Penalty-based criminal prosecution cannot survive once the underlying income tax penalty order is set aside.

Criminal prosecution initiated solely on the basis of a penalty order under section 271(1)(c) could not continue once that penalty order was set aside by the ITAT. The High Court applied the settled principle that, where the foundation order is annulled, the complaint loses its basis and becomes unsustainable. The criminal complaint and all consequential proceedings were therefore quashed in favour of the petitioner.

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Issues: Whether criminal prosecution launched on the basis of a penalty order under section 271(1)(c) of the Income-tax Act, 1961 could survive after the penalty order had been set aside.

Analysis: The penalty imposed on the assessee had been set aside by the Income-tax Appellate Tribunal. The Court followed the settled view that where the foundation penalty order is annulled, prosecution initiated solely on that basis cannot continue. The complaint and the proceedings arising from it were therefore unsustainable.

Conclusion: The prosecution could not survive after the penalty order was set aside, and the criminal complaint along with all consequential proceedings was quashed in favour of the petitioner.

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