Bona fide depreciation claim defeats prosecution where tax evasion allegation loses its factual foundation and complaint is quashed.

A criminal complaint and summoning order under the Income-tax Act and the IPC were challenged on the ground that the underlying depreciation claim had already been found bona fide by the ITAT. Because that finding negatived the allegation of a false or bogus claim, undermined the premise of tax evasion, and weakened any basis for presuming a culpable mental state, the Court held that the foundation of the prosecution had disappeared. Continuing the complaint in those circumstances was treated as abuse of process, and the complaint with all proceedings arising from it was quashed.

---

---

Issues: Whether the criminal complaint and summoning order for offences under the Income-tax Act and the Indian Penal Code could be quashed under the Court's inherent jurisdiction after the Income-tax Appellate Tribunal held that the depreciation claim was bona fide and cancelled the penalty.

Analysis: The complaint was founded on the allegation that the assessee had made a false and bogus depreciation claim to evade tax and had filed false returns and statements. The Tribunal, however, on appreciation of the evidence, held that the depreciation claim was normal and bona fide, that the Revenue could not attribute a motive to evade tax, and that the penalty under the Income-tax Act was not sustainable. In that setting, the Court held that the basis of the prosecution had disappeared, because the finding of bona fides negatived the allegation of a false statement and also undermined the premise for presuming a culpable mental state. The Court further held that requiring the accused to face trial in these circumstances would amount to abuse of the process of court, and that the complaint could not meaningfully proceed when the departmental finding had exonerated the assessee on merits.

Conclusion: The complaint and all proceedings arising from it were quashed.

---