Penalty order quashed on appeal: criminal prosecution based on section 277 could not survive

A criminal complaint under section 277 of the Income-tax Act was treated as unsustainable where the penalty order forming its foundation had already been set aside in appeal. The settled principle applied was that if no penalty can survive, criminal prosecution based on that penalty cannot be maintained. On that reasoning, the complaint and the connected proceedings were quashed under section 482 of the Code of Criminal Procedure.

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Issues: Whether a criminal complaint under section 277 of the Income-tax Act, 1961 could be sustained when the penalty order forming its basis had been quashed in appeal, and whether the complaint and proceedings were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973.

Analysis: The complaint rested on the penalty order passed in assessment proceedings. That order had already been set aside by the appellate authority. In these circumstances, the basis for alleging criminality under section 277 no longer survived. The settled position applied was that where there is no case for sustaining penalty, there is equally no case for criminal prosecution. The Court found the petitioner's challenge well founded and found no answer from the revenue to distinguish the governing principle.

Conclusion: The criminal complaint and the proceedings arising from it were quashed in favour of the petitioner.

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