Rajasthan High Court Stops Section 276C(1) Prosecution After ITAT Cancels Section 271AAB Penalty

Background and Context

The Rajasthan High Court in Vijay Jain Vs Union of India examined whether a criminal prosecution under Section 276C(1)(i) of the Income Tax Act 1961 could survive when the foundational penalty under Section 271AAB had already been annulled by the Income Tax Appellate Tribunal (ITAT).

The assessee invoked the Court’s inherent jurisdiction to seek quashing of Criminal Case No.293/2017, pending before the Court of Chief Metropolitan Magistrate (Economic Offences), Jaipur Metropolitan, arising from search proceedings under Section 132 and consequential allegations of wilful attempt to evade tax.

Key Facts of the Case

Search and Subsequent Proceedings

  • A search under Section 132 was undertaken at the premises of the assessee.
  • During the search, the Department seized various records and documents.
  • Based on the search material, the Department initiated:
    1. Penalty proceedings on alleged undisclosed income under Section 271AAB, and
    2. Criminal prosecution before the Chief Metropolitan Magistrate (Economic Offences), Jaipur Metropolitan, for offences punishable under Section 276C(1)(i).

Challenge to Penalty Before ITAT

  • The assessee challenged the penalty order before the ITAT.
  • By order dated 23.09.2019, the ITAT quashed the penalty levied under Section 271AAB against the assessee.
  • The ITAT’s order did not contain any adverse finding regarding wilful concealment or deliberate evasion by the assessee.

Parallel Criminal Case

  • Despite the ITAT’s exoneration on penalty, Criminal Case No.293/2017 for offence under Section 276C(1)(i) continued before the trial court.
  • The assessee approached the Rajasthan High Court through S.B. Criminal Miscellaneous (Petition) No. 6640/2021, seeking quashing of the ongoing criminal prosecution.

Assessee’s Contentions

The assessee’s counsel advanced the following principal submissions:

1. Dual Proceedings on the Same Alleged Default

  • The same search and the same alleged undisclosed income formed the foundation for both:
    • the penalty under Section 271AAB, and
    • the prosecution under Section 276C(1)(i).
  • Once the penalty was annulled by the ITAT, continuing criminal proceedings on the same factual matrix would be unjustified and contrary to law.

2. Reliance on Binding Precedents

The assessee strongly relied on two earlier decisions of the Rajasthan High Court:

  • Nagendra Choudhary vs. Union of India and Anr., 2025 SCC Online Raj. 6063
  • Ritesh Agarwal Vs. Union of India and Anr., S.B. Criminal Misc. Petition No.2139/2019 decided on 27.11.2025

In these matters:

  • Penalties under Section 271AAB had been struck down by the ITAT.
  • The High Court, relying on the ITAT’s findings and the absence of any adverse conclusion about wilfulness, quashed prosecutions under Section 276C(1).

3. Extract from Nagendra Choudhary Relied Upon

The Court was particularly referred to paragraphs 33 to 36 of Nagendra Choudhary vs. Union of India and Anr., where it was held that: