High Court Quashes Prosecution under Section 276C(2) after Payment of Entire Self-Assessment Tax

The petitioners instituted a criminal original petition under Section 528 of the Bharatiya Nagarik Suraksha Sanhita to quash a complaint presented by the Department under Section 276C(2) of the Income Tax Act, 1961. The complainant alleged that the company had filed its return of income for Assessment Year 2023-24 belatedly on 31/12/2023 with total income of Rs. 27,31,95,740 and total tax liability of Rs. 9,16,30,141. From this, Rs. 43,48,624 was held as TDS credit, and the remaining was a self-assessment tax of Rs. 8,72,81,520. The return was filed without paying this admitted indebtedness as prescribed under Section 140A. Once the return was made, a demand for Rs. 8,72,81,520 was made for payment within 30 days. Notice dated 08/10/2024 and 08/11/2024 did not see the tax being paid.

Thereafter, a show-cause notice was sent, and the company filed an explanation on 12/12/2024 explaining that funds were tied up in non-liquid assets, making payment impossible immediately. Thereafter, Rs. 3,85,19,770 was paid on 19/12/2024 and Rs. 4,87,61,750 on 13/01/2025, hence settling the entire amount before the complaint was lodged on 22/01/2025.

The petitioners insisted that the delay in payment resulted from cash flow problems and not with a view to avoid paying tax, and that failure of any proceedings for imposition of penalty to be initiated meant lack of mens rea.

Issue Raised: Whether a delay in making payment of self-assessment tax, without intent or concealment demonstrating purpose of evasion, amounts to a wilful attempt under Section 276C(2) of the Income Tax Act.

Court’s Ruling: The Court allowed the petition and rejected the prosecution. It noted that for the invocation of Section 276C(2), there should be a wilful intent of non-payment of tax, and a definite act of false entries, suppression, or fabrication must underlie such intention. The Court remarked that the Department had not made any charge of concealment of income or alteration of accounts and that the whole admitted tax had been paid before the complaint.

Upon reliance on cases like S.P. Velayutham v. Assistant Commissioner of Income Tax (2022) 442 ITR 74 and Prem Dass v. ITO (1999) 236 ITR 683 (SC), the Court held that “wilful attempt” implies presence of mens rea and cannot be established purely on account of delay in payment. The prosecution was thus declared an abuse of process, and the complaint in E.O.C.C.under Section 528 of the BNSS No. 5/ 2025 was quashed.

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