False Statements Can Attract Prosecution Without Assessment Order: Karnataka High Court
The Karnataka High Court has refused to interfere with criminal proceedings against K.R. Pradeep concerning failure to file a wealth-tax return and allegedly false statements about foreign investments. The Court rejected the argument that the absence of a completed assessment or quantified tax liability necessarily barred prosecution in the circumstances before it.
Justice H.P. Sandesh delivered the common order on October 9, 2026, in Criminal Petition Nos.7772/2019 and 7068/2020. Both petitions were dismissed, allowing the proceedings before the Special Court for Economic Offences, Bengaluru, to continue.
Two Separate Prosecutions Challenged
The first petition sought quashing of C.C. No.184/2019, instituted under Section 35B of the Wealth-tax Act, 1957, for alleged wilful failure to furnish the wealth-tax return for Assessment Year 2012-13 within the prescribed time.
The second challenged the order dated November 11, 2020, rejecting the petitioner's discharge application in C.C. No.173/2018. That prosecution concerned Section 277 of the Income-tax Act, 1961, and Section 193 of the Indian Penal Code, arising from allegedly false statements concerning foreign companies.
The petitioner invoked the High Court's inherent jurisdiction under Section 482 of the Code of Criminal Procedure.
Assessment and Sanction Objections Raised
The petitioner argued that prosecution required a prior assessment determining taxable wealth or income and the resulting tax liability. Without that determination, he contended, the Department could not establish the alleged default or evasion.
He also challenged the sanctioning authority's competence, raised limitation objections and alleged procedural irregularities.
For the wealth-tax case, he maintained that notices under Sections 14(2) and 17 were necessary before prosecution. In the false-statement case, he argued that the Department had not quantified any evaded tax and disputed the accuracy of the recorded statements.
Wealth-Tax Default Related to Timely Filing
The Court noted that, during the search proceedings, the petitioner initially stated that jewellery found during the search was reflected in his wealth-tax returns. He undertook to produce those returns but allegedly failed to provide proof.
He subsequently admitted that the returns had not been filed due to oversight, while claiming that they were filed after the search.
The Court emphasised that the prosecution under Section 35B concerned failure to furnish the return within the statutory due date. It rejected the contention that the absence of a completed assessment necessarily prevented prosecution for that default.
Sasi Enterprises Applied to Wealth-Tax Proceedings
The High Court relied on Sasi Enterprises v. Assistant Commissioner of Income Tax, (2014) 5 SCC 139, which examined prosecution for failure to furnish income-tax returns under Section 276CC.
It considered the reasoning applicable to Section 35B because of the similarity between the provisions. The Court stressed the obligation to file returns voluntarily within the prescribed period.
It also rejected the argument that non-issuance of notices under Sections 14(2) or 17 barred the proceedings in this case. Subsequent filing did not justify terminating the prosecution at the preliminary stage.
Mental State and Limitation Required Examination at Trial
Referring to Section 35-O of the Wealth-tax Act, the Court discussed the statutory presumption concerning a culpable mental state.
Whether the petitioner possessed the necessary mental element, and whether circumstances prevented timely filing, were matters requiring examination during trial. They did not warrant quashing at the stage of cognizance.
The Court likewise treated the limitation objection as a mixed question of fact and law, declining to terminate the wealth-tax prosecution on that basis.
Foreign Records Supported False-Statement Allegations
In the second case, the Department alleged that the petitioner denied associations with foreign companies apart from a disclosed Singapore company.
Information obtained from the British Virgin Islands, through the CBDT's Foreign Tax and Tax Research Division, allegedly disclosed connections with Smart Idea Group Incorporated and Wide View International Group Limited.
The records included corporate documents, shareholder registers and a director register. The complaint referred to investments of approximately ₹22 lakh. The Court noted that the petitioner allegedly repeated his denial when confronted during a subsequent examination under Section 131.
Quantification Was Not a Ground for Discharge
The Court held that the allegation of a knowingly false statement fell for consideration under Section 277(ii). In the circumstances, absence of an assessment order or quantified evaded tax did not justify discharge.
It also noted the Special Court's reliance on D.K. Shiva Kumar v. Income Tax Department and the notification dated November 13, 2014, concerning the Principal Director's authority to accord sanction.
The argument that an investment was not itself income did not dispose of the separate allegation that false statements had been made.
Final Decision
Finding no ground to interfere with cognizance in the wealth-tax case or rejection of discharge in the income-tax case, the High Court dismissed both petitions.
The order permits the prosecutions to proceed. It does not record a conviction; the allegations remain subject to adjudication in the criminal proceedings.
CA Vijayakumar Shetty
Chartered Accountant | Mangalore
+91 98450 82430
