Penalty waiver did not stop income-tax prosecution where disclosure was not voluntary and trial had substantially progressed.

Waiver of penalty under section 273A(4) did not automatically stop pending prosecution under sections 276C(1) and 277 of the Income-tax Act. The disclosure of escaped income was made only after search and detection, so it was not treated as voluntary, and the complaint had already been sanctioned and filed, including for offences under the Indian Penal Code. Section 279(1A) was therefore not read as requiring termination of the criminal case, especially where the trial had progressed substantially and evidence had already been led. The refusal to discharge the assessee under section 245 CrPC was upheld.

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Issues: Whether waiver of penalty under section 273A(4) of the Income-tax Act, 1961 barred the continuance of prosecution under sections 276C(1) and 277 of the Income-tax Act, 1961 and justified discharge under section 245 of the Code of Criminal Procedure, 1973.

Analysis: The complaint had been filed not only for offences under the Income-tax Act, but also under the Indian Penal Code, and sanction for prosecution had already been obtained. The revised return and the disclosure of the escaped income came only after the search and detection, so the disclosure could not be treated as voluntary. The order under section 273A(4) waived penalty, but it did not refer to or nullify the already launched prosecution. In the circumstances, section 279(1A) was held not to compel stoppage of the pending criminal proceedings, particularly when the prosecution had already led evidence and the trial had reached an advanced stage.

Conclusion: The waiver order did not bar the prosecution or warrant discharge, and the refusal to stop the proceedings was upheld against the assessee.

Ratio Decidendi: Section 279(1A) bars prosecution only where the penalty has been reduced or waived in circumstances attracting that provision, and a later waiver order will not automatically terminate an already instituted prosecution when the disclosure was not voluntary and the criminal court has material to proceed.

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