Technical Setting Aside of Reassessment Cannot Shield Accused from Prosecution Under Section 276C(2): Punjab & Haryana High Court

Background and Overview

The Punjab and Haryana High Court, in a significant ruling dated 18.04.2026, dismissed a petition filed under Section 482 of the Code of Criminal Procedure, 1973, wherein the petitioners sought to quash a criminal complaint and have the revisional court's order set aside. The case — Ambey Construction Co. Vs DCIT (Punjab and Haryana High Court), CRM-M No.8916 of 2023 — arose from a complaint filed under Section 276C(2) of the Income Tax Act, 1961, alleging a wilful attempt to evade payment of tax, penalty or interest.

The core legal question before the Court was whether criminal prosecution for tax evasion can survive once the underlying assessment proceedings have been set aside by the Income Tax Appellate Tribunal (ITAT). The Court's answer — a firm and reasoned no to quashing — has important implications for understanding the relationship between civil tax proceedings and criminal liability under the Income Tax Act, 1961.

Facts of the Case

The Deputy Commissioner of Income Tax, Central Circle 1, Bathinda, filed Complaint No. COMA2223 of 2018 dated 21.05.2018 against the partnership firm M/s Ambey Construction Company and its partners — Puneet Garg, Rajni Singla, and Murti Devi — in their individual capacities. The complaint pertained to Assessment Year 2011-12 and alleged that the accused had wilfully attempted to evade payment of tax, penalty or interest, thereby attracting the provisions of Section 276C(2) of the Income Tax Act, 1961.

The accused were summoned on 22.05.2018 and the matter was fixed for pre-charge evidence. Subsequently, the accused filed a discharge application under Section 245(2) Cr.P.C., arguing that the assessment order forming the basis of the complaint had been set aside by the ITAT, Amritsar vide order dated 21.09.2019. The learned Chief Judicial Magistrate, Bathinda rejected this discharge application on 11.05.2022.

The petitioners then approached the learned Additional Sessions Judge, Bathinda, by way of a criminal revision petition. The revisional court, after examining the record and hearing both parties, dismissed the revision on 03.01.2023, holding that:

  • The prosecution under Section 276C(2) is independent of the assessment proceedings.
  • The ITAT had set aside the reassessment only on technical grounds, not on merits.
  • There was prima facie material showing that the accused had wilfully attempted to evade tax by reflecting receipts of Rs.15 crores from PACL as business income, whereas the same were found to be income from other sources.
  • The setting aside of reassessment proceedings did not amount to a clean chit to the accused.
  • The defence regarding prosecution of a dissolved firm was without merit, given the provisions of the Income Tax Act, 1961 providing for joint and several liability of partners.
  • The sanction for prosecution had been duly granted by the competent authority.

Aggrieved by this outcome, the petitioners filed the present petition under Section 482 Cr.P.C. before the Punjab and Haryana High Court.

Arguments Advanced by the Petitioners

The primary contention raised on behalf of the petitioners was straightforward: once the ITAT had set aside the assessment proceedings for AY 2011-12, the very foundation of the complaint under Section 276C(2) of the Income Tax Act, 1961 stood extinguished. They argued that:

  1. With the assessment order quashed, no tax liability survives and therefore no offence under Section 276C(2) can be maintained.
  2. The continuation of criminal prosecution in such circumstances amounts to an abuse of the process of law.
  3. The courts below had failed to appreciate the correct legal position emerging from the Supreme Court judgment in K.C. Builders vs. Assistant Commissioner of Income-Tax, (2004) 135 Taxman 461 (SC).