ITAT has no power to stay prosecution: Punjab and Haryana High Court [Read Judgment]

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, the bench said quashing the orders of ITAT granting stay in prosecution.

Punjab and Haryana High Court has held that Income Tax Appellate Tribunal(ITAT) has no power to interfere in a prosecution under the Income Tax Act, either at the stage of a show cause notice or at any other stage. A division bench of Justices Rajive Bhalla and Rekha Mittal said that pendency of appeals regarding quantum and penalty and an appeal challenging an assessment order would not, confer power upon the Tribunal to stay consideration of a show cause notice calling upon the assesse to show cause why prosecution be not launched.

The Challenge

In this case, Income Tax Appellate Tribunal had stayed consideration of the show-cause notice for prosecution. Commissioner of Income Tax, challenged the order in High Court.

The Law

Section 254(1)of the Income Tax Act - The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, “pass such orders thereon as it thinks fit”

Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in “any proceedings relating to an appeal” filed under subsection (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order”

Prosecution proceedings independent

The court said that since the proceedings for prosecution are independent of assessment and penalty, and Tribunal is neither the appellate nor the revisional authority in a case where prosecution is launched, the tribunal cannot, merely because its decision in the appeal may have an impact on the prosecution, read into the expressions “pass such orders thereon as it thinks fit” or “any proceedings relating to an appeal”, and direct that prosecution or a show cause notice shall be kept in abeyance.

No interim orders upon matters over which ITAT has no jurisdiction

The court said that Section 254 of IT Act, 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, the bench said.

The court also added that if the tribunal had the power to grant a stay of prosecution, prosecution would have to await the final outcome of proceedings up to the Supreme Court.

Delhi HC ruling distinguished

The Court observed that Delhi High Court in The Commissioner of Income Tax (Central-II) v. Income Tax Appellate Tribunal had upheld an order granting stay of assessment proceedings. The order was upheld, by the Delhi High Court as assessment proceedings were intrinsically linked to and not from the legality of the order passed, under Section 263, namely, jurisdiction to re-open an assessment, the court said.

Read the Judgment here.