Concurrent penalty and prosecution proceedings may continue, but criminal action was stayed pending appeal outcome.

Prosecution for offences under sections 276C and 277 of the Income-tax Act was not quashed because the earlier penalty cancellation order had not attained finality, as the Department had already filed appeals before the ITAT. The Court noted that penalty and prosecution proceedings may proceed concurrently, but where the outcome of the penalty appeal may affect the foundation of the criminal case, immediate quashing is not required. The prosecution was therefore left in place, while the criminal proceedings were stayed pending disposal of the Department's appeals.

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Issues: Whether prosecution for offences under sections 276C and 277 of the Income-tax Act could be quashed while the penalty cancellation order was under departmental appeal, and whether the criminal proceedings should be stayed pending the result of the appeals.

Analysis: The earlier cancellation of penalty by the appellate authority did not attain finality because the Department had already filed appeals before the Income-tax Appellate Tribunal. The Court distinguished cases where penalty proceedings had finally ended and noted that prosecution and penalty proceedings may run concurrently. However, where the result of the penalty appeal could affect the basis of prosecution, the criminal case need not be quashed immediately and may await the outcome of the departmental appeals.

Conclusion: The prayer to quash the prosecution was declined, but the criminal proceedings were stayed until disposal of the Department's appeals before the Income-tax Appellate Tribunal.

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