2000 (7) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Application for stay of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.
2. Entertainability of the application for stay by the High Court under section 260A of the Income-tax Act.
3. Power of the High Court under section 260A of the Income-tax Act and its relation to the Code of Civil Procedure.
4. Applicability of Order 41, Rule 5, and Section 151 of the Code of Civil Procedure in the context of penalty proceedings.
5. Interaction between sections 260A and 275 of the Income-tax Act regarding the limitation period for penalty proceedings.

Detailed Analysis:

1. Application for Stay of Penalty Proceedings:
The appellant-assessee applied for a stay of all further penalty proceedings initiated under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1995-96, pending the disposal of the appeal. The appellant had claimed depreciation for a bio-gas plant, which was disallowed by the Assessing Officer. The Income-tax Appellate Tribunal dismissed the appellant's appeal, leading to the instant second appeal. The court noted that the application for stay of the realization of the payment of demand had become infructuous as the dues had already been realized by the authorities.

2. Entertainability of the Application for Stay:
The Revenue raised a preliminary objection to the entertainability of the application for stay, arguing that the penalty proceeding is distinct and separate from the assessment order and the pending appeal. The court, however, held that the High Court under section 260A of the Act has the power to stay a penalty proceeding initiated pursuant to the assessment order out of which the present appeal arises.

3. Power of the High Court under Section 260A:
The court examined the scope and ambit of section 260A, which confers power on the High Court to entertain a second appeal against every order passed in appeal by the Appellate Tribunal if it involves a substantial question of law. The court noted that the High Court has the power to determine any issue not determined or wrongly determined by the Appellate Tribunal. The court also highlighted that the provisions of the Code of Civil Procedure, 1908, relating to appeals to the High Court, apply to appeals under section 260A.

4. Applicability of Order 41, Rule 5, and Section 151 of the Code of Civil Procedure:
The court held that Order 41, Rule 5 of the Code of Civil Procedure, which allows the High Court to stay proceedings under a decree or order, is applicable to appeals under section 260A of the Act. The court also emphasized that even if Order 41, Rule 5 cannot be applied, the inherent power under section 151 of the Code of Civil Procedure allows the High Court to grant an order of injunction or stay of penalty proceedings. The court referred to the Supreme Court's decision in Mrs. Kavita Trehan v. Balsara Hygiene Products Ltd., which affirmed the inherent power of the court to make restitution whenever justice demands.

5. Interaction between Sections 260A and 275 of the Income-tax Act:
The court discussed section 275 of the Act, which deals with the bar of limitation for imposing penalties. The Explanation to section 275 stipulates that any period during which a penalty proceeding is stayed by an order or injunction of any court shall be excluded from the limitation period. The court concluded that this provision supports the High Court's power to stay penalty proceedings during the pendency of an appeal under section 260A.

Conclusion:
The court directed that all further penalty proceedings initiated pursuant to the notice dated March 20, 2000, shall remain stayed till the disposal of the appeal. The hearing of the appeal was expedited, and the application for stay was disposed of as infructuous. There was no order as to costs.