Holding

The continuation of prosecution after the Settlement Commission's order violated binding departmental circulars and amounted to an abuse of process, warranting quashing of the prosecution.

Summary

The appellant, Vijay Krishnaswami, was searched in 2016 and Rs.4.93 crore of unaccounted cash was seized, leading the Revenue to initiate prosecution under s.276C(1) of the Income Tax Act for the assessment year 2017-18. The appellant filed a quashing petition and later applied to the Settlement Commission under s.245C, which granted immunity from penalty but not from prosecution, citing that the prosecution was pending before the High Court. The High Court dismissed the quashing petition. The Supreme Court examined whether continuing the prosecution after the Settlement Commission's order violated departmental circulars and constituted an abuse of process. It held that the Revenue failed to comply with the 2008 circular, the 2009 Prosecution Manual, and the 2019 CBDT circular, which require ITAT confirmation of penalty exceeding Rs.50,000 before prosecuting, a condition not met in this case. Consequently, the continuation of prosecution was deemed an abuse of process and the Supreme Court set aside the High Court’s order, quashing the prosecution and imposing costs on the Revenue.

Issues considered

Whether continuation of the prosecution initiated under s.276C(1) after the Settlement Commission granted immunity from penalty amounts to an abuse of process of the Court.
Whether the High Court was justified in dismissing the appellant's quashing petition and, if not, what relief should be granted.

Legislation cited

Income Tax Act, 1961s. 245C, s. 245D(4), s. 245D(6), s. 245H(1), s. 245I, s. 276C(1), s. 279(1)
Taxation Laws (Amendment) Act, 1975

Headnote

Issue for Consideration Whether continuation of the prosecution initiated by the revenue u/s.276C(1), Income Tax Act, 1961 against the appellant after passing an order by the Settlement Commission, would amount to abuse of process of Court; of the present case, the High Court was justified to dismiss the quashing petition filed by the appellant, and if not, what relief can be granted. Headnotes† Income Tax Act, 1961 – ss.276C(1), 245H(1) proviso to, 245D(4), 245I – Search conducted at the residence of the

Subjects

Section 276C(1) Income Tax ActProviso to sub-section (1) to Section 245HSections 245D(4) and 245IWilful attempt to evade taxSearch and seizureUnaccounted cashSettlement Commission immunityDepartmental circularsProsecution Manual 2009CBDT circular 2019Abuse of process of CourtCosts imposed on RevenueQuashing petition

Judgment

[2025] 8 S.C.R. 2199 : 2025 INSC 1048

Vijay Krishnaswami @ Krishnaswami Vijayakumar
v.
The Deputy Director of Income Tax (Investigation)
(Criminal Appeal No(s). 3777-3779 of 2025)
28 August 2025
[J.K. Maheshwari* and Vijay Bishnoi, JJ.]

Issue for Consideration
Whether continuation of the prosecution initiated by the revenue
u/s.276C(1), Income Tax Act, 1961 against the appellant after
passing an order by the Settlement Commission, would amount
to abuse of process of Court; whether in the facts of the present
case, the High Court was justified to dismiss the quashing petition
filed by the appellant, and if not, what relief can be granted.

Headnotes†
Income Tax Act, 1961 – ss.276C(1), 245H(1) proviso to,
245D(4), 245I – Search conducted at the residence of the
appellant, unaccounted cash of Rs.4,93,84,300/- was seized –
Proceedings for the offence u/s.276C(1) for assessment year
2017-2018 initiated by Revenue – Appellant filed quashing
petition before the High Court seeking quashing of the
complaint and pending proceedings – Later, appellant also filed
an application u/s.245C before the Settlement Commissioner –
Application partly allowed vide order dated 26.11.2019;
settlement was entered by the Revenue with the appellant,
granting him immunity from levy of penalty – However, High
Court dismissed the quashing petition – Interference with:
Held: 1.1 The departmental circular dated 24.04.2008, Prosecution
Manual, 2009, and CBDT’s circular dated 09.09.2019, provide
when the prosecution ought to be lodged by Revenue – The said
Circulars were issued to regulate the lodging of prosecution in
genuine cases and to weed out the problems of the tax payers,
and also to understand when can the prosecution for s.276 ought
to be lodged and continued. [Para 24]
1.2 If an assessee has made suppression of income without
disclosing the manner in which the excess amount was earned and

* Author
2200 [2025] 8 S.C.R.

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concealed the account making wilful attempt to evade the tax which
may be imposable and chargeable or payable, he/she is required
to be prosecuted – Therefore, the recourse to lodge prosecution
was made permissible subject to the department’s circular dated
24.04.2008 which provided for confirmation by ITAT in case the
penalty imposed u/s.276C(1) is exceeding Rs.50,000/-. [Para 32]
1.3 The said circular was in vogue on the date of the grant of
sanction by Principal Director Income Tax (Investigation), Chennai
(PDIT) to respondent-Deputy Director of Income Tax (Investigation),
Chennai (DDIT) for lodging the prosecution against the appellant –
The said circular was reaffirmed by the Prosecution Manual, 2009
and the clarification issued by the CBDT in 2019 – As such, the
circulars were binding on the authorities and required to be adhered
to while lodging the prosecution by the Revenue. [Para 32]
1.4 Thus, the prosecution lodged with the help of proviso to
sub-section (1) to s.245H was in defiance to the circular dated
24.04.2008 which was in vogue – Admittedly, the complaint was filed
by DDIT after sanction of PDIT before the ACMM on 11.08.2018 –
Application u/s.245(C) was filed by the appellant before the
Settlement Commission later – In the settlement proceedings,
assessee disclosed all the facts material to the computation of
his additional income and fully satisfied the provisions of s.245H –
The Commission found that overall additional income is not on
account of any suppression of any material facts and it does not
disclose any variance from the manner in which the said income
had been earned – As such the immunity from penalty under IT
Act was granted in exercise of powers u/s.245H. [Paras 33, 36]
1.5 On the date of lodging the prosecution, the finding of concealment
of income or imposition of the penalty of more than Rs.50,000/-
was not recorded by the ITAT – Nothing on record to show that
any wilful attempt to evade the payment of tax by assessee was
made – No explanation put forth by Revenue to demonstrate as
to why PDIT or DDIT did not comply the procedure while lodging
prosecution in this case – Therefore, the act of the authority in
continuing prosecution is in blatant disregard to their own binding
circular dated 24.04.2008 and in defiance to the guidelines of the
Department – It was the duty of the PDIT and DDIT to look into
the facts that in absence of any findings of imposition of penalty
due to concealment of fact, the said prosecution cannot be proved
against the assessee. [Paras 33, 36]
[2025] 8 S.C.R. 2201

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

1.6 Even after passing the order by the Settlement Commission
on 26.11.2019, it was brought to the notice of the High Court, but
the authorities were persistent to pursue the prosecution without
looking into the procedural lapses on their part – Revenue acted in
blatant disregard to binding statutory instructions – Such willful non-
compliance of their own directives is a serious lapse and undermines
the principles of fairness, consistency and accountability, which is
unjustified and unlawful – Impugned order set aside – Prosecution
lodged by the Revenue against the appellant, quashed – Costs of
Rs.2,00,000/- imposed on the Revenue, to be paid to the appellant.
[Paras 36, 38]
Income Tax Act, 1961 – s.276C – Wilful attempt to evade
tax, etc. – s.276C(1) vis-à-vis s.276C(2) – Operation and
applicability – Distinction between – s.279(1) – Chapter
XIXA- ‘Settlement of Cases’ – Wanchoo Committee’s Report
of December, 1971 – Settlement mechanism set up, intent
and purpose of – Departmental circular dated 24.04.2008;
Prosecution Manual, 2009; and CBDT’s clarification in 2019
qua the criteria to be followed for launching prosecution in
respect of certain categories of offence under the IT Act,
including s.276C(1) – Circulars are binding on the authorities
administering the provisions of the IT Act – Taxation Laws
(Amendment) Act, 1975 (41 of 1975) – Circulars/Notices.
[Paras 12, 14-18, 20-24, 31]

Case Law Cited
Commissioner of Central Excise, Bolpur v. Ratan Melting & Wite
Industries [2008] 14 SCR 653 : (2008) 13 SCC 1 – followed.
Ranadey Micronutrients v. CCE [1996] Supp. 5 SCR 755 : (1996)
10 SCC 387; Paper Products Ltd. v. CCE (1999) 7 SCC 84; UCO
Bank v. CIT [1999] 3 SCR 635 : (1999) 4 SCC 599; J.K. Lakshmi
Cement Limited v. Commercial Tax Officer, Pali [2016] 5 SCR 261 :
(2016) 16 SCC 213; Commissioner of Central Excise and Service
Tax, Rohtak v. Merino Panel Product Limited [2022] 18 SCR 28 :
(2023) 2 SCC 597 – relied on.
M/s K.C. Builders Ltd. v. CIT [2004] 1 SCR 1134 : (2004) 2 SCC
731 – referred to.

Books and Periodicals Cited
Wanchoo Committee’s, report of December, 1971 – referred to.
2202 [2025] 8 S.C.R.

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List of Acts
Income Tax Act, 1961; Taxation Laws (Amendment) Act, 1975
(41 of 1975).

List of Keywords
Section 276C(1), Income Tax Act, 1961; Proviso to sub-section
(1) to Section 245H, Income Tax Act, 1961; Sections 245D(4),
245I, Income Tax Act, 1961; Wilful attempt to evade tax; Search;
Unaccounted cash seized; Proceedings for offence under Section
276C(1), Income Tax Act, 1961; Prosecution initiated by revenue
under Section 276C(1), Income Tax Act, 1961; Settlement
Commissioner; Settlement entered by the Revenue; Immunity from
levy of penalty; Settlement Commission; Settlement proceedings;
Departmental circular; Prosecution Manual, 2009; CBDT’s circular;
Clarification by CBDT; Binding circulars; No suppression of any
material facts; Computation of additional income; Assessee
disclosed all the facts material; Order passed by the Settlement
Commission; Application under Section 245C, Income Tax Act, 1961;
Grant of sanction by Principal Director Income Tax (Investigation),
Chennai (PDIT) to Deputy Director of Income Tax (Investigation),
Chennai (DDIT); Jurisdiction of DDIT; Section 279(1), Income Tax
Act, 1961; Wanchoo Committee; Black Money and Tax Evasion;
No wilful attempt to evade the payment of tax; No mens rea of
the assessee; Binding statutory instructions; Abuse of process of
Court; Costs imposed on Revenue; Quashing.

Case Arising From
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No(s).
3777-3779 of 2025
From the Judgment and Order dated 27.11.2023 of the High Court
of Judicature at Madras in CRLOP No. 28763 of 2018 in CRMP
Nos. 16786 and 16787 of 2018

Appearances for Parties
Advs. for the Appellant:
Preetesh Kapur, Sr. Adv., R. Sivaraman, B. R. Varshini, Ms. Vandana
Vyas, S. Mohan, Aditya Sharan, Ravi Raghunath.
Advs. for the Respondent:
Mrs. Nisha Bagchi, Sr. Adv., Raj Bahadur Yadav, V Chandrashekhara
Bharathi, Udai Khanna, Navanjay Mahapatra.
[2025] 8 S.C.R. 2203

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

Judgment / Order of the Supreme Court

Judgment

J.K. Maheshwari, J.

1. Leave granted.
2. The appellant invoked the jurisdiction of the High Court1 in Crl.
OP. No. 28763 of 2018 for quashing of the proceedings of EOC
No. 242 of 2018 initiated by the Revenue, before the Additional
Chief Metropolitan Magistrate (E.O.II), Egmore, Chennai, for the
offence under Section 276C(1)2 of the Income Tax Act, 1961, (in
short “IT Act”) for assessment year 2017-2018. The High Court
vide the impugned judgement dismissed the quashing petition filed
by the appellant. Challenging the same, he has knocked the doors
of this Court preferring the instant appeals. The consequence of the
dismissal of quashing petition has led to the appellant facing trial for
an offence in which settlement was entered by the Revenue with the
appellant, granting him immunity from levy of penalty.
3. Shorn of unnecessary details, the facts are that, on 24.04.2016, search
under Section 1323 of the IT Act was conducted at the residence
of the appellant, and unaccounted cash of Rs. 4,93,84,300/- was
seized. After taking statement of the appellant under Section 132(4)
of the IT Act, a show-cause notice was issued on 31.10.2017 as to
why prosecution should not be initiated against him. On assailing
the same in the writ petition filed by the appellant, it was dismissed
on 17.11.2017 being premature, observing that issuance of show-
cause notice is an administrative act and in absence of reply, it
cannot be questioned in the writ petition. The said order was put to
challenge in Writ Appeal No. 1617 of 2017 which was dismissed as
infructuous vide order dated 06.09.2020 taking into consideration
the subsequent developments and the order of the Settlement
Commission passed on 26.11.2019. The Division Bench observed
that the complaint filed in furtherance to show-cause notice was
not challenged before the learned Single Judge in a writ petition,

1 High Court of Judicature at Madras.
2 Wilful attempt to evade tax, etc.
3 Search and seizure.
2204 [2025] 8 S.C.R.

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therefore, the said issue cannot be looked into in this appeal, leaving it
open to be decided in the appropriate proceedings. During pendency,
the Principal Director Income Tax (Investigation), Chennai, (in short
“PDIT”) exercised power under Section 279(1)4 of the IT Act, and
vide order dated 21.06.2018, accorded sanction to Deputy Director
of Income Tax (Investigation), Chennai, (in short “DDIT”) to initiate
prosecution against the appellant. Thereafter, respondent-DDIT filed
complaint on 11.08.2018 against the appellant for an offence under
Section 276C(1) alleging wilful attempt to evade tax with respect
to assessment year 2017-2018 and for not filing the correct return
of income.
4. Being aggrieved, the appellant filed quashing petition under Section
482 of Code of Criminal Procedure (in short “CrPC”) being Crl. O.P.
No. 28763 of 2018 along with Crl. M.P. Nos. 16786 and 16787 of
2018 praying for quashing of the complaint and pending proceedings.
Pertinently, the appellant also filed an application under Section 245C5
of the IT Act on 07.12.2018 before the Settlement Commissioner,
Additional Bench, Chennai, (in short “Settlement Commission”)
disclosing the entire additional income and sought immunity from levy
of penalty as well as prosecution in the matter of alleged evasion of
proposed tax. The Settlement Commission in exercise of powers under
Section 245D(4)6 of IT Act, partly allowed the said application vide
order dated 26.11.2019 and granted immunity from levy of penalty,
refraining itself to grant immunity from prosecution due to pendency
of quashing petition before the High Court of Madras.
5. By the order impugned, the High Court dismissed the quashing
petition and referring the averments of the complaint observed that
for the assessment year 2017-2018, the amount seized has not
been shown in earnings, which may amount to evasion of proposed
tax. The defence put forth by the appellant was that the seized
amount was an earning of the assessment year 2016-2017 and
not of assessment year 2017-2018 for which settlement has been
arrived at as per the order of the Settlement Commission. The said
defence did not find favour on the pretext that it can be taken by the

4 Prosecution to be at instance of Principal Chief Commissioner or Chief Commissioner] or Principal
Commissioner or Commissioner.
5 Application for settlement of cases.
6 Procedure on receipt of an application under Section 245 C.
[2025] 8 S.C.R. 2205

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

appellant during trial. It was also observed that the complaint was
filed prior and the application before the Settlement Commission
was subsequent, therefore, the stand of the appellant indicating that
the seized amount was income of the assessment year 2016-2017
may also be looked into during trial. The question of competence of
DDIT to initiate the prosecution against the appellant under Section
279(1) of the IT Act also did not turn in favour of the appellant in
the order impugned.

ARGUMENTS OF THE APPELLANT
6. Mr. Preetesh Kapur, learned senior counsel for the appellant
has strenuously urged that the order passed by the Settlement
Commission in exercise of power under Sub-Section (4) of Section
245D shall be conclusive unless reopened as per Section 245D(6)
within the time specified in sub-section (6B) of IT Act. In the
present case, on receiving an application under Section 245C, the
Settlement Commission passed an order granting immunity against
levy of penalty in favour of the appellant, though rejected the plea
for immunity from prosecution due to pendency of quash petition
before the High Court. It is urged that the order of the Settlement
Commission is conclusive in terms of Section 245-I7, with respect
to the matters specified therein.
7. It is further urged that the guidelines dated 24.04.2008 issued by
Ministry of Finance, Government of India, for ‘streamlining the
procedure and to identify the cases for processing to lodge prosecution
under Direct Tax law – matter reg.’, (in short “2008 circular”),
has not been complied with by DDIT. Referring to clause (iii), it is
said that in all cases where the penalty under Section 271(1)(C)
exceeding Rs. 50,000/- is imposed and confirmed by Income Tax
Appellate Tribunal (in short “ITAT”), the complaints may be filed
within a period of 60 days of the receipt of the order of ITAT and
not prior. Further, as per the ‘Prosecution Manual, 2009’, Clause 1.4
of Chapter III clearly stipulates when can prosecution be initiated.
As per the Manual, it was advised that the initiation of prosecution
under Section 276C(1) shall be only after confirmation of concealment
and penalty by the ITAT. Recently on 09.09.2019, the Ministry of

7 Order of settlement to be conclusive.
2206 [2025] 8 S.C.R.

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Finance, Government of India, issued another notification laying down
‘procedure for identification and processing of cases for prosecution
under Direct Tax Laws-reg.’ (in short “2019 circular’), whereby if the
tax liability is below Rs. 25 lakhs, such cases shall not be processed
for prosecution except with the previous administrative approval of
the Collegium consisting of CCIT/DGIT rank officers and only after
confirmation of the order imposing penalty by the ITAT.
8. In the instant case, the prosecution is with respect to the assessment
year 2017-2018. As per the order of the Settlement Commission,
the total undisclosed income has been shown as Rs. 61,50,000/-, to
which the tax liability would come to less than Rs. 25 lakhs, therefore,
without the permission of the Collegium, lodging of prosecution for
the allegation below the said threshold lacked competence. Lastly,
it is urged that after grant of immunity from the penalty by the
Settlement Commission, continuation of the prosecution in violation
of the guidelines would amount to gross abuse of the process of
law, therefore, order impugned passed by the High Court may be
set-aside quashing the complaint lodged by Revenue.

ARGUMENTS OF THE RESPONDENTS
9. Per contra, Ms. Nisha Baghchi, learned senior counsel for the revenue
has vociferously contended that the complaint was filed by the
respondent-DDIT prior to filing of application under Section 245C of
the IT Act, therefore, in terms of the first proviso to Section 245H(1)8,
appellant cannot be given any immunity from the prosecution. It is
urged that the prosecution under Section 276C(1) against a person
is for wilful attempt to evade any tax imposable or penalty or interest
chargeable under the IT Act, and is penal in nature. In the facts of the
present case, unaccounted cash was found at the residence of the
appellant which was not disclosed in the return of the assessment year
2017-2018. Therefore, even after passing an order by the Settlement
Commission, prosecution initiated prior to filing an application under
Section 245C of IT Act are saved from granting immunity and can be
proceeded with, however, the High Court was justified in dismissing
the quash petition filed by the appellant.

8 Power of Settlement Commission to grant immunity from prosecution and penalty.
[2025] 8 S.C.R. 2207

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

ISSUES FOR CONSIDERATION
10. On the basis of the submissions as advanced by the learned senior
counsel for the parties, in our view on the facts, the following questions
fall for consideration:
i) Whether continuation of the prosecution initiated by the revenue
under Section 276C(1) against the appellant after passing an
order by the Settlement Commission, would amount to abuse
of process of Court?
ii) Whether in the facts of the present case, the High Court was
justified to dismiss the quashing petition filed by the appellant,
and if not, what relief can be granted?

ANALYSIS AND APPRECIATION
11. Since both the said questions are inter-connected, therefore, the facts
and legal points are appreciated simultaneously. In this relation, some
of the relevant provisions of the IT Act are required to be referred,
which are reproduced as under –
“276C. Wilful attempt to evade tax, etc.—(1) If a person
wilfully attempts in any manner whatsoever to evade
any tax, penalty or interest chargeable [or imposable, or
under reports his income,] under this Act, he shall, without
prejudice to any penalty that may be imposable on him
under any other provision of this Act, be punishable,—
(i) in a case where the amount sought to be evaded
[or tax on under-reported income] exceeds [twenty-
five hundred thousand rupees], with rigorous
imprisonment for a term which shall not be less than
six months but which may extend to seven years
and with fine;
(ii) in any other case, with rigorous imprisonment for
a term which shall not be less than three months but
which may extend to [two years] and with fine.
(2) If a person wilfully attempts in any manner whatsoever
to evade the payment of any tax, penalty or interest under
this Act, he shall, without prejudice to any penalty that
may be imposable on him under any other provision of
2208 [2025] 8 S.C.R.

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this Act, be punishable with rigorous imprisonment for a
term which shall not be less than three months but which
may extend to [two years] and shall, in the discretion of
the court, also be liable to fine.
Explanation.—For the purposes of this section, a wilful
attempt to evade any tax, penalty or interest chargeable
or imposable under this Act or the payment thereof shall
include a case where any person—
(i) has in his possession or control any books of
account or other documents (being books of account
or other documents relevant to any proceeding under
this Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry
or statement in such books of account or other
documents; or
(iii) wilfully omits or causes to be omitted any relevant
entry or statement in such books of account or other
documents; or
(iv) causes any other circumstance to exist which
will have the effect of enabling such person to evade
any tax, penalty or interest chargeable or imposable
under this Act or the payment thereof.”
12. From the above, it is clear that Section 276C deals with two
situations. Sub-section (1) pertains to a wilful attempt to evade tax,
penalty, or interest that is ‘chargeable’, ‘imposable’, or related to
‘under-reporting of income’. In contrast, sub-section (2) addresses
the wilful attempt to evade the ‘payment’ of any tax, penalty, or
interest under the Act. Therefore, both sub-sections operate in
separate spheres and different stages. The fundamental distinction
between the applicability of sub-section (1) and sub-section (2) lies
to the stage at which the offence allegedly occurs. Section 276C(1)
is primarily intended to deter and penalize wilful and deliberate
attempts by an assessee for evasion of taxes, penalties and interest
prior to their imposition or charging. The provision applies where
there is a conscious and intentional effort to evade tax liability,
distinguishing such conduct from bona-fide errors or differences
in interpretation. The gist of the offence under sub-section (1) of
Section 276C lies in the wilful attempt to evade the very imposition
[2025] 8 S.C.R. 2209

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

of liability, and what is made punishable under this sub-section is
not the ‘actual evasion’ but the ‘wilful attempt’ to evade as described
in the proviso to Section 276C.
13. For the allegations as alleged against appellant, prosecution under
Section 279(1) was initiated by respondent-DDIT in accordance with
sanction given by PDIT. The appellant also challenged the jurisdiction
of the DDIT before the High Court, contending that she was not
competent to initiate prosecution under Section 279(1) of the IT Act.
In the said context, it is relevant to refer Section 279 of IT Act, which
is reproduced below for ready reference as thus:
“279. Prosecution to be at instance of Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner. —
(1) A person shall not be proceeded against for an offence
under section 275A, [ section 275B,] section 276, section
276A, section 276B, section 276BB, section 276C,
section 276CC,section 276D, 7[section 277 , section
277A or section 278] except with the previous sanction
of the [Principal Commissioner or Commissioner] or
Commissioner (Appeals) or the appropriate authority:
Provided that the [Principal Chief Commissioner or Chief
Commissioner] or, as the case may be, [Principal Director
General or Director] General may issue such instructions
or directions to the aforesaid income-tax authorities as
he may deem fit for institution of proceedings under this
sub-section.
Explanation.—For the purposes of this section, “appropriate
authority” shall have the same meaning as in clause (c)
of section 269UA.]
(1A) A person shall not be proceeded against for an
offence under section 276C or section 277 in relation
to the assessment for an assessment year in respect of
which the penalty imposed or imposable on him under
[section 270A or] clause (iii) of sub-section (1) of section
271 has been reduced or waived by an order under
section 273A.]
2210 [2025] 8 S.C.R.

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(2) Any offence under this Chapter may, either before or
after the institution of proceedings, be compounded by the
[Principal Chief Commissioner or Chief Commissioner] or
a [Principal Director General or Director General].
(3) Where any proceeding has been taken against any
person under sub-section (1), any statement made or
account or other document produced by such person before
any of the income-tax authorities specified in [clauses (a)
to (g)] of section 116 shall not be inadmissible as evidence
for the purpose of
such proceedings merely on the ground that such statement
was made or such account or other document was
produced in the belief that the penalty imposable would
be reduced or waived, [under section 273A] or that the
offence in respect of which such proceeding was taken
would be compounded.
[Explanation.—For the removal of doubts, it is hereby
declared that the power of the Board to issue orders,
instructions or directions under this Act shall include and
shall be deemed always to have included the power to
issue instructions or directions (including instructions or
directions to obtain the previous approval of the Board)
to other income-tax authorities for the proper composition
of offences under this section.]”
14. From the above, in addition to the other offences, looking to the
allegations of the present case, the prosecution under Section 276C
may be lodged with permission of the PDIT. Sub-section (1)(a) creates
a bar that the person shall not be proceeded under Section 276C in
relation to the assessment for the assessment year of which penalty
imposed or imposable on him, has been reduced or waived.
15. It is also pertinent to refer that the IT Act envisages a robust
settlement mechanism under Chapter XIXA, which is titled –
‘Settlement of Cases’. It was inserted by means of the Taxation
Laws (Amendment) Act, 1975 (41 of 1975) w.e.f. 01.04.1976. The
said amendment was brought pursuant to the recommendations
of the ‘Direct Taxes Enquiry Committee’, popularly known as the
[2025] 8 S.C.R. 2211

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

‘Wanchoo Committee’, report of December, 1971. ‘Chapter 2’ of
the said report, titled ‘Black Money and Tax Evasion’, in particular
paragraphs 2.32 to 2.34 can be gainfully referred to in order to
understand the intent and purpose behind setting up a settlement
mechanism under the IT Act:

“Settlement Machinery
2.32 This, however, does not mean that the door for
compromise with an errant taxpayer should forever remain
closed. In the administration of fiscal laws, whose primary
objective is to raise revenue, there has to be room for
compromise and settlement. A rigid attitude would not only
inhibit a one-time tax-evader or an unintending defaulter
from making a clean breast of his affairs, but would also
unnecessarily strain the investigational resources of the
Department in cases of doubtful benefit to revenue, while
needlessly proliferating litigation and holding up collections.
We would, therefore, suggest that there should be a
provision in the law for a settlement with the taxpayer
at any stage of the proceedings. In the United Kingdom,
the ‘confession’ method has been in vogue since 1923.
In the U.S. law also, there is a provision for compromise
with the taxpayer as to his tax liabilities. A provision of this
type facilitating settlement in individual cases will have this
advantage over general disclosure schemes that misuse
thereof will be difficult and the disclosure will not normally
breed further tax evasion. Each individual case can be
considered on its merits and full disclosures not only of
the income but of the modus operandi of its buildup can be
insisted on, thus sealing off chances of continued evasion
through similar practices.
2.33 To ensure that the settlement is fair, prompt and
independent, we would suggest that there should be a
high-level machinery for administering the provisions,
which would also incidentally relieve the field officer of
an onerous responsibility and the risk of having to face
adverse criticism which, we are told, has been responsible
for the slow rate of disposal of disclosure petitions. We
2212 [2025] 8 S.C.R.

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would, therefore, recommend that settlements may be
entrusted to a separate body within the Department, to
be called the Direct Taxes Settlement Tribunal. It will be
a permanent body with three members. The strength of
the Tribunal can be increased later, depending on the
work-load. To ensure impartial and quick decisions, and
to encourage officers with integrity and wide knowledge
and experience to accept assignments on the Tribunal, we
recommend that its members should be given the same
status and emoluments as the members of the Central
Board of Direct Taxes.
Any taxpayer will be entitled to move a petition before the
Tribunal for settlement of his liability under the direct tax
laws. We do not think that it is necessary to provide for
cases being referred to the Tribunal by the Department.
However, we wish to emphasize that the Tribunal will
proceed with the petition filed by a taxpayer only if the
Department raises no objection to its being so entertained.
We consider that this will be a salutary safeguard, because
otherwise the Tribunal might become an escape route for
tax evaders who have been caught and who are likely to be
heavily penalised or prosecuted. Once a case is admitted
for adjudication, the Tribunal will have exclusive jurisdiction
over it and it will no longer be open to the taxpayer to
withdraw the petition. The Tribunal will take a decision
after hearing both the assessee and the Department. The
Tribunal should be vested with full powers as regards
discovery and inspection, enforcing the attendance of any
person, compelling production of books of account or any
other documents and issuing commissions. It should also
have the power to investigate cases by itself or, in the
alternative, to have investigation carried out on any specific
point or generally, in any case through the Income-tax
Department. The terms of the award will be set down in
writing and it will be open to the Tribunal to determine not
only the amount of tax, penalty or interest but also to fix
a date or dates of payment. The quantum of penalty and
interest will be in the discretion of the Tribunal. Similarly,
the Tribunal may also in its discretion grant immunity from
[2025] 8 S.C.R. 2213

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

criminal prosecution in suitable cases. The award will be
binding both on the petitioner and on the Department.
The application of its decisions on questions of law, will,
however, be confined to the case under settlement and
will not in any way interfere with the interpretation of law
in general. No appeal will lie against the decision of the
Tribunal by the petitioner or the Department, whether on
questions of fact or of law.
2.34 The success of this measure will, to a very large
extent, depend on the confidence which this Tribunal can
inspire in the minds of the taxpayers as to its fairness
and impartiality. For this reason, we consider it to be of
paramount importance that only persons who are known
for their integrity and high sense of justice and fairness
are selected for appointment on the Tribunal.”
16. In furtherance to recommendations of the Wanchoo Committee, an
amendment was brought adding Section 245H, specifying the power
of the Settlement Commission to grant immunity from prosecution
and penalty. The said provision is relevant, therefore, reproduced
as thus:
“245H. Power of Settlement Commission to grant
immunity from prosecution and penalty.— (1) The
Settlement Commission may, if it is satisfied that any person
who made the application for settlement under section
245C has co-operated with the Settlement Commission
in the proceedings before it and has made a full and true
disclosure of his income and the manner in which such
income has been derived, grant to such person, subject to
such conditions as it may think fit to impose [for the reasons
to be recorded in writing], immunity from prosecution for
any offence under this Act or under the Indian Penal Code
(45 of 1860) or under any other Central Act for the time
being in force [and also (either wholly or in part) from the
imposition of any penalty] under this Act, with respect to
the case covered by the settlement:
[Provided that no such immunity shall be granted by the
Settlement Commission in cases where the proceedings for
the prosecution for any such offence have been instituted
2214 [2025] 8 S.C.R.

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before the date of receipt of the application under section
245C:]
[Provided further that the Settlement Commission shall not
grant immunity from prosecution for any offence under the
Indian Penal Code (45 of 1860) or under any Central Act
other than this Act and the Wealth-tax Act, 1957 (27 of
1957) to a person who makes an application under section
245C on or after the 1st day of June, 2007.]
17. Bare reading of the above and the recommendations of the Wanchoo
Committee, it is clear that the assessee from whom the recovery
of the unaccounted money has been allegedly reported, may apply
before the Settlement Commission disclosing full and true income
and the manner in which such income was derived. On such
application, the Commission as it thinks fit, may grant immunity
from penalty and prosecution of any offence under the IT Act or
under the Indian Penal Code or under any other Central Act on such
terms and conditions with respect to the subject matter covered
under the settlement. Indeed, the proviso to Section 245H(1) is an
exception from granting immunity in case where the complaint has
been lodged before the date of receipt of application for settlement.
At the same time, we cannot lose sight that the prosecution in
either situation of Section 276C(1) ought to be for wilful attempt
to evade or pay tax. On literal construction of the first proviso, the
prosecution initiated before the date of receipt of the application
under Section 245C is saved, and the second proviso restrict the
Settlement Commission to grant immunity from the prosecution as
specified therein.
18. The aforesaid provisions do not, in any manner, affect the basic
principles of criminal law that the prosecution has to prove the case
on its own. In the facts, for an offence under Section 276C(1), for
which a prosecution was lodged, wilful attempt to evade tax or penalty,
which may be imposable or chargeable, mens rea of the assessee is
required to be proved. In absence, lodging such prosecution would
result into futility. Therefore, the ancillary question which arises is
about the efficacy of the continuation of the complaint lodged, even
though saved under the first proviso to Section 245H, hampering
the power of the Settlement Commission to grant immunity from
prosecution.
[2025] 8 S.C.R. 2215

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

19. Mr. Preetesh Kapur, learned senior counsel, submits that as per the
order of the Settlement Commission, it is clear that the assessee
has disclosed all the facts, material for computation of his additional
income without any suppression of account, therefore, in exercise
of order passed under Section 245D(4), immunity from levy of
penalty was granted. It is not a case wherein due to the fraud or
misrepresentation, the case of the appellant was reopened as per
Section 245D(6) within the time as specified. In such circumstances,
there cannot be any mens rea or wilful attempt to evade tax, which
may be brought against the appellant to prove the allegation as
alleged by prosecution. Learned senior counsel referring to Section
245-I of the IT Act submits, the order of the Settlement Commission
shall be conclusive as to the matters stated therein. Section 245-I
is relevant, which reads thus:
“245-I. Order of settlement to be conclusive.—Every
order of settlement passed under sub-section (4) of
section 245D shall be conclusive as to the matters stated
therein and no matter covered by such order shall, save
as otherwise provided in this Chapter, be reopened in any
proceeding under this Act or under any other law for the
time being in force.”
20. Perusing the backdrop, from the recommendations of Wanchoo
Committee till the date amendment was brought introducing Section
245H in the IT Act granting power of immunity to Settlement
Commission, the Revenue was facing the challenge of minimal
prosecution and also for effectively proving the prosecution,
what recourse ought to be taken was an issue before them.
Simultaneously, the assessee who in bona-fide manner had
disclosed the excess earning specifying the source without any
suppression, were facing unnecessary prosecution. Therefore, to
streamline the said situation the revenue has issued guidelines
time and again. In the guidelines, it was specified that when an
assessee is making an attempt to evade tax or its payment or
penalty, if established, it is incumbent on the officers of the revenue
to lodge the prosecution. In this regard, circular dated 24.04.2008
was published. Clause 3.3.1(iii) of the said circular deals with the
offences under Section 276C(1) of IT Act. The relevant clause of
the said circular is reproduced as under: -
2216 [2025] 8 S.C.R.

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“(iii) Offences u/s 276C(1): Wilful attempt to evade taxes
All cases where penalty u/s 271(1)(C) exceeding
Rs.50,000/- is imposed and confirmed by the ITAT (if any
second appeal has been filed) shall be processed for filing
prosecution complaint.
The case for prosecution under this section shall be
processed by the A.O. preferably within 60 days of receipt
of the ITAT’s order, if any.”
The intent of the above scheme is indicative of the fact that the
Department shall proceed to file prosecution/complaint only in those
cases wherein penalty exceeding Rs. 50,000/- has been imposed
by ITAT, within 60 days from the date of order of ITAT.
21. The Directorate of Income Tax, (PR PP & OL) has also published
the Prosecution Manual, 2009, prescribing the ‘procedure for
launching prosecution’. In Clause 1.4 of Chapter III, specifying when
the prosecution can be initiated. The said clause is relevant hence
reproduced as under:
“1.4 When can prosecution be initiated?
A case should be processed for launching prosecution
immediately after the commission of offence comes to the
notice of the authority concerned. However, if some more
evidences can be gathered during any proceedings, it
would be advisable to complete such proceedings to gather
all relevant evidences before initiating the prosecution. The
Apex Court has laid down that if penalty for concealment
fails then the prosecution initiated on same material/basis
must also fail (M/s K.C. Builders Ltd Vs CIT [265 ITR 344]).
Therefore, it is advisable to initiate prosecution under
section 276C(1) only after confirmation of concealment
penalty by the ITAT.

xx xx xx xx”
22. The said guideline was based on a judgment of ‘M/s K.C. Builders
Ltd. Vs. CIT’9, wherein this Court laid down that if penalty for

9 (2004) 2 SCC 731
[2025] 8 S.C.R. 2217

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

concealment fails, the initiation of the prosecution on the basis of
the same material also fails, therefore, it was advised that after
confirmation of concealment of penalty by ITAT, the prosecution
may be lodged in terms as specified in the above circular dated
24.04.2008.
23. Similarly, on 09.09.2019, the Central Board of Direct Taxes (in short
“CBDT”) in exercise of power under Section 119 of IT Act issued
clarification qua the criteria to be followed for launching prosecution
in respect of certain categories of offence under the IT Act, including
Section 276C(1). The relevant portion is referred as under –
“iii. Offences u/s 276C(1): Wilful attempt to evade
tax, etc.
Cases where the amount sought to be evaded or tax on
under-reported income is Rs. 25 Lakhs or below, shall not
be processed for prosecution except with the previous
administrative approval of the Collegium of two CCIT/
DGIT rank officers as mentioned in Para 3.
Further, prosecution under this Section shall be launched
only after the confirmation of the order imposing penalty
by the Income Tax Appellate Tribunal.”
24. As such, the departmental circular dated 24.04.2008, Prosecution
Manual, 2009, and CBDT’s circular dated 09.09.2019, provide when
the prosecution ought to be lodged by Revenue. The said Circulars
have been issued to regulate the lodging of prosecution in genuine
cases and to weed out the problems of the tax payers, and also
to understand when can the prosecution for Section 276 ought to
be lodged and continued. The said circular and clarification have
been brought after the statutory scheme of Section 245H(1) and the
appended proviso. In this situation, it is imperative for us to understand
the binding nature of the departmental circular, Prosecution Manual,
2009, and CBDT’s clarification.
25. Reflecting on the said issue, in ‘Ranadey Micronutrients Vs. CCE’10,
while dealing with a case concerning interpretation of circulars
providing for classification of micronutrients for the purpose of
imposition of excise duty, this Court held –

10 (1996) 10 SCC 387
2218 [2025] 8 S.C.R.

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“15. There can be no doubt whatsoever, in the
circumstances, that the earlier and later circulars were
issued by the Board under the provisions of Section 37-
B, and the fact that they do not so recite does not mean
that they do not bind Central Excise officers or become
advisory in character. There can be no doubt whatsoever
that after 21-11-1994, excise duty could be levied upon
micronutrients only under the provisions of Heading 31.05
as “other fertilisers”. If the later circular is contrary to the
terms of the statute, it must be withdrawn. While the later
circular remains in operation the Revenue is bound by it
and cannot be allowed to plead that it is not valid.
16. We reject the submission to the contrary made by
the learned counsel for the Revenue and in the affidavit
by M.K. Gupta, working as Director in the Department of
Revenue, Ministry of Finance. One should have thought
that an officer of the Ministry of Finance would have greater
respect for circulars such as these issued by the Board,
which also operates under the aegis of the Ministry of
Finance, for it is the Board which is, by statute, entrusted
with the task of classifying excisable goods uniformly. The
whole objective of such circulars is to adopt a uniform
practice and to inform the trade as to how a particular
product will be treated for the purposes of excise duty.
It does not lie in the mouth of the Revenue to repudiate
a circular issued by the Board on the basis that it is
inconsistent with a statutory provision. Consistency and
discipline are of far greater importance than the winning
or losing of court proceedings.”
26. Further, in ‘Paper Products Ltd. Vs. CCE’11, where the dispute related
to classification of products for the purpose of tax, in the context of
circulars issued and in that regard, this Court observed as thus –
“4. The question for our consideration in these appeals is :
what is the true nature and effect of the circulars issued
by the Board in exercise of its power under Section 37-B
of the Central Excise Act, 1944? This question is no more

11 (1999) 7 SCC 84
[2025] 8 S.C.R. 2219

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

res integra in view of the various judgments of this Court.
This Court in a catena of decisions has held that the
circulars issued under Section 37-B of the said Act are
binding on the Department and the Department cannot
be permitted to take a stand contrary to the instructions
issued by the Board. These judgments have also held that
the position may be different with regard to an assessee
who can contest the validity or legality of such instructions
but so far as the Department is concerned, such right is
not available.”
27. Likewise, in ‘UCO Bank Vs. CIT’12, this Court while dealing with
the question as to whether there can be interest on the loan whose
recovery is doubtful, and whether such can be included in the income
of the assessee, observed as under –
“12. A similar view of CBDT circulars has been taken in the
case of K.P. Varghese v. ITO [(1981) 4 SCC 173 (at p. 188)]
by a Bench of two Judges consisting of P.N. Bhagwati and
E.S. Venkataramiah, JJ. The Bench has held that circulars
of the Central Board of Direct Taxes are legally binding
on the Revenue and this binding character attaches to
the circulars even if they be found not in accordance with
the correct interpretation of the section and they depart
or deviate from such construction. Citing the decision of
Navnit Lal C. Javeri v. K.K. Sen [AIR 1965 SC 1375] this
Court observed that circulars issued by the Central Board
of Direct Taxes under Section 119 of the Act are binding
on all officers and persons employed in the execution of
the Act even if they deviate from the provisions of the
Act. In Keshavji Ravji and Co. v. CIT [(1990) 2 SCC 231]
a Bench of three Judges of this Court has also taken the
view that circulars beneficial to the assessee which tone
down the rigour of the law and are issued in exercise of
the statutory powers under Section 119 are binding on the
authorities in the administration of the Act. The benefit of
such circulars is admissible to the assessee even though
the circulars might have departed from the strict tenor of

12 (1999) 4 SCC 599
2220 [2025] 8 S.C.R.

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the statutory provision and mitigated the rigour of the law.
This Court, however, clarified that the Board cannot pre-
empt a judicial interpretation of the scope and ambit of a
provision of the Act. Also a circular cannot impose on the
taxpayer a burden higher than what the Act itself, on a true
interpretation, envisages. The task of interpretation of the
laws is the exclusive domain of the courts. However, the
Board has the statutory power under Section 119 to tone
down the rigour of the law for the benefit of the assessee
by issuing circulars to ensure a proper administration of
the fiscal statute and such circulars would be binding on
the authorities administering the Act.”
28. The Constitution Bench in the case of ‘Commissioner of Central
Excise, Bolpur Vs. Ratan Melting & Wite Industries,13 on a
reference made by three Judge Bench, addressing the conflict of
difference of interpretation of a circular by the Central Board of Excise
and Customs, and by this Court coupled with binding nature of the
same, observed as follows –
“7. Circulars and instructions issued by the Board are
no doubt binding in law on the authorities under the
respective statutes, but when the Supreme Court or the
High Court declares the law on the question arising for
consideration, it would not be appropriate for the court
to direct that the circular should be given effect to and
not the view expressed in a decision of this Court or the
High Court. So far as the clarifications/circulars issued
by the Central Government and of the State Government
are concerned they represent merely their understanding
of the statutory provisions. They are not binding upon
the court. It is for the court to declare what the particular
provision of statute says and it is not for the executive.
Looked at from another angle, a circular which is contrary
to the statutory provisions has really no existence in law.”
29. Similarly, in ‘J.K. Lakshmi Cement Limited Vs. Commercial Tax
Officer, Pali’14, this Court while dealing with a case where the

13 (2008) 13 SCC 1
14 (2016) 16 SCC 213
[2025] 8 S.C.R. 2221

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

assessee was a cement company seeking advantage of a 1986
notification granting partial tax exemption and a 2000 notification
offering a lower tax rate of 6% but also explicitly stating that any
dealer using its benefit would be ineligible for the 1986 exemption,
harmoniously construed both and observed that circulars are binding
on tax authorities. The Court observed as follows –
“31. Circulars issued under tax enactments can tone down
the rigour of law, for an authority which wields power for
its own advantage is given right to forego advantage when
required and considered necessary. This power to issue
circulars is for just, proper and efficient management of
the work and in public interest. It is a beneficial power
for proper administration of fiscal law, so that undue
hardship may not be caused. Circulars are binding on the
authorities administering the enactment but cannot alter
the provision of the enactment, etc. to the detriment of the
assessee. Needless to emphasize that a circular should
not be adverse and cause prejudice to the assessee. (See
UCO Bank v. CIT [UCO Bank v. CIT, (1999) 4 SCC 599])”
30. In the recent pronouncement of this Court in ‘Commissioner
of Central Excise and Service Tax, Rohtak Vs. Merino Panel
Product Limited’15, in an appeal against order passed by CESTAT
which had set-aside the show-cause notice issued by the Revenue,
placing reliance on the judgements in Ranadey (supra) and Paper
Products Ltd. (supra) and considering the binding nature of circulars,
in paragraph 22 observed as follows:
“22. Thus, the starting point of our analysis on this question
is that the CBEC Circular of 1-7-2002 is binding on the
Revenue. If the show-cause notice issued by the Revenue
is found to be contrary to the Circular, it would prima facie
result in abrogation of the uniformity and consistency which
is strongly emphasised upon in Ranadey Micronutrients
[Ranadey Micronutrients v. CCE, (1996) 10 SCC 387] .
It goes without saying that the Revenue’s stance against
its own circular can potentially lead to a chaotic situation
where, with one hand, the Revenue would lay down

15 (2023) 2 SCC 597
2222 [2025] 8 S.C.R.

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instructions on how to interpret the relevant statutes and
rules, and with the other hand, it would promptly disobey
those very directions. Maintaining predictability in taxation
law is of utmost importance and, for this reason, the Court
should not accept an argument by the Revenue that waters
down its own Circular as this would fall squarely within
the contours of the prohibition outlined in Paper Products
[Paper Products Ltd. v. CCE, (1999) 7 SCC 84].”
31. From the above precedents, this Court unambiguously held that that
the circulars issued by the Revenue are binding on the authorities,
and can tone down the rigour of the statutory provision. Therefore, it
can be concluded that the circulars as discussed above are binding
on the authorities who are administering the provisions of the IT Act.
32. After perusal of the provisions of the IT Act, various circulars issued
by the department and also the judgments referred hereinabove, it
can be safely culled out that if an assessee has made suppression
of income without disclosing the manner in which the excess amount
was earned and concealed the account making wilful attempt to
evade the tax which may be imposable and chargeable or payable,
he/she is required to be prosecuted. Therefore, the recourse to
lodge prosecution was made permissible subject to the department’s
circular dated 24.04.2008 which provided for confirmation by ITAT
in case the penalty imposed under Section 276C(1) is exceeding
Rs. 50,000/-. It is relevant here to note that the said circular was
in vogue on the date of the grant of sanction by PDIT to DDIT for
lodging the prosecution against the appellant. The said circular has
been reaffirmed by the Prosecution Manual, 2009 and the clarification
issued by the CBDT in 2019. As such, the circulars discussed above,
were binding on the authorities and required to be adhered to while
lodging the prosecution by the Revenue.
33. Admittedly, in the present case, the complaint was filed by DDIT
after sanction of PDIT before the Additional Chief Metropolitan
Magistrate (E.O.II), Egmore, Chennai, on 11.08.2018. Application
under Section 245(C) was filed by the appellant before the Settlement
Commission later. On the date of lodging the prosecution, the finding
of concealment of income or imposition of the penalty of more than
Rs. 50,000/- has not been recorded by the ITAT. Nothing has been
brought on record to show that any wilful attempt to evade the payment
[2025] 8 S.C.R. 2223

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

of tax by assessee was made. No explanation has been put forth
by Revenue to demonstrate as to why PDIT or DDIT did not comply
the procedure while lodging prosecution in this case. Therefore,
in our view, the act of the authority in continuing prosecution is in
blatant disregard to their own binding circular dated 24.04.2008 and
in defiance to the guidelines of the Department.
34. In contradistinction, the Settlement Commission passed an order
under Section 245D(4) on 26.11.2019. The said order is relevant,
therefore, reproduced as thus:
“GOVERNMENT OF INDIA
INCOME TAX SETTLEMENT COMMISSION
ADDITIONAL BENCH
640, ANNA SALAI, NANDANAM, CHENNAI-600 035.
******
PROCEEDINGS BEFORE THE ADDITIONAL BENCH
OF THE INCOME TAX SETTLEMENT COMMISSION,
CHENNAI
------------------------------------------------------------------------------

Settlement Application : TN/CN54/2018-19/53-IT
No.
Date of filing of the : 07.12.2018
application
------------------------------------------------------------------------------

xx xx xx xx
PRAYER:
Immunity from penalty and prosecution
6.1 The applicant has prayed for grant of immunity from
levy of penalty and prosecution. It could be seen that
proceedings u/s 276C(1) of the Income Tax Act, 1961 are
pending before the Hon’ble High Court of Madras. In the
circumstances, the applicant cannot be granted immunity
waiver from prosecution, for the assessment years which
are settled in this order.
2224 [2025] 8 S.C.R.

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6.2 However, the applicant has co-operated during the
settlement proceedings. The applicant has disclosed all
the facts, material to the computation of his additional
income. Thus, the applicant has fully satisfied the provisions
of section 245H. The overall additional income is not on
account of any suppression of any material facts in the
application. The additional income offered does not disclose
any variance from the manner in which the additional
income had been earned. Hence, the applicant is entitled
to immunity from penalties under the Income-tax Act for
the assessment years which are settled in this order.
6.3 Immunity granted to the applicant by this order may
be withdrawn, if he fails to pay including interest within
the time and the manner as specified in this order or fails
to comply with other conditions, if any, subject to which
the immunity is granted and, thereupon, the provisions of
the Income-tax Act shall apply as if such immunity had
not been granted.
6.4 Immunity granted to the applicant, may at any time be
withdrawn, if the Commission is satisfied that the applicant
had, in the course of settlement proceedings, concealed
any particulars, material to the settlement or had given false
evidence and, thereupon, the applicant may be tried for the
offence with respect to which the immunity was granted
or for any other offence of which the applicant appear to
have been guilty in connection with the settlement, and
the applicant shall become liable to the imposition of any
penalty and/or prosecution under the Act, to which the
applicant would have been liable had not such immunity
been granted.
7. The order shall be void u/s 245D(6) if it is subsequently
found that it has been obtained by fraud or misrepresentation
of facts.
Sd- Sd-
(ASHOK KUMAR SINHA) (T.P. KRISHNAKUMAR)
MEMBER VICE CHAIRMAN
Date: 26.11.2019
xx xx xx xx”
[2025] 8 S.C.R. 2225

Vijay Krishnaswami @ Krishnaswami Vijayakumar v.
The Deputy Director of Income Tax (Investigation)

35. Perusal of the said order makes it clear that in the settlement
proceedings, assessee has disclosed all the facts material to the
computation of his additional income and fully satisfied the provisions
of Section 245H. The Commission recorded a finding that overall
additional income is not on account of any suppression of any material
facts and it does not disclose any variance from the manner in
which the said income had been earned. As such the immunity from
penalty under IT Act was granted in exercise of powers under Section
245H. From perusal of Section 245-I, it is clear that every order of
settlement shall be conclusive as to the matters stated therein and
no matter covered by such order shall, save as otherwise provided,
be reopened in any proceeding under the Act or under any other
law for the time being in force.
36. In view of the foregoing discussions in conclusion we can safely hold
that the prosecution lodged with the help of proviso to sub-section
(1) to Section 245H was in defiance to the circular dated 24.04.2008,
which was in vogue. It was the duty of the PDIT and DDIT to look
into the facts that in absence of any findings of imposition of penalty
due to concealment of fact, the said prosecution cannot be proved
against the assessee. It seems, even after passing the order by the
Settlement Commission on 26.11.2019, it was brought to the notice
of the High Court, but the authorities were persistent to pursue the
prosecution without looking into the procedural lapses on their part.
Such an act cannot be construed in right perspective and the Revenue
have acted in blatant disregard to binding statutory instructions.
Such willful non-compliance of their own directives reflects a serious
lapse, and undermines the principles of fairness, consistency, and
accountability, which in any manner cannot be treated to be justified
or lawful.
37. It must also be noted that, in terms of Section 245-I, the findings of
the Settlement Commission are conclusive with respect to the matters
stated therein. Once such an order was passed, it was incumbent
upon the authorities to inform the High Court that continuation of
the prosecution would amount to an abuse of the process of law, in
particular when the Settlement Commission did not record any finding
of wilful evasion of tax by the appellant. Even otherwise, it was the
duty of the High Court to examine the facts of the case in their right
context and assess whether, in light of the above circumstances, the
continuation of the prosecution would serve any meaningful purpose
2226 [2025] 8 S.C.R.

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in establishing the alleged guilt. Upon a holistic consideration of the
matter, we are of the view that the conduct of the authorities lacks
fairness and reasonableness, and the High Court’s approach appears
to be entirely misdirected, having failed to appreciate the factual and
legal position in right earnest.
38. In view of the foregoing discussions, we are constrained to allow
these appeals setting aside the order impugned passed by the High
Court. It is directed that prosecution lodged by the Revenue against
the appellant shall stand quashed. In the facts and circumstances of
the case as discussed hereinabove, we are inclined to impose costs
against the Revenue which is quantified at Rs. 2,00,000/- payable to
the appellant. Pending application(s), if any, shall stand disposed of.

Result of the case: Appeals allowed.

†
Headnotes prepared by: Divya Pandey