Setting Aside of Underlying Assessment Order Quashes Dependent Criminal Prosecution for Tax Evasion and False Verification

By | October 9, 2026
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Setting Aside of Underlying Assessment Order Quashes Dependent Criminal Prosecution for Tax Evasion and False Verification

Issue

Whether criminal prosecution for willful attempt to evade tax and false verification under Sections 276C and 277 read with Section 278B remains maintainable after the underlying assessment order forming the sole basis of the complaint is set aside by the High Court.

Facts

  • Complaint & Charges: The Income-tax Officer (ITO) filed a criminal complaint against the assessee partnership firm and its partners, alleging tax evasion and discrepancies in the income-tax return for AY 1981-82 under Sections 276C and 277 read with Section 278B.
  • Basis of Complaint: The entire prosecution was founded upon the findings recorded in the original assessment order for AY 1981-82.
  • Conviction by Trial Court: The Judicial Magistrate First Class conducted the trial and convicted the petitioners and their co-accused for the alleged offences.
  • Affirmation by Sessions Court: Two criminal appeals filed by the petitioners before the Additional Sessions Judge were dismissed, upholding the conviction and sentence.
  • Assessment Order Set Aside: Subsequent to the criminal conviction, a Division Bench of the High Court set aside the underlying assessment order in income-tax appellate proceedings and remanded the matter for fresh assessment.

Decision

  • Prosecution Not Maintainable: In favour of Assessee. Once the assessment order forming the core foundation of the criminal complaint is set aside, the basis of the prosecution disappears, rendering it legally unsustainable. [Para 12]
  • Conviction Quashed: In favour of Assessee. Consequent to the setting aside of the assessment order, the prosecution cannot survive, and the conviction and sentence are liable to be quashed. [Para 13]

Key Takeaways

  1. Dependence of Prosecution on Assessment: Criminal prosecution for tax evasion under Section 276C and false statement under Section 277 cannot stand independently if the assessment order providing the primary evidence of tax evasion is set aside.
  2. Effect of Reversal in Parallel Tax Proceedings: Findings in income-tax appellate/judicial proceedings directly impact parallel criminal proceedings when the criminal charges rely entirely on the initial assessment findings.
  3. Primary Basis Nullified: When the foundational order of penalty or assessment is quashed or remanded for fresh consideration, criminal proceedings based thereon become premature and non-maintainable.
HIGH COURT OF PUNJAB & HARYANA
Vijay Kumar
v.
State of Punjab
SURYA PARTAP SINGH, J.
CRR No. 1654 & 1708 of 2004 (O & M)
SEPTEMBER  22, 2026
Shantanu Bansal and Yugank Goyal, Advs. for the Petitioner. Ms. Gagandeep Kaur, DAG and Vidul Kapoor, Adv. for the Respondent.
ORDER
1. These are two revision petitions. Both the petitions have been filed against the judgment dated 14.08.2004, passed in two criminal appeals, by the Court of learned Additional Sessions Judge, hereinafter being referred to as ‘Appellate Court’. The abovesaid appeals were filed by the present petitioners, against their conviction for the commission of offence punishable under Sections 276(c) read with Section 278(b) of Income Tax Act.
2. In nut-shell, the facts emerging from record are that the Income Tax Officer had filed a complaint against ‘M/s Kalyan Rice & General Mills, Kartarpur’ and its partners, namely ‘Vijay Kumar’ (the petitioner No.1 in CRR-1654-2004), ‘Kalyan Singh’ (the petitioner in CRR-1708-2004) and ‘Varinder Kumar’, alleging the commission of offence by them under Sections 276-C and 277 of Income Tax Act, 1961.
3. Once the complaint was filed, a trial was conducted by the Court of learned Judicial Magistrate First Class Jalandhar, hereinafter being referred to as ‘trial Court’ only. The learned trial Court, by virtue of judgment dated 21.02.1995, held the petitioners and their above-named coaccused guilty for the commission of offence punishable under Sections 276(c), 277 read with Section 278(B) of Income Tax Act. In view of abovementioned judgment of conviction, passed by the learned trial Court, following sentences were awarded to the petitioners:-
Convicts Offence under Section Sentence
Vijay Kumar 277 read with Section 278(B) of Income Tax Act Rigorous imprisonment for a period of six months and to pay a fine of Rs.500/-.
Kalyan Singh 276(C) read with Section 278-B of Income Tax Act Rigorous imprisonment for a period of six months and to pay a fine of Rs.500/-.
277 read with Section 278(b) Rigorous imprisonment for a period of six months and to pay a fine of Rs.500/-.

 

All the sentences were ordered to be run concurrently.
4. Aggrieved of the abovementioned judgment of conviction and order of sentence, the petitioners had filed two separate appeals, i.e. one by ‘Kalyan Singh’ and another by ‘Vijay Kumar’ and the firm. However, the abovementioned appeals, which were disposed of by a common judgment, did not find favour of the learned Appellate Court, and thus, by virtue of judgment dated 14.08.2004, both the appeals were dismissed.
5. Feeling dissatisfied with the abovementioned judgments, passed by the learned trial Court, vis-a-vis the learned Appellate Court, the present revision petitions have been preferred.
6. In nut-shell, the facts emerging from record are that the abovementioned complaint was filed against the petitioners by alleging that in the Income Tax Return for the year 1981-82 certain discrepancies, with regard to evasion of tax, were detected. It was the claim of the respondents/complainant that the abovementioned entries, in the Income Tax Return, were with the intention to evade payment of income tax and cause revenue loss to the State Exchequer. Thus, the complaint.
7. Today, the learned counsel for the petitioners has contended that the very foundation of the complaint in question was the assessment order dated 08.01.1988. According to learned counsel for the petitioners, by virtue of order dated 27.02.2020, in ITA No.26 of 2001, the Division Bench of this Court set aside the abovementioned assessment order and a direction has been issued for fresh assessment.
8. As per learned counsel for the petitioners, in view of the fact that the very foundation of the prosecution stands demolished, the complaint is not maintainable and therefore, the impugned judgment of conviction and order of sentence, passed by the learned trial Court, vis-a-vis the judgment, passed by the learned Appellate Court in appeal, deserve to be set aside.
9. The learned counsel for the respondent No.2/Department has not disputed this fact that the assessment order, on the basis of which the complaint in question was filed, has been set aside by the Division Bench of this Court.
10. The record has been perused carefully.
11. The order dated 27.02.2020, passed by the Division Bench of this Court, reads as under:-
“This appeal has been filed against the order of the revenue making substantial addition on the basis of stock variation.
The primary grouse of the appellant was that at the relevant period it had obtained the contract for milling rice. For some period it did not have an electric connection and it had got that some paddy milled from its sister concern and that explained the stock variation. The authorities below having not accepted this explanation, the present appeal has been filed.
Before us it is not disputed that the sister concern had also reflected this transaction and that was ultimately accepted by the revenue.
In these circumstances, both the learned counsel have agreed that it would be appropriate if the matter is decided afresh in view of the changed circumstances i.e. plea of the sister concerned having been accepted.
Impugned order is set aside and the matter is remanded back.
Since the main case has been decided, the pending civil miscellaneous application, if any, also stands disposed of.”
12. The abovementioned order makes it apparent that the assessment order, on the basis of which complaint has been filed, stands set aside and therefore, in my opinion, any prosecution based on the abovementioned assessment cannot sustain.
13. In view of abovementioned developments, it is hereby observed that for want of assessment order, the complaint itself is not maintainable. Hence, by accepting the present revisions, the impugned judgment of conviction and order of sentence, passed by the learned trial Court, vis-a-vis the judgment, passed by the learned Appellate Court in appeal, are hereby set aside. The petitioners are acquitted of the charges framed against them.
14. Accordingly, the present petitions stand allowed in the aforesaid terms.
15. Pending miscellaneous application(s), if any, stand(s) disposed of.
16. A photocopy of this order be placed on the file of connected case.
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