joseph, Navaneeth N. Nath; and Senior Public Prosecutor Renjit George