Wilful tax evasion prosecution fails when admitted tax is paid before complaint and mens rea is not shown.

For prosecution for wilful attempt to evade tax, the Revenue must establish a positive act and mens rea; where the admitted tax liability was disclosed in the return, instalments were sought, and the self-assessment tax was paid before the complaint was filed, the essential ingredient of evasion was absent. An earlier authorisation could not sustain prosecution once payment had been made before initiation, and only any remaining interest or penalty issues would require fresh authorisation. The criminal complaint was therefore treated as unsustainable and liable to be quashed as an abuse of process.

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Issues: Whether a criminal complaint for offence under Section 276C(2) read with Section 278B of the Income-tax Act, 1961 could be sustained when the assessee had disclosed the tax liability in the return, sought instalments, and paid the self-assessment tax before the complaint was filed.

Analysis: The liability was disclosed in the return for the assessment year 2013-14 and the petitioners repeatedly sought time to pay the admitted tax, including by instalments. The record showed that the self-assessment tax was thereafter paid in 2017-2018, well before the complaint was lodged in 2019. The complaint nevertheless proceeded on the basis of the earlier authorisation and did not disclose the subsequent payments. In these circumstances, the essential ingredient of a wilful attempt to evade tax, which requires a positive act and mens rea, was absent. Once the admitted tax stood paid before initiation of the complaint, the earlier authorisation could not sustain prosecution for the unpaid tax, and at the highest only the issues of delayed interest and penalty remained, for which a fresh authorisation was required.

Conclusion: The complaint was not maintainable and was liable to be quashed.

Final Conclusion: The prosecution was an abuse of the process of law and the criminal complaint was set aside in exercise of inherent jurisdiction.

Ratio Decidendi: For prosecution under Section 276C(2), the Revenue must establish a wilful attempt to evade tax with mens rea, and where the admitted tax is paid before the complaint is filed, continuation of prosecution on the basis of an earlier authorisation is unsustainable.

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