Tax prosecution for concealment fails where penalty is set aside and no inaccurate particulars are found

Criminal prosecution for wilful tax evasion and false statement under sections 276C and 277 was not sustainable where the competent tax forum had found no concealment of income or furnishing of inaccurate particulars and the penalty under section 271(1)(c) had been set aside. A sustained assessment addition by itself did not establish the mens rea required for criminal liability, especially when the finding on penalty negated concealment. On that footing, leave to appeal against the acquittal was declined.

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Issues: Whether leave to appeal should be granted against the acquittal in a prosecution under sections 276C and 277 of the Income-tax Act, 1961, when the penalty under section 271(1)(c) had been set aside and no concealment or furnishing of inaccurate particulars was found.

Analysis: The complaint rested on an addition of Rs. 30,000 sustained in appellate proceedings, but the penalty order under section 271(1)(c) had been set aside because the assessee was not given adequate opportunity and the Tribunal found that no case for concealment or inaccurate particulars was made out. The court held that, in these circumstances, the mere sustained addition did not establish a wilful attempt to evade tax or a false statement so as to attract criminal liability under sections 276C and 277. The reliance on the pendency of proceedings was distinguished, as the decisive factor here was the Tribunal's finding negating concealment.

Conclusion: Leave to appeal was declined, as no ground was made out to interfere with the acquittal.

Ratio Decidendi: Where the competent tax authority has found no concealment of income or furnishing of inaccurate particulars and the penalty is set aside, criminal prosecution for wilful tax evasion or false statement under sections 276C and 277 cannot be sustained merely on the basis of a partial addition in assessment.

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