No prosecution u/s 276C for delayed tax payment without wilful evasion: Madras HC

G Square Layout Private Limited Vs DCIT (Madras High Court)

No prosecution u/s 276C despite delayed tax payment sans wilful tax evasion or suppression of income : Madras HC

Facts:

• The petitioner, M/s. G Square Layout Pvt. Ltd., along with its directors Shri Ramajayam and Smt. Sreekala, filed its income tax return for AY 2023–24 belatedly on 12.2023 under Section 139(4) of the Income-tax Act, 1961. The company declared a total income of Rs.27,31,95,740 with a total tax liability of Rs.9,16,30,141. After adjusting TDS credit of Rs.43,48,624, the balance self-assessment tax payable under Section 140A amounted to Rs.8,72,81,520.
• The company filed its return without paying the self-assessment tax, which is a mandatory requirement under Section 140A(1). Owing to non-payment, the company was treated as a “deemed assessee in default” under Section 140A(3) and Section 220(4) of the Act.
• The Income Tax Department subsequently issued multiple notices demanding payment of the outstanding tax liability, including notices dated 10.2024 and 08.11.2024, and a show-cause notice on 02.12.2024 warning of possible prosecution under Section 276C(2) for wilful attempt to evade payment. Despite these communications, the company did not make immediate payment.
• Thereafter, the petitioner company cleared the entire self-assessment tax liability before the initiation of any criminal prosecution. A sum of Rs.3,85,19,770 was paid on 12.2024, and the balance Rs.4,87,61,750 was paid on 13.01.2025, thereby discharging the entire liability of Rs.8,72,81,520 prior to any complaint being filed.
• Despite the full payment, the Department initiated criminal proceedings under Section 276C(2) of the Income-tax Act, alleging that the company had “wilfully attempted to evade payment of tax.” A complaint was filed on 01.2025 before the Additional Chief Metropolitan Magistrate (Economic Offences)-II, Egmore, Chennai, and was taken on file as E.O.C.C. No. 5 of 2025.
• In response, the petitioners filed O.P. No. 22880 of 2025 before the Madras High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), seeking to quash the prosecution. They argued that there was no deliberate or wilful attempt to evade tax, that the entire tax had been paid before the complaint was filed, and that mere delay or default in payment could not amount to an offence under Section 276C(2).

Issues:

• Whether mere delay in payment of self-assessment tax amounts to a “wilful attempt to evade payment” under Section 276C(2) of the Income-tax Act.
• Whether prosecution can continue when the entire tax liability was paid before the complaint was filed.
• Whether mens rea (criminal intent) is a mandatory element for sustaining a prosecution under Section 276C(2).

Observations:

• The Court observed that the entire self-assessment tax liability was paid by the petitioner before the filing of the complaint. This fact indicated that there was no intention to evade tax, as an assessee who truly intends to evade would not voluntarily clear the entire dues prior to initiation of prosecution.
• It was noted that the prosecution under Section 276C(2) requires a “wilful attempt” to evade tax, which necessarily involves a positive act or deliberate conduct aimed at avoiding payment. Mere failure or delay in paying tax, by itself, does not constitute a wilful attempt.
• The Explanation to Section 276C(2) clarifies that the provision applies where there are false entries, deliberate omissions, falsification of books of account, concealment of income, or other such acts that enable tax evasion. In this case, there were no such acts alleged or proved. The department’s complaint was based solely on delayed payment, which is not enough to constitute a criminal offence.
• The Court emphasized that non-payment or delayed payment of self-assessment tax may attract civil consequences, such as interest, penalty, or being treated as an assessee in default under Section 140A(3) or Section 220(4). However, criminal liability under Section 276C(2) arises only when there is evidence of mens rea — a conscious and deliberate intention to evade tax.
• The Court relied on several judicial precedents, including Prem Dass v. ITO (1999) 236 ITR 683 (SC), P. Velayutham v. ACIT Crl.O.P. No. 17906 of 2017 (Mad HC), Vijaychandra Chandulal Shah v. State of Gujarat (1995) 213 ITR 307 (Guj), and Forzza Projects Pvt. Ltd. v. Pr. CIT (2021) 279 Taxman 459 (Ker), all of which held that mere default or delay in tax payment is not sufficient to sustain prosecution under Section 276C(2).
• It was further observed that the absence of any evidence showing concealment of income, falsification of accounts, or diversion of funds strongly supported the petitioner’s case that the default was not wilful. The company’s subsequent action of clearing the entire liability before prosecution further negated the element of mens rea.
• The Court also clarified that reliance on Madhumilan Syntex Ltd. v. Union of India (2007) 11 SCC 297) by the Revenue was misplaced, as that case dealt with non-deposit of TDS, which involves trust money belonging to the government and carries a different legal implication. Delayed self-assessment tax, on the other hand, is a matter between the assessee and the department and stands on a different footing.
• Considering all these aspects, the Court concluded that there was no wilful attempt to evade payment of tax in this case and that the prosecution was based solely on technical default without any supporting evidence of criminal intent. Continuing such proceedings would therefore amount to a misuse of prosecutorial powers and an abuse of the process of law.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT