High Court may quash long-pending tax prosecution after settlement when continuation becomes an abuse of process.

A search and seizure operation under Section 132 of the Income Tax Act, 1961, was conducted on 24 February 2009 at the business and residential premises of the Gobind Expeller Group, including the residences of the petitioners.

The Income Tax Department filed Complaint No. 120 dated 31 March 2009 alleging offences under Sections 177, 181, 193, 196, 34 IPC and Section 277 of the Income Tax Act. The Magistrate issued a common summoning order on the same date.

The petitioners later approached the Income Tax Settlement Commission under Section 245C of the Act. By order dated 29 June 2012, the Settlement Commission accepted an additional disclosure of ₹50 lakhs and settled the petitioners’ tax liability, while granting immunity from prosecution and penalty except in respect of prosecution already launched concerning the alleged illegal operation of the locker.

The petitioners’ applications for discharge under Section 245(2) Cr.P.C. were dismissed by the Chief Judicial Magistrate, and the revision petitions were dismissed by the Sessions Court.

Whether the Settlement Commission’s order under Section 245H of the Income Tax Act granted immunity in respect of the criminal prosecution already instituted against the petitioners before their settlement applications were filed?

Whether, notwithstanding the statutory limitation under the first proviso to Section 245H(1), the High Court could exercise its inherent jurisdiction under Section 482 Cr.P.C. to quash the prosecution in the interests of justice?

Whether continuation of the prosecution, pending for approximately 17–18 years after the tax dispute had been settled and the settlement amount paid, would amount to an abuse of the process of law?

The Court applied Section 245H of the Income Tax Act, under which the Settlement Commission may grant immunity from prosecution and penalty where the applicant has cooperated and made a full and true disclosure; however, the first proviso prohibits such immunity where prosecution had already been instituted before the settlement application was received.

Section 245-I makes the Settlement Commission’s order conclusive regarding matters covered by the settlement.

Section 277 of the Income Tax Act penalises knowingly false statements or false verification under the Act.

The Court further relied on its inherent jurisdiction under Section 482 Cr.P.C. to prevent abuse of process and secure the ends of justice.

It followed the principles in Vijay Krishnaswami @ Krishnaswami Vijay Kumar v. Deputy Director of Income Tax (Investigation), 2025 SCC OnLine SC 1843, that continuation of prosecution may be quashed where the Settlement Commission has conclusively dealt with the relevant matters and continuation would serve no meaningful purpose.

It also relied on Satish Vohra v. State of Punjab and Nagesh Aggarwal v. Deputy Director of Income Tax (Investigation), which recognise that criminal proceedings may be quashed where subsequent settlement or final adjudication removes the practical and legal basis for continuing the prosecution.

The Court accepted that, strictly under the first proviso to Section 245H(1), the Settlement Commission could not grant immunity for prosecution already instituted before the settlement applications were filed.

The Commission’s order itself expressly excluded the existing prosecution concerning the locker.

However, the Court distinguished the statutory question of immunity from the broader constitutional and inherent jurisdictional question of whether the criminal proceedings should nevertheless continue.

The Settlement Commission had considered the locker-related issue, accepted the petitioners’ additional disclosure, settled their tax liability, and its order had neither been challenged nor shown to have been disobeyed.

Applying the principles in Vijay Krishnaswami, Satish Vohra and Nagesh Aggarwal, the Court held that the prolonged continuation of proceedings—approximately 17–18 years after the complaint—would serve no practical or meaningful purpose.

The deterrent objective of the penal provisions had already been substantially served by the long pendency of the prosecution and the petitioners’ compliance with the settlement order.

Nevertheless, exercising its inherent jurisdiction under Section 482 Cr.P.C., the Court held that continuation of the prosecution had become purposeless and abusive in view of the final settlement, payment of the determined amount, and the extraordinary delay.

The Court therefore quashed Complaint No. 120 dated 31 March 2009, the common summoning order dated 31 March 2009, the discharge order dated 3 December 2016, the revisional order dated 1 February 2018, and all consequential proceedings against both petitioners.

Both petitions were allowed and disposed of accordingly.