Mens rea in tax evasion prosecution defeated where appellate reduction of liability undermined wilful attempt to evade tax.

Wilful attempt to evade tax under Section 276C(2) could not be sustained where appellate and remand proceedings substantially reduced the assessed income and tax liability. The HC applied the requirement of mens rea and found that, on the peculiar facts, the accused could not be said to have wilfully evaded payment when the final fact-finding authority had fixed a much lower liability. It also considered that the accused had pursued statutory remedies and that prosecution had begun before the assessment dispute had reached its factual culmination. On that basis, discharge was allowed.

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Issues: Whether the accused could be discharged from prosecution under Section 276C(2) of the Income-tax Act, 1961 on the ground that the assessment and tax demand had been substantially reduced in appellate proceedings, negativing any wilful attempt to evade payment of tax.

Analysis: The prosecution was founded on the original assessment and the allegation of non-payment of tax. However, the appellate and remand proceedings resulted in a substantial reduction of the assessed income and the tax payable, and the final fact-finding authority determined a much lower tax liability. In these circumstances, the foundational allegation of wilful evasion could not be sustained. The Court applied the requirement of mens rea inherent in Section 276C(2) and held that, on the peculiar facts, the accused could not be said to have wilfully attempted to evade payment of tax. The Court also noted that the accused had been actively pursuing statutory remedies and that the prosecution had been launched before the assessment dispute had reached its factual culmination.

Conclusion: The accused was entitled to discharge, and the revision was allowed.

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