Prosecution based on annulled income-tax assessment cannot continue once the foundation assessment is set aside

A prosecution founded on a best judgment assessment under section 144 of the Income-tax Act could not be sustained once the assessment order was set aside and the remand was confirmed in appeal. With the underlying assessment no longer in existence, the basis for the criminal proceedings disappeared, and continuation of the prosecution was unjustified. The Revenue did not contest that position, though it sought liberty to initiate fresh proceedings if a new assessment was later made. The criminal cases were quashed.

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Issues: Whether prosecution launched on the basis of a best judgment assessment under section 144 of the Income-tax Act, 1961 could survive after the assessment order had been set aside and remanded.

Analysis: The assessment forming the foundation of the criminal cases had been annulled in appeal and the remand had been affirmed in further appeal. Once the very basis of the prosecution ceased to exist, continuation of the criminal proceedings was not justified. The Revenue did not dispute this position, though it sought liberty to initiate prosecution again if a fresh assessment order was later passed.

Conclusion: The prosecution in all four cases was quashed in favour of the assessee.

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