2010 (9) TMI 699 - AT - Income Tax

Stay application - Search and seizure - Demand - Interest u/s 201(1A) - whether, if what he contends is correct, it would be permissible for the Tribunal to stay recovery of penalty for concealment in a case where no appeal against the order of penalty is pending with the Tribunal and it is only the appeal against the assessment that is pending - it would be anomalous to allow the interest charged under section 201(1A) to be recovered even when the assessee s appeal against the order under section 201(1) declaring it to be in default is pending in appeal before the Tribunal - the order of stay was one of the terms on which the adjournment sought for by the department was granted and under the aforesaid rule the Tribunal has the power to adjourn the hearing of the appeal on such terms as it thinks fit - such an order cannot be considered as an order of stay and dealt with according - Decided in the favour of the assessee

Issues Involved
1. Maintainability of the application under section 254(2) of the IT Act.
2. Power of the Tribunal to grant stay on the recovery of interest under section 201(1A) when no appeal is pending against the interest levy.
3. Relationship between the proceedings under sections 201(1) and 201(1A) and the Tribunal's jurisdiction to stay recovery.

Detailed Analysis

Maintainability of the Application under Section 254(2)
The assessee raised a preliminary objection, arguing that an application under section 254(2) against an order granting stay under the proviso to section 254(2A) is not maintainable. The Tribunal, however, rejected this objection, stating that the application, though styled as one for rectification, is substantively an application for vacating the stay. The Tribunal asserted its inherent power to entertain such applications, emphasizing that the power to grant stay is incidental to its appellate jurisdiction under section 254(1). The Tribunal referenced the Supreme Court's observations in *ITO v. M.K. Mohammed Kunhi* to support this view, noting that the power to grant stay is embedded in section 254(1) and not confined to the proviso to section 254(2A).

Power to Grant Stay on Recovery of Interest under Section 201(1A)
The department argued that the Tribunal lacked the jurisdiction to grant stay on the recovery of interest under section 201(1A) because no appeal against the interest levy was pending. The Tribunal, however, interpreted the proviso to section 254(2A) broadly, allowing it to extend its stay power to proceedings related to an appeal. The Tribunal noted that the interest under section 201(1A) is consequential to the order deeming the assessee in default under section 201(1). The Tribunal emphasized that staying the recovery of interest is necessary to prevent the appeal from being rendered nugatory, aligning with the principle that the power to grant stay should ensure that the appeal's success is not frustrated.

Relationship Between Sections 201(1) and 201(1A)
The Tribunal examined whether the proceedings under sections 201(1) and 201(1A) are independent. Citing *CIT v. Eli Lilly & Co. (India) (P.) Ltd.*, the Tribunal acknowledged that while the levy of interest under section 201(1A) is compensatory and mandatory, it is intrinsically linked to the default under section 201(1). The Tribunal concluded that the interest under section 201(1A) is an adjunct to the main order under section 201(1), and thus, proceedings under section 201(1A) are related to the appeal against the order under section 201(1). This interpretation supports the Tribunal's jurisdiction to stay the recovery of interest while the main appeal is pending.

Conclusion
The Tribunal rejected the revenue's application, affirming its power to grant stay on the recovery of interest under section 201(1A) in related proceedings. The Tribunal emphasized that such power is necessary to ensure that the appeal's purpose is not defeated, thereby maintaining the integrity of the appellate process. The Tribunal's decision underscores its broad interpretative authority to ensure justice and prevent the appeal from becoming ineffective.

← Previous Next →