Income-tax prosecution fails when the assessment order basis is set aside and no longer exists in law.

A prosecution linked to an income-tax assessment cannot continue when the assessment order forming its foundation has been set aside on appeal. Here, a complaint alleging fictitious purchases was based on an assessment order that was later annulled with directions for fresh assessment. Once that order ceased to exist in law, the basis for the criminal proceedings also disappeared, and the High Court treated the maintainability objection as technical in light of its inherent power to quash proceedings. The criminal prosecution was therefore quashed in favour of the assessee.

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Issues: Whether a prosecution launched for offences connected with an income-tax assessment can continue after the assessment order on which it is based has been set aside by the appellate authority.

Analysis: The assessment year involved was 1980-81, and the complaint had been filed after an assessment order treating certain purchases as fictitious. That assessment order was subsequently set aside in appeal with a direction to redo the assessment. Once the assessment order ceased to exist in law, the foundation for the criminal prosecution disappeared. The objection that revision was not maintainable was treated as technical, since the High Court could exercise inherent powers to quash the proceedings.

Conclusion: The prosecution could not be maintained after the assessment order was set aside, and the criminal proceedings were quashed in favour of the assessee.

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