Tax evasion prosecution stayed while the underlying demand remains pending in restored tribunal appeal

Prosecution for wilful attempt to evade tax under section 276C(2) was stayed because the underlying tax demand had not attained finality. The assessment demand had been partly reduced in first appeal, and the Tribunal appeal was later restored and remained pending on merits. In these circumstances, the demand was still sub judice and could not be treated as crystallised for criminal prosecution, even though assessment proceedings and prosecution are generally independent. The court also noted the substantial payment already made by the assessee. The prosecution was therefore ordered to remain stayed until the Tribunal finally decides the pending appeal on merits.

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Issues: Whether prosecution for wilful attempt to evade tax under section 276C(2) of the Income Tax Act, 1961 could continue when the assessee's appeal before the Income Tax Appellate Tribunal was restored and remained pending, leaving the tax demand uncrystallised.

Analysis: The assessment had resulted in a demand, which was partly reduced in appeal before the Commissioner (Appeals). The further appeal before the Tribunal had been dismissed only for want of prosecution, not on merits, and was later restored. Since the appeal was pending for substantive adjudication, the demand could not be treated as finally crystallised. The Court recognised that adjudication proceedings and criminal prosecution are generally independent, but held that where the underlying tax dispute is still live and the demand has not attained finality on merits, continuation of prosecution on the same allegations would be unjustified. The substantial payment already made by the petitioner was also taken into account.

Conclusion: The prosecution under section 276C(2) could not proceed at that stage and was ordered to remain stayed until the Tribunal decides the pending appeal on merits.

Ratio Decidendi: Where the tax demand is still sub judice in a restored and pending appeal before the appellate tribunal, prosecution for evasion based on that very demand is premature and may be stayed until the appellate proceedings attain finality on merits.

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