Payment of Late Filing Penalty Doesn’t Shield from Criminal Prosecution: Karnataka High Court

Last Updated on February 4, 2025 by Amit Patra

In a landmark judgment that should act as a deterrent to tax evaders, the Karnataka High Court has ruled that paying penalties for delayed income tax returns does not save assessees from criminal prosecution under the Income Tax Act. The decision by Justice S Vishwajith Shetty upheld the right of the Income Tax Department to continue with criminal prosecution even after the payment of such penalties.
The case has arisen out of four private complaints filed by the Income Tax Department against Rajkumar Agarwal for willful non-filing of returns for the assessment years 2012-13 to 2015-16. The petitioner had sought quashing of the prosecution, stating he had already paid the penalties for late filing and attributed his delay to personal reasons like the death of his brothers.

It has clarified certain important aspects of how courts can enforce the tax laws. Firstly, it stressed that section 276CC of the Income Tax Act is attracted in cases of non-compliance with Section 139(1) or no response to notices under section 142 or under Section 148. Most importantly, it held that the proviso to Section 276CC applies only to voluntary filing under Section 139(1) and not to returns that are filed after the detection of failure.

An important part of the decision is the interpretation of Section 278E of the Act, which creates a presumption against the assessee. The court noted that it is for the accused to displace this presumption by producing necessary evidence before the magistrate. The bench further held that the explanations given during the High Court would not suffice and such defense has to be properly taken at the trial stage.

The ruling has sent a clear message: compliance with tax laws has an administrative and criminal aspect. As Justice Shetty stated, “Delay in filing of the income tax returns would not only result in payment of penalty, but it also results in prosecution as provided under Chapter 22 of the Act.” What this decision has done is to reinforce the dual-pronged approach by the department in ensuring tax compliance through penalties and criminal prosecution.

The judgment sets a precedent that could impact tax compliance behavior, making it clear that the settlement of penalties does not automatically close the door on criminal liability under the Income Tax Act.