No Prosecution could be launched unless it is proved that unaccounted transactions were liable for payment of tax

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No Prosecution could be launched unless it is proved that unaccounted transactions were liable for payment of tax

D.K. Shivakumar
[2021] 126 taxmann.com 131 (Karnataka)

Short Overview of the case:

In order to render accused/respondent guilty of attempt to evade tax, penalty or interest, it must be shown that he has done some positive act with an intention to evade any tax, penalty or interest
Where only circumstance relied on by petitioner/complainant in support of alleged charges was that, during search action, certain unaccounted loan transaction with several persons/entities were detected and it was ascertained that respondent had advanced huge amount of loan to these persons/entities and said unaccounted financial transactions were not disclosed in his returns of income for relevant years and that respondent had received huge amount of interest on said unaccounted loan, these allegations, even if accepted as true, same did not prima facie constitute offences under section 276C(1). 
Tax, penalty or interest could be evaded provided tax or penalty was chargeable or impossible in respect of above transactions.
 There is no presumption under law that every unaccounted transaction would lead to imposition of tax, penalty or interest.
Therefore, until and unless it is determined that unaccounted transactions unearthed during search were liable for payment of tax, penalty or interest, no prosecution could be launched on ground of attempt to evade such tax, penalty or interest.
As a result, very prosecution launched against respondent being premature and illegal could not be allowed to continue.
Thus, as prosecution initiated against respondent was bad in law and contrary to procedure prescribed under Code of Criminal Procedure and provisions of Income Tax Act, revision petitions were liable to be dismissed and were accordingly dismissed.

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