Section 276C: When Income Tax Prosecution Fails
At a Glance
| Parameter | Legal Position |
|---|---|
| Offence under Section 276C(1) | Wilful attempt to evade imposition of tax, penalty, or interest |
| Offence under Section 276C(2) | Wilful attempt to evade payment of tax, penalty, or interest |
| Punishment — Section 276C(1) | Rigorous imprisonment: 6 months to 7 years + fine |
| Punishment — Section 276C(2) | Simple imprisonment: 3 months to 3 years + fine |
| Essential ingredient | Mens rea — wilful intent to evade — must be proved |
| Is bonafide error punishable? | No — Supreme Court, August 2025 |
| Sanction for prosecution | Section 279(1) — Principal Commissioner or Commissioner must sanction |
| When prosecution cannot proceed | After ITAT deletes penalty on which prosecution was based |
| Compounding — available? | Yes — all offences now compoundable per CBDT Circular dated 17.10.2024 |
| CBDT pre-condition for prosecution | Penalty under Section 270A/271(1)(c) must be confirmed by ITAT before prosecution |
| Settlement Commission immunity | Section 245H — can grant immunity from prosecution; provisos apply |
| IT Act 2025 equivalent | Corresponding provision in Chapter XXII |
The Core of Section 276C — What It Criminalises
Section 276C of the Income Tax Act draws a critical line between civil tax defaults and criminal conduct. Most tax disputes — disallowances, additions, reassessments — are civil in nature and lead to tax demand, interest, and penalty. Section 276C steps beyond all of that. It attaches criminal liability to something qualitatively different: a wilful attempt to evade tax.
The provision has two distinct sub-sections. Section 276C(1) targets evasion at the imposition stage — attempting to prevent tax from being charged in the first place. This typically involves false returns, suppressed income, or concealed transactions discovered during assessment or search. Section 276C(2) targets evasion at the collection stage — attempting to avoid paying a tax demand that has already been raised. Knowingly failing to pay assessed tax despite having the means is the archetypal Section 276C(2) offence.
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