Brief of the Case
The Hon’ble (P&H) High Court in the case of Pr.C.I.T. vs ITAT Delhi Bench, New Delhi and anothers while dealing with the scope of power of Tribunal for grant of stay against the prosecution proceedings held that once it is accepted that proceedings for prosecution are independent of assessment and penalty, and the Tribunal is neither the appellate nor the revisional authority in a case where prosecution is launched, the mere fact that the decision in the appeal may have an impact on the prosecution, in our considered opinion, cannot be used to read into the expressions “pass such orders thereon as it thinks fit” or “any proceedings relating to an appeal”, a power in the Tribunal to direct that prosecution or a show cause notice shall be kept in abeyance.
Fact of the Case
In the present case, the Commissioner of Income Tax while exercising its power under Section 263 of the Act partly set aside the assessment order passed under section 143(3) pertaining to A.Y. 2008-09 in the case of M/s Jindal Steel & Power Ltd., respondent no.2 and restored the assessment to the file of the Assessing Officer for a fresh assessment. After re-assessment, the assessee filed an appeal against the fresh assessment before the CIT, Rohtak, which was dismissed on 10.03.2014. The Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of the Act and eventually passed an order dated 28.11.2013, imposing penalty. The assessee challenged the order imposing penalty before the CIT(Appeals), Rohtak, which was also dismissed. The assessee, thereafter, filed two appeals, one being the quantum appeal and the other against the penalty. Thus, three appeals, one against the order passed under Section 263, the second against the assessment order and the third against the levy of penalty, were filed, were pending before the Income Tax Appellate Tribunal, when the revenue served a notice dated 26.12.2014, calling upon the assessee to show cause, why prosecution be not initiated, under Section 276C(1). The assessee did not file a reply but instead filed an application in the appeal challenging the imposition of penalty before the Income Tax Appellate Tribunal for stay of prosecution. The Tribunal granted stay against initiation of prosecution which was now been opposed by the Revenue considering it as without jurisdiction.
Contention of Petitioner
Counsel for the revenue submitted that proceedings for prosecution, under Section 276C (1) are independent of assessment/penalty proceedings. A perusal of the Act, particularly Section 254 of the Act, reveals that it does confer power, upon the Tribunal, to grant of a stay and there is no provision which, whether directly or by inference confers power to file an appeal against an order directing prosecution much less against a show cause notice proposing to initiate prosecution. The Tribunal was, therefore, required to exercise power within the limits of the powers conferred by Section 254 of the Act but has arrogated to itself the power to stay prosecution. The mere fact that the prosecution arises as a result of an order passed during assessment does not confer jurisdiction upon the Tribunal to interpret the expression used in Section 254(1) or the first proviso to stay prosecution. The pendency of the quantum and other appeals cannot be said to be so intrinsically linked to the prosecution as to empower the Tribunal to stay prosecution.
Contention of Respondent
Counsel for the assessee submitted that the show cause notice proposing to initiate prosecution, is based in its entirety upon the order passed under Section 263 of the Act, the assessment order and the order passed in penalty proceeding. The question, therefore, is not whether prosecution proceedings are independent of assessments and penalty but whether the show cause notice proposing to initiate prosecution is so intrinsically linked to the outcome of the appeals as would require the revenue to keep consideration of the show cause notice in abeyance. Counsel for the assessee also submitted that decision in the pending appeals would have a direct bearing on the consideration of the show cause notice and in case the appeals are allowed or the impugned orders are modified, the show cause notice would either be rendered infructuous or the matter would have to be reconsidered. Counsel for the assessee further submitted that the words “relating to an appeal”, used in Section 254 of the Act and the words, “pass such orders thereon as it thinks fit” used in the proviso empower the Tribunal to stay consideration of the show cause notice.
Question of Law
The following questions were framed:-
“a) Whether Section 254 of the Income Tax Act, 1961 empowers the Income Tax Appellate Tribunal to interfere in prosecution proceedings either at the stage of show cause notice or at any other stage?
b) Whether pendency of quantum appeals by the assessee and the revenue, appeals against penalty and appeals challenging orders passed consequent to an order passed under Section 263 of the Income Tax Act, would confer power/jurisdiction upon the Tribunal to stay a show cause notice calling upon the assessee to show cause why prosecution be not launched?”
Held by High Court
The Hon’ble High Court while deciding the appeal observed that a due consideration of the arguments, the statutory provisions and the precedents cited for and against reveal that Section 254(1) confers the power to decide an appeal and “pass such orders thereon as it thinks fit” and when read along with the proviso includes the power to pass interim orders, “in any proceeding relating to an appeal”, thereby indicating that the stay order so passed must relate to proceedings in the appeal pending before the Tribunal. The question that, however, requires an answer is whether these words and expressions would include the power to stay proceedings or orders, which are not appealable or appealed against during pendency of an appeal but are likely to be affected by the outcome of the appeal. A key to the understanding of the power to grant stay lies in the expressions “pass such orders thereon as it thinks fit” and “any proceedings relating to an appeal”, used in Section 254(1) and the proviso appended thereto. The aforesaid expressions, in our considered opinion, confine the power of a Tribunal, to pass an interim order in relation to matters pending before the Tribunal and at best to matters that are so intrinsically linked to the lis pending before the Tribunal, as to be inseparable. The exercise of power must be confined to matters that are directly and substantially in issue or matters that flow directly and substantially from the order impugned before the Tribunal but cannot be extended to matters in which the Tribunal has no jurisdiction even, though, these matters may be incidentally affected by the outcome of the appeal. Admittedly, the Tribunal is neither the appellate nor the revisional forum against a prosecution. A prayer for stay of prosecution or stay of the show cause would, therefore, have to be made by resort to other remedies provided under law and not by praying for a stay before the Tribunal. It would also be appropriate to point out that the notice to show cause why prosecution be not initiated is a purely administrative act and it is only after consideration upon the notice and the reply reaches fruition, may the assessee seek his legal remedies in accordance with law. Consequently, answer of the above two questions was given in negative by the Hon’ble High Court holding that we cannot read into Section 254 of the Act, any power in the Income Tax Appellate Tribunal to interfere in a prosecution under the Act, either at the stage of a show cause notice or at any other stage. The pendency of appeals regarding quantum and penalty and an appeal challenging an order passed under Section 263 would not, in our considered opinion, confer power upon the Tribunal to stay consideration of a show cause notice calling upon the assessee to show cause why prosecution be not launched. Consequently, the writ petition was allowed and orders passed by the Income Tax Appellate Tribunal, Delhi Bench, New Delhi, were set aside.