Prosecution bar under the old Income-tax Act did not survive transitional penalty proceedings, and false-account prosecution could proceed.

Penalty imposed under the transitional provisions of the Income-tax Act, 1961 did not attract the prosecution bar in section 28(4) of the Indian Income-tax Act, 1922, because that protection applied only where penalty was imposed under the 1922 Act itself. The new Act contained no corresponding prohibition, and the saving provision did not preserve the old bar for penalties levied under the 1961 Act. A prosecution under section 277 of the Income-tax Act, 1961 was also maintainable on allegations of filing a false profit and loss account and balance-sheet, since the provision extends to false accounts or statements and the sufficiency of ingredients was a matter for trial.

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Issues: (i) Whether prosecution was barred by section 28(4) of the Indian Income-tax Act, 1922 after penalty had been imposed under the Income-tax Act, 1961. (ii) Whether a prosecution could be sustained under section 277 of the Income-tax Act, 1961 on the facts alleged.

Issue (i): Whether prosecution was barred by section 28(4) of the Indian Income-tax Act, 1922 after penalty had been imposed under the Income-tax Act, 1961.

Analysis: Section 28(4) of the Indian Income-tax Act, 1922 protected an assessee from prosecution only where the penalty had been imposed under that section. The return in question was filed after the commencement of the Income-tax Act, 1961, and the penalty proceedings therefore fell within section 297(2)(g) of the Income-tax Act, 1961. The saving provision did not preserve the bar contained in section 28(4) for penalties imposed under the new Act, and the new Act contained no corresponding prohibition against prosecution on the same facts.

Conclusion: The bar under section 28(4) of the Indian Income-tax Act, 1922 was not available, and the issue was decided against the petitioner.

Issue (ii): Whether a prosecution could be sustained under section 277 of the Income-tax Act, 1961 on the facts alleged.

Analysis: Section 277 of the Income-tax Act, 1961 covers not only a false statement in verification but also the delivery of a false account or statement. The complaint alleged delivery of a profit and loss account and balance-sheet said to be false, and whether the ingredients of the offence were established was a matter for trial rather than quashing at the threshold. No legal bar to prosecution was shown under either Act.

Conclusion: The prosecution under section 277 of the Income-tax Act, 1961 was maintainable, and the issue was decided against the petitioner.

Final Conclusion: The petition for quashing failed because no statutory bar to the criminal prosecution was established.

Ratio Decidendi: Where penalty is imposed under the transitional provisions of the Income-tax Act, 1961, the prosecution bar in section 28(4) of the Indian Income-tax Act, 1922 does not apply, and a prosecution for filing a false account or statement may proceed under section 277 of the Income-tax Act, 1961.

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