2015 (11) TMI 1286 - HC - Income Tax

Powers of tribunal - power to grant stay - Whether Section 254 empowers the Income Tax Appellate Tribunal to interfere in prosecution proceedings either at the stage of show cause notice or at any other stage? - Tribunal power to stay a show cause notice calling upon the assessee to show cause why prosecution be not launched - Held that - 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. 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.

Summary

Issues Involved:
1. Power of the Income Tax Appellate Tribunal (ITAT) to stay prosecution proceedings.
2. Jurisdiction of ITAT to stay consideration of a show cause notice for prosecution during the pendency of appeals.

Detailed Analysis:

1. Power of ITAT to Stay Prosecution Proceedings:
The revenue argued that proceedings for prosecution under Section 276C(1) of the Income Tax Act are independent of assessment and penalty proceedings. It was contended that Section 254 of the Act does not confer power upon the ITAT to grant a stay against prosecution or a show cause notice proposing to initiate prosecution. The revenue emphasized that the expressions "any proceedings relating to an appeal" and "pass such orders thereon as it thinks fit" in Section 254(1) should be interpreted in the context of the appeal pending before the Tribunal. The Tribunal's power is limited to matters directly and substantially in issue or those that flow directly from the order impugned before it. The Tribunal, therefore, overstepped its jurisdiction by staying prosecution proceedings.

The assessee countered that the show cause notice for prosecution was based entirely on the orders under appeal (Section 263 order, assessment order, and penalty order). The outcome of these appeals would directly impact the show cause notice, making the prosecution intrinsically linked to the appeals. The assessee argued that the Tribunal has the power to stay proceedings that are inseparable from the appeals, citing Supreme Court precedents that recognize the Tribunal's inherent power to grant stay to prevent the appeal from being rendered nugatory.

2. Jurisdiction of ITAT to Stay Show Cause Notice:
The revenue contended that Section 253 of the Act does not provide any right to appeal against prosecution or a show cause notice for prosecution. The Tribunal's order to stay the prosecution was without jurisdiction as prosecution had not yet been launched. The stay order rendered the Tribunal's direction to file a reply to the show cause notice meaningless. The revenue cited various judgments supporting the argument that prosecution is independent of assessment proceedings and that the Tribunal cannot stay prosecution.

The assessee argued that the Tribunal has the power to stay consideration of the show cause notice, as it is intrinsically linked to the outcome of the pending appeals. They cited Supreme Court judgments that imply the Tribunal's power to grant stay in cases where proceedings are likely to be rendered nugatory if the appeal succeeds. The assessee also cited a Delhi High Court judgment where the Tribunal's stay of assessment proceedings was upheld as they were intrinsically linked to the legality of an order under Section 263.

Court's Findings:
The court framed two questions: whether Section 254 empowers the Tribunal to interfere in prosecution proceedings and whether the pendency of appeals confers jurisdiction upon the Tribunal to stay a show cause notice for prosecution.

The court held that Section 254(1) of the Act, which allows the Tribunal to "pass such orders thereon as it thinks fit," and the proviso for stay in "any proceedings relating to an appeal," do not extend to independent prosecution proceedings. The Tribunal's power is confined to matters directly and substantially in issue before it. Prosecution proceedings are independent of assessment and penalty proceedings, and the Tribunal is neither the appellate nor the revisional authority for prosecution cases. The court emphasized that prosecution must await the final outcome of proceedings up to the Supreme Court if the Tribunal had such power, which was not the legislative intent.

The court concluded that the Tribunal does not have the power to stay consideration of a show cause notice for prosecution. The pendency of appeals does not confer jurisdiction upon the Tribunal to stay such notices. The court set aside the Tribunal's orders dated 23.01.2015 and 25.03.2015, allowing the revenue's writ petition.

Conclusion:
The court clarified that the ITAT does not have the jurisdiction to interfere in prosecution proceedings or stay a show cause notice for prosecution. The Tribunal's power under Section 254 is limited to matters directly related to the appeals pending before it. The writ petition by the revenue was allowed, and the Tribunal's orders staying prosecution were set aside.