Wilful default under income-tax prosecution requires proof beyond penalty proceedings; bona fide non-compliance rebutted mens rea

Prosecution under Section 276CC for failure to file returns in response to a Section 153A notice is independent of penalty proceedings under Section 271(1)(b), so setting aside the penalty does not by itself nullify the criminal case. Wilful default remains essential, and Section 278E raises a presumption of culpable mental state. On the facts described, correspondence seeking assistance, efforts to obtain seized documents, and eventual filing of returns rebutted that presumption and showed the non-compliance was not deliberate. The acquittal was therefore sustainable because wilful default was not proved.

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Issues: (i) Whether setting aside of penalty under Section 271(1)(b) of the Income-tax Act, 1961, for non-compliance with Section 142(1) notices nullifies prosecution under Section 276CC for failure to file returns in response to Section 153A notice. (ii) Whether the accused rebutted the statutory presumption under Section 278E of the Income-tax Act, 1961, so as to negate wilful default and mens rea under Section 276CC.

Issue (i): Whether setting aside of penalty under Section 271(1)(b) of the Income-tax Act, 1961, for non-compliance with Section 142(1) notices nullifies prosecution under Section 276CC for failure to file returns in response to Section 153A notice.

Analysis: Penalty under Section 271(1)(b) and prosecution under Section 276CC operate in distinct statutory fields. The former concerns non-compliance with Section 142(1) notices at the assessment stage, while the latter concerns wilful failure to furnish returns within time, including in response to a Section 153A notice. The cancellation of a penalty for one default does not automatically extinguish criminal prosecution for a separate statutory default founded on different facts and a different notice.

Conclusion: The setting aside of penalty under Section 271(1)(b) did not, by itself, vitiate prosecution under Section 276CC.

Issue (ii): Whether the accused rebutted the statutory presumption under Section 278E of the Income-tax Act, 1961, so as to negate wilful default and mens rea under Section 276CC.

Analysis: Wilful failure is an essential ingredient of Section 276CC, and Section 278E creates a presumption of culpable mental state. That presumption can be displaced by credible material showing bona fide inability or absence of intentional non-compliance. On the facts, the record showed efforts to obtain seized documents, correspondence seeking assistance, and eventual filing of returns, supporting the conclusion that the failure was not deliberate. These circumstances rebutted the presumption of mens rea beyond reasonable doubt.

Conclusion: The presumption under Section 278E stood rebutted and wilful default was not established.

Final Conclusion: The acquittal was sustainable because the prosecution failed on the essential requirement of wilful default, notwithstanding the error in the appellate court's reasoning on the effect of penalty proceedings.

Ratio Decidendi: Prosecution under Section 276CC for failure to file returns in response to a Section 153A notice is independent of penalty proceedings under Section 271(1)(b), but conviction can stand only if wilful default survives the presumption under Section 278E; credible evidence of bona fide non-compliance rebuts that presumption.

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