Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration
Date: 12.10.2026
Karnataka High Court Upholds Prosecution for Alleged Wealth-Tax Default and False Statements on Foreign Investments
This Short Article has been prepared & written by Advocate G Sridharamurthy. The views expressed are based on his interpretation of the law. He can be reached at his email id sriadv3@gmail.com .
The Karnataka High Court has dismissed two criminal petitions filed by K.R. Pradeep, allowing prosecutions relating to alleged failure to file a wealth-tax return and alleged false statements about foreign-company investments to continue.
Court upholds proceedings in two connected cases
In a common order dated 9 October 2026, Justice H.P. Sandesh considered two petitions arising from proceedings before the Special Court for Economic Offences, Bengaluru:
- Crl.P. No. 7772/2019: A challenge to cognizance for an alleged offence under Section 35B of the Wealth Tax Act, 1957.
- Crl.P. No. 7068/2020: A challenge to the rejection of a discharge application in a case alleging offences under Section 277 of the Income Tax Act, 1961, and Section 193 of the Indian Penal Code.
The Court rejected both challenges, holding that the matters raised by the petitioner did not justify quashing the wealth-tax prosecution or discharge from the income-tax case at the preliminary stage.
Wealth-tax case: late filing allegation can support prosecution
The wealth-tax case arose from allegations that, during search proceedings, jewellery was found and the petitioner could not initially produce proof of having filed wealth-tax returns. According to the complaint, he later stated that the returns had not been filed due to oversight and were filed only after the search.
The petitioner argued that prosecution could not begin without a regular assessment determining net wealth and tax liability. He also contended that statutory notices had not been issued, the sanction was invalid, and the proceedings were barred by limitation.
The High Court did not accept these arguments at this stage. It held that the alleged offence under Section 35B concerns willful failure to furnish a return within the prescribed time. Once such a default is alleged, pending assessment proceedings do not prevent initiation of prosecution.
Relying on the Supreme Courtβs ruling in Sasi Enterprises v. Assistant Commissioner of Income Tax, the Court noted that the relevant provision focuses on voluntary filing within the due date. A return filed after detection of the default does not, by itself, eliminate the alleged offence.
The Court further observed that the Wealth Tax Act contains a presumption regarding culpable mental state. Whether the petitioner lacked the required intent is therefore a matter to be tested at trial, rather than decided while considering quashing of proceedings.
Income-tax case: alleged false statements require trial
The second petition concerned accusations that the petitioner made false statements under Section 131 of the Income Tax Act regarding his connection with two companies registered in the British Virgin Islands: Smart Idea Group Incorporated and Wide View International Group Limited.
The prosecution relied on information received through the tax-information exchange arrangement between India and the British Virgin Islands. The material allegedly indicated that the petitioner had been a director and shareholder of Smart Idea Group Incorporated and a shareholder of Wide View International Group Limited. The approximate value of the alleged investment was stated to be Rs. 22 lakh.
The petitioner maintained that the transactions were investments rather than income, disputed the accuracy of the recorded statements, and argued that the prosecution could not proceed without quantifying any tax allegedly evaded.
The High Court held that these arguments did not warrant discharge. Section 277 applies where a person makes or delivers a statement known or believed to be false, or not believed to be true. The Court found that the complaint and the material placed before the trial court disclosed a prima facie allegation that the petitioner denied foreign-company associations and investments despite contrary information obtained by the department.
No prior tax quantification required for the alleged false-statement offence
A significant aspect of the ruling is the Courtβs view that tax quantification was not essential to proceed on the particular allegation under Section 277(ii). The Court distinguished an allegation of false statement from a case that depends solely on quantifying tax evasion.
It held that, for the purpose of considering discharge, the court must assess whether the prosecution evidence, if left unrebutted, could support conviction. Defences and disputes over the evidence are ordinarily matters for trial.
Sanction issue not accepted as a basis for discharge
The petitioner also challenged the validity of the sanction for prosecution, claiming that the Principal Director of Income Tax (Investigation) lacked authority. The Court noted the trial courtβs reliance on a notification dated 13 November 2014 and an earlier Karnataka High Court decision recognizing the Principal Directorβs authority to grant sanction.
On that basis, the Court found no reason to interfere with the trial courtβs conclusion that the sanction and complaint could proceed.
Outcome and legal significance
Both criminal petitions were dismissed. The wealth-tax prosecution for alleged delayed filing of returns and the income-tax prosecution for alleged false statements will therefore continue before the Special Court for Economic Offences.
The order reinforces that an assessment determination is not necessarily a precondition to prosecuting alleged non-filing of returns or false statements under the tax statutes. It also underscores that questions concerning intent, disputed factual assertions, and the credibility of the prosecution material are generally to be decided during trial rather than in quashing or discharge proceedings.
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Source: Karnataka High Court
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