Reassessment does not automatically bar tax prosecution where the accusation of wilful evasion or false verification still survives.

Prosecution under sections 276C and 277 of the Income-tax Act is not automatically barred merely because the assessment has been set aside and a de novo reassessment ordered. The offences are based on a prima facie wilful attempt to evade tax or false verification, and their ingredients do not depend on completion of assessment. Reassessment forms part of the assessment process, so a pending fresh assessment does not by itself extinguish the criminal complaint. Criminal proceedings may be dropped only where a statutory adjudication in the accused's favour removes the substratum of the accusation. Where the reassessment is only for further enquiry, the prosecution may continue.

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Issues: Whether criminal prosecution for offences under sections 276C and 277 of the Income-tax Act, 1961 could be dropped merely because the assessment had been set aside and a de novo reassessment was ordered.

Analysis: The ingredients of the offences under sections 276C and 277 are not dependent upon completion of the assessment itself. A complaint may be instituted when the competent authority, on the materials available and after sanction, finds a prima facie case of wilful attempt to evade tax or false verification. Reassessment is included within the concept of assessment, and the mere pendency of reassessment does not automatically require discontinuance of the criminal case. The court may consider dropping the proceeding only where the statutory adjudication in favour of the accused has removed the substratum of the accusation. Where the appellate authority has merely directed de novo assessment for proper enquiry and investigation, the foundation of the prosecution does not vanish. In such a situation, the criminal proceeding need not be terminated, though the court may regulate its own process by adjournment or postponement where appropriate.

Conclusion: The criminal prosecution could not be dropped on the facts, and the order of the Magistrate was unsustainable. The proceeding was allowed to continue, with interim abeyance granted pending completion of fresh assessment.

Final Conclusion: A pending reassessment or de novo assessment does not, by itself, extinguish prosecution under the Income-tax Act where the accusation still survives on the materials and the statutory finding has not removed the basis of the complaint.

Ratio Decidendi: Prosecution for wilful tax evasion or false verification may continue notwithstanding reassessment, unless a favourable statutory adjudication has destroyed the substratum of the criminal accusation.

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