2018 (9) TMI 359 - HC - Income Tax

Prosecution u/s 276(C)(1) - stay application - Held that - We inquired from the petitioner s advocate as to whether the petitioner sought any interim relief/stay during the pendency of the Appeal and he says that, that was not sought in the hope and anticipation that the Appeal itself would be disposed of. We find that interest of justice would be served if we dispose of this writ petition by keeping larger and wider question open. In the event, the petitioner seeks a stay of the order passed by the Assessment Officer by making a stay application, then, during the pendency of such application, the criminal prosecution should not be launched and, if it has been already launched, the same shall not proceed. Thus, the ad-interim stay granted by this Court would continue till the disposal of the application for stay by the First Appellate Authority.

Summary

Issues involved:
1. Prosecution under Section 276(C)(1) of the Income Tax Act 1961 based on alleged non-disclosure of true income in the return filed for Assessment Year 2014-2015.
2. Pending Appeal before Commissioner of Income Tax (Appeals) against the assessment order.
3. Granting of sanction/authorization for launching prosecution without serving the eventual order of sanction.
4. Consideration of interim relief/stay during the pendency of the Appeal.
5. Decision on whether the criminal prosecution should proceed during the pendency of the stay application.

Analysis:

1. The petitioner filed a return of income for Assessment Year 2014-2015, which was assessed under Section 143(3) of the Income Tax Act 1961. Subsequently, a show cause notice was issued for prosecution under Section 276(C)(1) based on the allegation of non-disclosure of true income. The Sanctioning Authority granted authorization for prosecution after determining certain transactions as not genuine but bogus, indicating an attempt to evade tax.

2. Despite the pending Appeal before the Commissioner of Income Tax (Appeals) against the assessment order, the prosecution was initiated without serving the eventual order of sanction. The petitioner expressed dissatisfaction with the assessment order and highlighted the ongoing Appeal process.

3. The High Court acknowledged the petitioner's decision not to seek interim relief/stay during the Appeal process, expecting a timely resolution. However, to ensure the interest of justice, the Court decided to grant an ad-interim stay on the prosecution pending the disposal of a stay application before the First Appellate Authority.

4. The Court clarified that it refrained from expressing any opinion on the merits of the case or the conflicting contentions presented. The writ petition was disposed of with the directive that the prosecution should not proceed until the stay application is resolved and communicated to the petitioner, emphasizing the importance of maintaining the status quo during the legal process.