In a recent ruling, the Karnataka High Court ruled that merely paying a penalty for delayed filing of Income Tax Returns (ITR) does not exempt a taxpayer from criminal prosecution under Section 276CC of the Income Tax Act. Rajkumar Agarwal, the petitioner, challenged the criminal proceedings initiated against him by the Income Tax Department before the Karnataka High Court.

The proceedings arose from his failure to file ITR on time for Assessment Years 2012-13 to 2015-16, despite receiving notices from the tax authorities. The Income Tax Department had filed four private complaints against Agarwal under Section 200 of the Cr.P.C., alleging that he willfully failed to submit his tax returns within the prescribed period. After obtaining the necessary sanction orders from the competent authority, the department proceeded with criminal prosecution. The petitioner’s counsel argued although there was a delay in filing ITR, he had filed the returns and paid the penalties imposed. The counsel argued that his failure to file on time was unintentional, citing personal hardships, including the death of his brothers. Boost Your Business with SME IPO Funding Strategies – Enroll Now

The petitioner’s counsel relied on the Karnataka High Court’s judgment in C.P. Yogeshwara vs. Income Tax Department (2017), where a similar prosecution was quashed. The Income Tax Department opposed the plea, arguing that paying penalties does not nullify criminal liability.

The department pointed to Section 278E of the Income Tax Act, which presumes a culpable mental state (intent to evade tax) unless rebutted by the accused. The department counsel relied on Supreme Court judgments in Sasi Enterprises vs. ACIT (2014) 361 ITR 163 and V.P. Punj vs. ACIT (2002) 253 ITR 369, which held that tax evasion cases can proceed even if penalties have been paid. A bench led by Justice S. Vishwajith Shetty observed that delayed ITR filings, even if later accepted with penalties, do not exempt taxpayers from prosecution under Section 276CC of the Income Tax Act. The court held that the burden of proof lies on the taxpayer to rebut the presumption of guilt under Section 278E by presenting evidence before the trial court. The court ruled that the petitioner must defend himself in the trial court. The court dismissed the petition.