ITAT Penalty Confirmation Not Mandatory for Criminal Prosecution in High-Value Income Tax Evasion Cases: Delhi HC [Read Order]
The Delhi High Court held that pendency of appellate proceedings and absence of finality on penalty is not a statutory bar for initiation of prosecution under the Income Tax Act.
The Delhi High Court recently held that criminal prosecution under the Income Tax Act, 1961 is not contingent upon confirmation of penalty or attainment of finality from the Income Tax Appellate Tribunal, particularly in cases involving high-value tax evasion.
The ruling was delivered in a writ petition filed by Saumya Chaurasia challenging sanction orders dated February 10, 11 and 19, 2025 issued under Section 279(1) of the Income Tax Act. The Principal Commissioner of Income Tax, Central-1, Delhi authorised initiation of prosecution under Sections 276C and 278E of the Act for multiple assessment years ranging from AY 2011-12 to AY 2022-23 through the impugned orders.
The petitioner also assailed Circular No. 5/2020 dated January 23, 2020 issued by the Central Board of Direct Taxes (CBDT), contending that it was arbitrary and violative of Article 14 of the Constitution.
As recorded in the judgment, a search and seizure operation was conducted at the petitioner’s residence in February 2020, pursuant to which proceedings under Section 153C were initiated. Assessment orders were subsequently passed in March 2024 for several assessment years.
The petitioner had instituted appeals against the assessment orders before the Commissioner of Income Tax (Appeals) which were pending. Meanwhile, the PCIT granted sanction for prosecution, and criminal complaints were filed before the Additional Chief Judicial Magistrate (Special Acts), Central, Tis Hazari Courts, Delhi.
Appearing for the petitioner, Senior Advocate Balbir Singh contended that initiation of prosecution was premature in the absence of finality in assessment and penalty proceedings, and that the circular vested unfettered discretion in the sanctioning authority. It was argued that without confirmation of penalty or adjudication by appellate forums, criminal prosecution could not be permitted.
The Revenue, represented by Senior Standing Counsel Ruchir Bhatia, submitted that the Act does not prescribe any requirement that penalty proceedings must attain finality before prosecution is launched. It was argued that prosecution and assessment proceedings operate separately, and that Section 279(1) empowers the Principal Commissioner to sanction prosecution notwithstanding pendency of appeals.
The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar agreed with the Revenue, observing that there is no statutory embargo under the Income Tax Act preventing initiation of prosecution merely because appellate proceedings are pending. It was held that the statute does not make prosecution dependent on confirmation of penalty or on the outcome of proceedings before the ITAT. The Bench noted that the sanction orders reflected due application of mind and that the pendency of appeals could not, by itself, invalidate prosecution in cases involving substantial tax evasion.
Finding no merit in the petitioner’s challenge, the Court declined to interfere and dismissed the writ petition.
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