Premature income-tax prosecution and invalid sanction where disputed facts were still pending regular assessment.

Criminal prosecution for alleged income-tax evasion is premature where the disputed facts, including the genuineness of a sale agreement and the existence of wilful evasion, are still to be examined in regular assessment and the assessee has not yet filed the return. In such circumstances, no conclusive basis exists for offences under sections 276C, 277 or the related penal allegation, and discharge is justified. A prosecution direction under section 279(1) is also invalid unless it reflects a real and informed exercise of authority based on relevant assessment material; a decision purportedly founded on non-existent assessment records does not satisfy that requirement.

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Issues: (i) Whether the criminal complaint for offences under the Income-tax Act was premature when the assessee had not yet filed the return and the question of genuineness of the sale agreement was still to be decided in regular assessment; (ii) Whether the sanction and direction for prosecution under section 279(1) of the Income-tax Act were valid when the Commissioner had not based the decision on the relevant assessment record.

Issue (i): Whether the criminal complaint for offences under the Income-tax Act was premature when the assessee had not yet filed the return and the question of genuineness of the sale agreement was still to be decided in regular assessment.

Analysis: The search, seizure, representation, and subsequent order under section 132(12) showed that the disputed cash and the alleged sale agreement were matters still requiring examination in regular assessment. The assessee still had time to file the return for the relevant assessment year, and the Commissioner had directed that the disputed questions be considered afresh during regular assessment after evidence was led. In such circumstances, no final finding existed that the agreement was fabricated or that there had been a wilful attempt to evade tax, penalty, or interest within the meaning of section 276C(1), nor could the ingredients of section 277 or the alleged offence under section 193 IPC be conclusively said to have arisen.

Conclusion: The complaint was premature and the discharge of the accused was correct.

Issue (ii): Whether the sanction and direction for prosecution under section 279(1) of the Income-tax Act were valid when the Commissioner had not based the decision on the relevant assessment record.

Analysis: Prosecution under section 279(1) required a conscious exercise of authority at the Commissioner's instance. The order for prosecution referred to perusal of the assessment records for the assessment year 1987-88, but no return had yet been filed and no such assessment record existed. The record also showed that the Commissioner had left the disputed factual questions for decision in regular assessment. On that basis, the prosecution direction did not reflect the necessary application of mind to the relevant material.

Conclusion: The prosecution order did not satisfy section 279(1) and could not sustain the complaint.

Final Conclusion: The revision failed because the prosecution was initiated before the disputed tax issues were finally determined and without a valid prosecution decision founded on the relevant material.

Ratio Decidendi: Where the disputed facts bearing on alleged tax evasion are left for determination in regular assessment and no return has yet been filed, a criminal prosecution for wilful evasion is premature; further, prosecution under section 279(1) must rest on a real and informed exercise of authority based on the relevant record.

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