Premature Income-tax prosecution cannot rest on third-party material alone without crystallised findings of concealment.

Prosecution for offences under the Income-tax Act based on search material and third-party statements was treated as premature where the alleged concealment had not first been crystallised by the Assessing Officer or an officer authorised by him. The Court read sections 276C, 277, 278 and 279 with section 136 and held that, in complaints for false return, false verification or concealment emerging from assessment proceedings, mere suspicion, third-party material or an opinion of the Deputy Director was insufficient. Because the complaint rested on unverified inference rather than completed findings of concealment or wilful evasion, it was found not maintainable at that stage.

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Issues: Whether the complaint for offences under the Income-tax Act could validly be launched by the Deputy Director of Income Tax on the basis of search materials and third-party statements, without a completed finding by the Assessing Officer on concealment or wilful attempt to evade tax.

Analysis: The complaint was founded on search and survey material, but the accused had not made incriminating admissions before the complainant and the alleged cash component was sought to be inferred largely from third-party material. The statutory scheme under sections 276C, 277 and 278 was read with section 279, while section 136 was noted to treat proceedings before income-tax authorities as judicial proceedings. On that basis, the Court held that where prosecution is essentially for false return, false verification or concealment detected in assessment proceedings, the material must first be crystallised by the Assessing Officer or an authorised by him. The Court distinguished cases where prosecution proceeded on strong incriminating material from the assessee himself and held that mere suspicion, third-party statements or an opinion of the Deputy Director was insufficient. The challenge to electronic evidence was not separately adjudicated because the complaint itself was held not maintainable at that stage.

Conclusion: The complaint was held to be premature and not maintainable at the instance of the Deputy Director. The revisions were allowed and the accused were relieved from the prosecution in the present complaints.

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