Macwan had left the handbrake off and was charged with careless driving causing death.
His wife, sister-in-law and her children were able to escape but it was over 40 minutes before Aarush's body was brought to the surface.
Judge Blackie told Macwan he was fully aware of what he had been through.
The judge said he agreed with Macwan's lawyer, Frank Pereira, who described the incident as momentary inattention.
Macwan rushed from the dock as soon as Judge Blackie told him he was free to go. He embraced his wife in the public gallery and the two hugged and wept.
But despite the court result, Macwan cannot forgive himself.
"It is a life sentence."
The memories came flooding back as the judge told the court how the family pulled over because Macwan's wife, Kinnary, was car-sick.
Macwan got out of the van to stretch his legs and walked away to light a cigarette, Judge Blackie said.
But moments later he heard screams from inside the van and turned to see the Toyota Hiace rolling towards Lake Dunstan.
He ran and tried to push the van away from the lakeside but it was too heavy and rolled into the water with his wife, sister-in-law and Aarush trapped inside.
"I was in tears remembering. It is every day ... I'm already in hell, my personal hell."
Mr Pereira told the court Macwan was used to automatic vehicles where putting the handbrake on was not as important as in a manual.
He also said the van did not start moving until some time after Macwan had walked away.
Judge Blackie agreed a discharge without conviction was appropriate.
Police did not oppose the application. Sergeant Eardley Dijkstra said the case was tragic and the decision to prosecute was not made lightly: "Police took into account that a death had occurred."
Judge Blackie commended the police for bringing the matter to court.
"There was a loss of life here and the police have a duty to investigate loss of life and they certainly have a duty to bring it to court."
Macwan now hopes to gain permanent residency in New Zealand so he can remain close to his son's grave.
He said complete strangers had called him to offer their support and prayers.
Macwan said victim support had been fantastic and he now plans to become a social worker and "to give back the love".
"I told my wife that I might be born in India but today I am a New Zealander because of the way they accept me and show their love. It is remarkable, they accept me as one of their own."
