Paying Late Doesn’t Mean Evading- Late Tax Payment is Not a Crime – No Mens Rea, No 276C(2)- HC Slams Prosecution for Mere Default -Wilful Attempt Must Be Proved- Delay Alone Can’t Invite Jail under Section 276C(2)
Summary: The Madras High Court, in the case of G Square Layout Private Limited Vs DCIT, quashed a prosecution filed by the Income-tax Department under Section 276C(2) against the company and its directors for a wilful attempt to evade the payment of self-assessment tax of ₹8.72 crores for the Assessment Year 2023-24. The company had initially filed a belated return without paying the tax, citing that its funds were locked in non-liquifiable assets. Despite eventually remitting the entire tax liability—₹3.85 crores on December 19, 2024, and ₹4.87 crores on January 13, 2025—before the court took cognizance of the matter, the Department pursued criminal prosecution. The High Court decisively held that mere failure or delay in the payment of admitted tax, without any positive act of evasion, such as false entries, concealment, or suppression, cannot constitute a “wilful attempt to evade tax” under Section 276 C(2)Relying on judicial precedents, the court observed that the absence of mens rea (criminal intent) was evident because the full tax amount was cleared before the complaint was filed. Since legislative provisions, such as Section 140A and Section 220, treat non-payment as a default without using the term wilful, the court ruled that classifying a simple delay as a criminal act of wilful evasion amounts to an abuse of the legal process. The decision reinforces that Section 276C(2) requires deliberate intent to defeat the tax law, which was lacking in this instance of mere default.
Facts: Income-tax Department filed a complaint u/s 276C(2) against G Square Layout Pvt Ltd & its directors for wilful attempt to evade payment of self-assessment tax of ₹8.72 crores for AY 2023-24. The company had filed its return belatedly on 31.12.2023 without paying the self-assessment tax u/s 140A. After receiving notices in October & November 2024, it still failed to pay. A show-cause notice dated 02.12.2024 followed, to which the company replied that funds were locked in non-liquifiable assets. Later, it remitted ₹3.85 crores (19.12.2024) & ₹4.87 crores (13.01.2025) – entire tax liability before cognizance. Despite that, the Department filed prosecution in E.O.C.C.No.5/2025.
Petitioner’s Contentions
- Payment delay doesn’t amount to wilful attempt to evade tax.
- Entire admitted tax was cleared before cognizance; hence, mens rea absent.
- No penalty u/s 221 or other proceedings were initiated; prosecution for same act impermissible.
Department’s Stand
- The company possessed assets worth ₹129 crores & profit of ₹26 crores but intentionally withheld tax.
- Subsequent payment doesn’t erase earlier default.
- Non-levy of penalty doesn’t preclude criminal prosecution.
Court’s Observations
- Relied heavily on S.P. Velayutham v. ACIT (2022) 442 ITR 74 (Mad) which clarified that wilful attempt u/s 276C(2) requires a positive act of evasion, such as false entries, suppression, or diversion of funds.
- Cited SC & HC precedents: Prem Dass (236 ITR 683 SC), Vijaychandra Chandulal Shah (213 ITR 307 Guj), Forzza Projects (2021 279 Taxman 459 Ker), Ganga Devi Somani (437 ITR 323 Guj) etc.
- Noted absence of any false statement, concealment, or manipulative conduct by the company.
- Payment of full tax before complaint filing disproved any mens rea.
- Section 220 & 140A treat non-payment as “assessee in default” but omit the term wilful — showing legislative intent that mere default isn’t criminal.
- The assessee is a mere defaulter &it cannot be construed as a willful attempt made by the assessee to evade the payment of tax, nor is there any presence of mens rea so as to attract the offence u/s 276C(2), particularly, when the assessee has paid the entire tax liability after issuance of show cause notice.
- Penal provisions must be strictly construed; prosecution without clear intent is abuse of process.
Decision
The Court quashed the prosecution u/s 276C(2), holding:
Mere failure or delay in payment of admitted tax, without deliberate intent or mens rea, cannot constitute a ‘wilful attempt to evade tax’. Continuation of prosecution would be a futile exercise & abuse of process of law.
This judgment re-affirms that delay evasion. Section 276C(2) demands wilful intent to defeat tax law. Once taxes are later remitted & no suppression or false entry exists, prosecution loses its moral & legal footing.
A welcome precedent shielding genuine business defaults from criminal stigma while retaining deterrence for deliberate evaders.
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