Exoneration on Technical Grounds Can’t Quash Criminal Prosecution for Tax Evasion: Kerala High Court Denies Relief to Doctor Accused of Concealment

“Only an acquittal on merits in penalty proceedings can shield an accused from prosecution under the Income Tax Act” –  In a crucial judgment impacting criminal prosecutions under the Income Tax Act, the High Court of Kerala on January 8, 2026, dismissed a batch of petitions filed by Dr. P.H. Abdul Majeed seeking quashing of criminal proceedings for alleged wilful tax evasion. The Court, while refusing to invoke its inherent powers under Section 482 Cr.P.C., held that the mere technical setting aside of penalty orders under the Income Tax Act cannot be a ground to terminate validly instituted prosecutions for offences under Sections 276C(1) and 277 of the Act.

Justice G. Girish, rejecting the petitioner’s reliance on K.C. Builders v. ACIT, clarified that:

“The petitioner got exonerated by the appellate order in the adjudication proceedings merely on technical grounds and not on merit… Therefore, the criminal prosecutions initiated against the petitioner are not liable to be terminated in view of the law laid down by the three Judges Bench of the Apex Court in Radheshyam Kejriwal.”

Petitioner Sought Quashing Based on Technical Success in Penalty Appeal

The case arose from multiple criminal complaints filed by the Assistant Commissioner of Income Tax (Central Circle), Thrissur, following a search and seizure conducted on 18.12.2013 at various premises linked to Dr. Majeed — a medical store operator. The search under Section 132 of the Income Tax Act reportedly revealed substantial concealment of income.

Subsequently, the petitioner filed revised returns under Section 153A for the assessment years 2008–2009 to 2013–2014, declaring significantly higher income. After obtaining sanction, the Income Tax Department initiated criminal complaints under Sections 276C(1) (wilful attempt to evade tax) and 277 (false verification) of the Act.

Dr. Majeed moved the High Court under Section 482 Cr.P.C., praying for quashing of these proceedings, contending that he had already been exonerated in penalty proceedings by the Commissioner of Income Tax (Appeals) via order dated 05.03.2025.

High Court Finds Penalty Relief Based Solely on Defective Notices

While the petitioner cited K.C. Builders to argue that once penalty is set aside, criminal prosecution must also fail, the Court conducted a detailed analysis of the appellate order and noted:

“The penalty proceedings against the petitioner were found to be void and unsustainable for the reason that the notices… had not specifically mentioned whether the penalty is proposed in respect of concealment of income or for furnishing inaccurate particulars.”

The Court emphasized that such exoneration was technical and procedural, not based on a finding that the petitioner had not committed the alleged offence.

Supreme Court Precedent Clarifies: Nature of Exoneration Determines Validity of Prosecution

Relying on the binding three-judge bench decision in Radheshyam Kejriwal v. State of West Bengal, the High Court observed:

“It is categorically held in paragraph No.38 of Radheshyam Kejriwal that the finding in the adjudication proceedings in favour of the person facing trial… will depend upon the nature of finding, and that if the exoneration… is on technical ground, and not on merit, the prosecution may continue.”

The Court also noted that K.C. Builders was distinguished in Radheshyam Kejriwal, thus affirming that quashing of criminal prosecution is permissible only where the assessee has been cleared of tax evasion charges on merits.

Wilful Evasion Alleged, Not Just “Misreporting”: Amendments Irrelevant

Dr. Majeed further argued that the alleged acts only amounted to “misreporting” or “underreporting”, and such conduct became penal only with the Finance Act, 2016, which inserted Section 270A and amended Section 276C.

Rejecting this argument outright, the Court held:

“The complaints specifically allege that the petitioner would have succeeded in evading tax… if there was no search conducted… leading to the seizure of documents and books of accounts revealing suppression of actual income.”

“The averments in the complaints would clearly show that wilful, deliberate and conscious evasion of tax has been attributed against the petitioner.”

The Court concluded that the amendments introduced in 2016 were not retrospective and had no bearing on prosecutions based on acts already punishable under the unamended provisions.

Inherent Power Under Section 482 Cr.P.C. Cannot Be Used to Pre-Judge Evidence

Upholding the sanctity of criminal trial processes, Justice Girish reiterated that:

“High Court cannot conduct mini-trial or assess sufficiency of evidence at Section 482 stage – When complaints disclose prima facie offences, interference is unwarranted.”

The Court emphasized that it is not for the High Court, while exercising inherent powers, to weigh evidence or draw conclusions regarding intent or culpability, especially in economic offences involving significant public interest.

Criminal Trial to Proceed; No Case for Quashing

Dismissing all the Criminal Miscellaneous Cases filed by Dr. Majeed, the Court held that the allegations revealed prima facie material of wilful tax evasion, and technical lapses in penalty notices do not wipe out the offence.

“There is absolutely no scope for interference under Section 482 Cr.P.C. upon the proceedings pending before the Trial Court… Needless to say, there is no merit in these petitions.”

This judgment reinforces the jurisprudence that criminal prosecution under the Income Tax Act stands on an independent footing, and can proceed despite procedural relief granted in parallel adjudication proceedings.

Date of Decision: 08 January 2026