Penalty dropped on same facts means prosecution under income-tax law cannot be sustained for false verification.

Criminal prosecution for making a false statement in verification of an income-tax return was held unsustainable where the penalty proceedings on the same foundation had already been dropped. The Court applied the settled principle that, if the penalty case based on the same alleged false statement does not survive, prosecution under section 277 of the Income-tax Act cannot be maintained on those facts. The Revenue also accepted that position. The criminal proceedings were therefore set aside and the assessee was discharged from liability.

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Issues: Whether criminal prosecution under section 277 of the Income-tax Act, 1961 was maintainable after the penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 had been dropped.

Analysis: The petitioner was prosecuted for allegedly making a false statement in the verification of the return. The penalty proceeding under section 271(1)(c) had already been dropped by the assessing authority. The Court relied on the settled view that once the penalty proceeding on the same foundation has been dropped, criminal prosecution on those facts cannot be sustained. The Revenue also conceded the legal position.

Conclusion: The prosecution was not maintainable and the petitioner was entitled to be discharged.

Final Conclusion: The criminal proceedings were set aside and the petitioner was relieved from liability.

Ratio Decidendi: Where the penalty proceeding based on the same alleged false statement has been dropped, criminal prosecution under section 277 of the Income-tax Act, 1961 is not maintainable.

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