n the Supreme Court of India, the Criminal Appeals arising out of SLP (Crl.) Nos. 3618–3620 of 2024 were decided on 28 August 2025, reported as 2025 INSC 1048. The appeals were filed by Vijay Krishnaswami challenging the dismissal of his quashing petition by the Madras High Court, which had permitted continuation of prosecution under Section 276C(1) of the Income-tax Act, 1961.

The matter arose from a search conducted under Section 132 of the Act, during which unaccounted cash was seized. Thereafter, prosecution was sanctioned and a criminal complaint was filed alleging a wilful attempt to evade tax. During the pendency of the criminal proceedings, the assessee approached the Settlement Commission under Section 245C, making a full and true disclosure of additional income. By an order under Section 245D(4), the Settlement Commission granted immunity from levy of penalty, categorically recording that the additional income was not the result of suppression, concealment, or misrepresentation. Immunity from prosecution was declined solely due to the pendency of the criminal proceedings.

The Supreme Court examined whether the continuation of prosecution, despite these findings, amounted to an abuse of the process of law. Analysing the scope of Section 276C(1), the Court held that prosecution under the provision necessarily requires proof of mens rea and a wilful attempt to evade tax. In the absence of any finding of concealment or wilful evasion—particularly when the Settlement Commission had conclusively accepted the disclosure and granted penalty immunity—the essential ingredients of the offence were held to be absent.

The Court further emphasised that departmental circulars, including the CBDT Circular dated 24 April 2008, the Prosecution Manual 2009, and the Circular dated 9 September 2019, are binding on tax authorities. These instructions require that prosecution under Section 276C(1) should ordinarily be initiated only after confirmation of concealment penalty by the Income Tax Appellate Tribunal and subject to prescribed monetary thresholds. The Revenue’s action in launching and continuing prosecution in disregard of these binding instructions was held to be arbitrary and legally unsustainable.

Relying on settled principles and earlier Supreme Court precedents on the binding nature of departmental circulars, the Court concluded that continuation of prosecution in the present case served no legitimate purpose and amounted to misuse of the criminal process. Accordingly, the Supreme Court set aside the High Court’s order, quashed the criminal prosecution, and imposed costs on the Revenue.

LINK TO DOWNLOAD THE ORDER
https://mytaxexpert.co.in/uploads/1767667927_VIJAYKRISHNASWAMIKRISHNASWAMIVIJAYAKUMARVSTHEDEPUTYDIRECTOROFINCOMETAXINVESTIGATION.pdf 

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