Prosecution – made more simpler for revenue

How to read this article-:  This article is structured under following headings

Background-: ITAT’s power to stay prosecution proceedings

Why this article-: Whether ITAT has power to stay prosecution proceeding

Conclusion-: No

Points considered for forming conclusion-: As the name suggests, the basis on which the conclusion is formed.

Basis of conclusion -: It is the analysis of the points considered above.

1. The reason for this opening paragraph is to equip the reader to plan his order of reading. Invariably, it happens that, each of the reader is at different level of maturity and has different priorities at different times.

2. This article is updated upto 21 November 2015.

Background-:

3. 3-4 days ago, a news was published in the economic times carrying the news of this judgement. It took time for me to get the actual copy of judgement. The same is attached for your reference.

Why This Article-:

4. Punjab and Haryana High Court has delivered a landmark judgement whereby the Revenue department will get a boost to launch prosecution proceedings.

Questions framed-:

5. After appraising submissions by counsel for the parties, the findings recorded in the impugned order, the following questions were framed:-

a. Whether Section 254 of the Income Tax Act, 1961 empowers the Income Tax Appellate Tribunal to interfere in prosecution proceedings either at the stage of show cause notice or at any other stage?

b. Whether pendency of quantum appeals by the assessee and the revenue, appeals against penalty and appeals challenging orders passed consequent to an order passed under Section 263 of the Income Tax Act, would confer power/jurisdiction upon the Tribunal to stay a show cause notice calling upon the assessee to show cause why prosecution be not launched?”

Answer-:

6. Consequently, we answer the two questions by holding that 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.

Points considered for forming conclusion-:

Points on which there was consensus

7. The arguments for and against the impugned orders have primarily centered around the interpretation of the words “pass such orders thereon as it thinks fit”, used in Section 254(1) and “any proceedings relating to an appeal” used in the first proviso to Section 254(1) of the Act, with counsel for the revenue urging that power conferred by Section 254(1) to grant stay cannot be extended to any matter, which is not subject matter of an appeal before the Tribunal, whether incidental or collateral but with counsel for the assessee urging to the contrary, namely, that these expressions inhere a plenary power, in the Appellate Tribunal, to stay proceedings which though independent are intrinsically linked to the outcome of an appeal.

8. Counsel for the revenue and for the assessee relied upon various judicial pronouncements to support their arguments that the Tribunal is / is not empowered to stay prosecution.

9. It was also accepted a fact that, ITAT has the power to grant stay as incidental or ancillary to its appellate jurisdiction.

10. Counsels for the parties have fairly conceded that the Act does not empower the Tribunal to consider or entertain an appeal against the legality or validity of a prosecution launched under the Act.

Arguments of Revenue

11. The Tribunal is neither the appellate nor the revisional forum against a prosecution.

12. Issuance of notice for prosecution is an administrative act and no harm is made to the parties concerned.

Arguments of Assessee

13. The decision in the pending appeals would have a direct bearing on the consideration of the show cause notice and in case the appeals are allowed or the impugned orders are modified, the show cause notice would either be rendered infructuous or the matter would have to be re considered.

14. The assessee got a close miss where a judgement of Delhi HC had come to its help but distinguished by the HC.

The judgment by the Delhi High Court in The Commissioner of Income Tax (Central-II) v. Income Tax Appellate Tribunal and others, has to be read in the context of its own peculiar facts, namely, an order was passed under Section 263, restoring the assessment to the Assessing Officer, The assessee filed an appeal. The Income Tax Appellate Tribunal, stayed assessment proceedings. The order was upheld, by the Delhi High Court as assessment proceedings were intrinsically linked to and not severable from the legality of the order passed, under Section 263,namely, jurisdiction to re-open an assessment.

Judgement of Court-:

15. the Supreme Court in Income Tax Officer, Cannanore (supra) held as follows

Appellate Tribunal must be held to have the power to grant stay as incidental or ancillary to its appellate jurisdiction. This is particularly so when section 220(6) deal expressly with a situation when an appeal is pending before the Appellate Assistant Commissioner, but the Act is silent in that behalf when an appeal is pending before the Appellate Tribunal. It would well be said that when section 254 confers appellate jurisdiction, it impliedly grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution and that the statutory power carries with it the duty in proper cases to make such orders for staying proceeding as willprevent the appeal if successful from be ingrendered nugatory.”

16. A perusal of the aforesaid judgment reveals that the power to grant stay was held to be inherent in Section 254, (as it existed before the power to grant stay was conferred),i.e., inherits a power to do all such acts or employ all such means, as are essential for the exercise of the power of appeal including the power to grant stay, in proper cases and to make such orders for staying proceeding to prevent the appeal, if successful being rendered nugatory.

17. A prayer for stay of prosecution or stay of the show cause would, therefore, have to be made by resort to other remedies provided under law and not by praying for a stay before the Tribunal.

18. It would also be appropriate to point out that the notice to show cause why prosecution be not initiated is a purely administrative act and it is only after consideration upon the notice and the reply reaches fruition, may the assessee seek his legal remedies in accordance with law.

Basis of conclusion -:

19. As a consequence of revision u/s 263 by CIT, a fresh assessment order was made on 19.09.2013, by adding Rs.81.59 crores, claimed on account of sales tax subsidy, Rs.1.40 crores claimed on account of Section 43B of the Act andRs.5,91,106/- on account of additional depreciation for computers.

20. The Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of the Act and eventually passed an order dated 28.11.2013, imposing penalty.

21. The revenue served a notice dated 26.12.2014, calling upon the assessee to show cause, why prosecution be not initiated, under Section 276C(1).

22. At that point, three matters were pending at ITAT level.

a) Validity of order u/s 263

b) the main quantum assessment and

c) the consequential penalty proceedings

23. The assessee made an application for stay of prosecution proceedings.

24. The application for stay, finally came up for hearing on23.03.2015, when the Tribunal granted a stay against initiation of prosecution.

25. A perusal of this order reveals that the Tribunal has recorded a finding that it is empowered by Section 254 of the Act to stay prosecution. The said finding is the bone of contention between the parties.

Case Analysed- Pr. Commissioner of Income Tax Vs. Income Tax Appellate Tribunal, Delhi Bench (Punjab & Haryana HIgh Court at Chandigarh),   Civil Writ Petition No.15239 of 2015, Date of Decision: 31st October, 2015

Link to Download Full Text of the Judgment

http://phhc.gov.in/pdf/fo/CWP_15239_2015_31_10_2015_FINAL_ORDER.pdf

CA Yogesh S. Limaye