Penalty cancellation for no concealment bars related tax prosecution and requires quashing of criminal proceedings.

Criminal prosecution for concealment under the Income-tax Act cannot survive where the penalty for concealment is set aside on appeal on a finding that no concealment existed. Section 279(1A) bars prosecution under sections 276C and 277 when the penalty under section 271(1)(c) has been reduced or waived under section 273A, and the same principle applies where the appellate authority cancels the penalty for want of concealment. Once the foundation for the penalty fails, the corresponding prosecution founded on the same allegation must be quashed.

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Issues: Whether criminal prosecution for offences under the Income-tax Act and the Indian Penal Code could continue after the penalty for concealment had been set aside on appeal.

Analysis: Section 279(1A) bars prosecution under sections 276C and 277 of the Income-tax Act where the penalty imposed or imposable under section 271(1)(c) has been reduced or waived under section 273A. The appellate authority had set aside the penalty by holding that no concealment was made out. In such circumstances, the basis for the prosecution no longer survived. The principle applied was that penalty proceedings and prosecution for concealment proceed together, and cancellation of the penalty on the finding of no concealment requires quashing of the prosecution.

Conclusion: The prosecution could not continue and was liable to be quashed; the decision was in favour of the assessee.

Ratio Decidendi: Where a penalty for concealment is cancelled on the finding that no concealment exists, prosecution founded on the same allegation cannot survive and must be quashed.

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