Partial appellate modification does not bar Income-tax prosecution; directors need specific averments of responsibility to face vicarious liability.

Prosecution under the Income-tax Act for false returns and wilful tax evasion is not automatically barred because the assessment order is later partially modified in appeal or remanded; the criminal complaint may still proceed where the tax proceedings do not completely exonerate the assessee. For directors, vicarious criminal liability under section 278B arises only if the complaint specifically pleads that they were in charge of and responsible for the company's business at the relevant time, or that consent, connivance or neglect is shown. In the absence of that foundational averment, the prosecution against the directors cannot be sustained, though the complaint may continue against the company.

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Issues: (i) Whether prosecution for offences under sections 276C and 277 of the Income-tax Act, 1961, was liable to be quashed because the assessment order had been modified in appeal and remanded in part; (ii) Whether the directors could be prosecuted in the absence of a specific averment that they were in charge of and responsible for the conduct of the company's business at the relevant time.

Issue (i): Whether prosecution for offences under sections 276C and 277 of the Income-tax Act, 1961, was liable to be quashed because the assessment order had been modified in appeal and remanded in part.

Analysis: The prosecution was founded on findings in the assessment proceedings that the returns contained false particulars and that there had been a wilful attempt to evade tax. The later appellate order did not completely exonerate the assessee: one addition was sustained with modification and the other was remanded. The governing principle is that criminal prosecution under the Income-tax Act is not automatically barred merely because appellate proceedings are pending or the assessment order has undergone partial modification; due regard may be had to the result of the tax proceedings, but the criminal case is not rendered unsustainable on that ground alone.

Conclusion: The prosecution was not liable to be quashed on the ground of partial appellate modification or remand of the assessment order.

Issue (ii): Whether the directors could be prosecuted in the absence of a specific averment that they were in charge of and responsible for the conduct of the company's business at the relevant time.

Analysis: Section 278B creates vicarious liability only for persons who, at the time of the offence, were in charge of and responsible to the company for its business, or whose consent, connivance, or neglect is proved. A bare allegation that the directors wilfully evaded tax or filed false verification is insufficient unless the complaint specifically states that they had the requisite managerial responsibility. In the absence of such an averment, the statutory requirement for fastening criminal liability on directors is not met.

Conclusion: The prosecution of the directors was not sustainable and was quashed, while the prosecution against the company was permitted to continue.

Final Conclusion: The complaint survived against the company, but the directors were entitled to quashing because the complaint lacked the necessary foundation for vicarious criminal liability under the Act.

Ratio Decidendi: In a prosecution for company offences under the Income-tax Act, partial modification or remand of the assessment does not by itself bar criminal proceedings, but directors can be proceeded against only if the complaint specifically pleads that they were in charge of and responsible for the company's business at the time of the offence.

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