The AO issued a show-cause notice u/s. 276CC for initiation of prosecution proceedings for non-filing of return of income in time. The assessee took a plea that since the office of the Director General had not given him a copy of the documents seized during the search and seizure operation in his business premises, he was unable to furnish the return. However, the authorized representative had already collected the original and photocopy of the documents seized but still, the petitioner had not filed returns of income. The Commissioner gave his opinion that the assessee had failed to comply with the notices of the Assessing Officer without assigning any reasons and had also failed to file the return of income and, thus, there was a wilful omission on the part of the assessee in filing returns of his income and, as such, accorded sanction u/s. 279 for launching prosecution u/s. 276CC for not filing returns of income without giving any reasonable cause and non-compliance with the notices of the AO.

The High Court held that as the Assessee submitted for the block assessment period, the refund was found to be due to the assessee and refunds were already adjusted against the outstanding demand of the assessee. When there was no demand, filing of prosecution itself was bad in law and to allow to continue proceeding would amount to abuse of the process of law, hence, not justified. Where there was no penalty or assessment against the assessee, orders passed by the competent authority, entire criminal proceedings against the assessee were to be quashed.