Income-tax prosecution barred where sanction fails and tax evasion amount falls below CBDT prosecution threshold.

A criminal complaint under Section 276-C(1) read with Section 277 of the Income-tax Act was treated as unsustainable because its foundation, the sanction under Section 279(1), had already been quashed in earlier writ proceedings. The court also referred to the CBDT circular dated 07.02.1991, which discourages prosecution where the income sought to be evaded is below Rs. 25,000. After remand, the penalty stood at Rs. 4,000, well below that limit, so the foundation for prosecution was absent and the complaint, along with all arising proceedings, was quashed.

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Issues: Whether the criminal complaint for offences under Section 276-C(1) read with Section 277 of the Income-tax Act, 1961 was liable to be quashed in view of the earlier quashing of the sanction order and the CBDT circular restricting prosecution where the tax sought to be evaded was below the prescribed limit.

Analysis: The criminal complaint was founded on the sanction order granted under Section 279(1) of the Income-tax Act, 1961. That sanction order had already been quashed in earlier writ proceedings, and the judgment recorded that the competent authority was not precluded from re-examining the matter. The Court further noted the CBDT circular dated 07.02.1991 stating that prosecution under Section 276-C(1) should not be initiated where the income sought to be evaded is less than Rs. 25,000. After remand by the appellate tribunal, the penalty stood at only Rs. 4,000, which was well below that threshold. In these circumstances, the foundation for the criminal complaint was held to be absent.

Conclusion: The criminal complaint and all proceedings arising from it were liable to be quashed and were quashed in favour of the assessee.

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