Criminal prosecution based on a disputed depreciation claim failed after departmental penalty proceedings ended in the assessee's favour.

Prosecution for offences under sections 276C, 277 and 278B of the Income-tax Act could not be sustained where it was founded on the same alleged wrongful depreciation claim that had already been surrendered and where the departmental penalty proceedings on that basis were dropped and attained finality. The Court treated the continued criminal complaint as lacking its underlying basis once the departmental proceedings ended in favour of the assessee, and held that such prosecution amounted to an abuse of the process of law. The complaint was quashed.

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Issues: Whether prosecution for offences under sections 276C, 277 and 278B of the Income-tax Act, 1961 could survive after the departmental penalty proceedings relating to the same alleged wrongful depreciation claim had been dropped and attained finality.

Analysis: The complaint was founded on an alleged wrongful claim of depreciation. The assessee had subsequently surrendered the depreciation amount on agreed terms, and the penalty proceedings before the departmental appellate forum were later dropped. In these circumstances, the basis for initiating prosecution ceased to exist. Where the departmental proceedings end in favour of the assessee, the criminal prosecution founded on the same foundation cannot be sustained.

Conclusion: The prosecution was held to be an abuse of the process of law and the complaint was quashed.

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