Civil Writ Petition No.15239 of 2015 -1- IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.15239 of 2015 Date of Decision: 31stOctober, 2015 Pr. Commissioner of Income Tax, Aayakar Bhawan, Sector-14, Hisar. ...Petitioner Versus Income Tax Appellate Tribunal, Delhi Bench, New Delhi and another. ...Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MS. JUSTICE REKHA MITTAL Present: Mr. Yogesh Putney, Advocate, for petitioner. Mr. Ajay Vohra, Senior Advocate with Mr. Rohit Jain, Advocate, for respondents. RAJIVE BHALLA, J. revenue is before us, praying for issuance of writ in nature of certiorari, quashing, orders dated 23.01.2015 (Annexure P-12) and 25.03.2015 (Annexure P-16), passed by Income Tax Appellate Tribunal, Delhi Bench, New Delhi, directing that consideration of show cause notice for prosecution shall be kept in abeyance. Counsel for revenue submits that proceedings for prosecution, under Section 276C(1) are independent of assessment/penalty proceedings. perusal of Act, particularly Section 254 of Act, reveals that it does confer power, upon Tribunal, to grant of stay and there is no provision which, whether NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -2- directly or by inference confers power to file appeal against order directing prosecution much less against show cause notice proposing to initiate prosecution. power conferred by Section 254(1) of Act to pass such orders thereon as it thinks fit , is circumscribed by expression any proceedings relating to appeal used in first proviso to Section 254(1). expressions any proceedings relating to appeal and pass such orders thereon as it thinks fit have to be read as conferring power in context of appeal pending before Tribunal. Tribunal was, therefore, required to exercise power within limits of powers conferred by Section 254 of Act but has arrogated to itself power to stay prosecution. Admittedly, matters pending before Tribunal are quantum appeal, appeal against penalty, and correctness of order passed under Section 263 of Act. mere fact that prosecution arises as result of order passed during assessment does not confer jurisdiction upon Tribunal to interpret expression used in Section 254(1) or first proviso to stay prosecution. Counsel for revenue further submits that willful attempt to evade tax having been prima-facie established, notice under Section 276 was necessary but independent consequence. pendency of quantum and other appeals cannot be said to be so intrinsically linked to prosecution as to empower Tribunal to stay prosecution. Counsel for revenue also points out that orders against which appeals may be filed are set out in Section 253 of Act. perusal of Section 253 reveals that it does not confer any right to file appeal against prosecution NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -3- much less against show cause to initiate prosecution. As alternative argument, counsel for appellant submits that even if it is presumed that Tribunal has jurisdiction to grant stay against prosecution, impugned orders are even otherwise without jurisdiction as prosecution has not been launched. order passed by Tribunal has brought consideration whether or not to launch prosecution to halt and, therefore, must be set aside on merits. Counsel for appellant further submits that Tribunal having directed assessee to file its reply, order directing that prosecution may be kept in abeyance renders orders meaningless. Counsel for revenue relies upon following judgments to support his arguments that Tribunal is not empowered to stay prosecution:- Gulab Chand Sharma v. H.P.Sharma etc., (1974) ILR 1 (Delhi), 190; P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin, 1984 (149) ITR, 692(Mad); P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin,, 1984 (149) ITR, 696(SC); Ashok Buscuit Works and Ors v. Income Tax Officer, Hyderabad, 1988 (171) ITR 300 (AP): Rinkoo Steels and others v. K.P.Ganguli, Income Tax Officer and another, 1989 (179) ITR 482 (Delhi); Sant Parkash and Ors. V. Commissioner of Income tax and Ors., 1991 (188) ITR 732 (P&H): Universal Supply Corporation and Ors. v. State of Rajasthan and another, 1994(206) ITR 222; Commissioner of Income Tax v. Bhupen Champak Lal Dalal and Anr. Etc., 2001 (248) ITR, 830 (SC). NARESH KUMAR 2015.11.20 15:41 Counsel for assessee submits that, admittedly, three I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -4- appeals are pending before Tribunal, namely, appeal challenging order passed under Section 263, second against assessment order and third against order imposing penalty. show cause notice proposing to initiate prosecution, is based in its entirety upon order passed under Section 263 of Act, assessment order and order passed in penalty proceeding. question, therefore, is not whether prosecution proceedings are independent of assessments and penalty but whether show cause notice proposing to initiate prosecution is so intrinsically linked to out come of appeals as would require revenue to keep consideration of show cause notice in abeyance. Counsel for assessee also submits that decision in pending appeals would have direct bearing on consideration of show cause notice and in case appeals are allowed or impugned orders are modified, show cause notice would either be rendered infructuous or matter would have to be reconsidered. Counsel for assessee further submits that words relating to appeal , used in Section 254 of Act and words, pass such orders thereon as it thinks fit used in proviso empower Tribunal to stay consideration of show cause notice. consideration of notice is so intrinsically linked to out come of appeals, as to be inseparable. Counsel for assessee further submits that as there is no limitation for launching prosecution, it is rather surprising that authorities have decided to issue NARESH KUMAR show cause particularly when they are contesting 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -5- appeals filed by assessee. Counsel for assessee also contends that while considering power of Tribunal to grant stay, Supreme Court of India has held in Income Tax Officer, Cannanore v. M.K.Mohammed Kunhi, 1971, I.T.R., 815, though, prior to conferment of power of stay, by Section 254 of Act that, though, power of stay cannot be spelt out, Appellate Tribunal, must be held to have power to grant stay as incidental or ancillary to its appellate jurisdiction. Supreme Court has also held that appellate power, in absence of any specific provision for grant of stay inhers power to do all such acts or employ all such means as are essentially necessary for exercise of this power which carries with it duty in proper cases to pass such orders for staying proceedings as will prevent appeal from being rendered nugatory. Supreme Court has also referred to judgment in Burhanpur Tapti Mill Ltd. v. Board of Revenue, Madhya Pradesh, 1955(6) STC, 670, that where legislature invests Appellate Tribunal with powers to prevent injustice, it impliedly empowers Tribunal to stay proceedings which may result in causing further mischief. prosecution of assessee being intrinsically linked to outcome of appeals and Tribunal merely having directed that consideration of show cause notice shall be kept in abeyance order may be affirmed. Counsel for assessee also relies upon Division Bench judgment of High Court of Delhi in Commissioner of Income Tax (Central-II) v. Income Tax Appellate Tribunal and others, to contend that in similar situation, NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -6- High Court of Delhi has held, while considering stay of proceedings, consequent to directions by Commissioner of Income Tax, under Section 263 of Act, that such order is relatable to appellate power of Tribunal under Section 254(1) of Act, i.e., power to prevent multiplicity of proceedings, harassment to assessee and possibility of proceedings before Assessing Officer being rendered meaningless if ultimately order passed by CIT is found to be invalid on grounds of jurisdiction or on merits. Counsel for assessee also relies upon Income Tax Officer, J-Ward, Circle-II, Hyderabad v. Khalid Mehdi Khan (Minor), 1977(110), ITR, 80; Puran Mal Kauntia v. Income Tax Officer and othres, 1975(80), ITR, 39; Commissioner of Income Tax v. Wander Pvt. Ltd., 2013 (358) ITR 408(Bom); Assistant Commissioner of Income Tax v. GE India Industrial Pvt. Ltd., 2013(358), ITR, 410(Guj.); in support of his arguments relating to power of Tribunal to stay collateral proceedings, namely, show cause notice issued to assessee why prosecution be not initiated. Before we record our opinion, it would be appropriate to delimit facts. M/s Jindal Steel & Power Ltd., respondent no.2, filed return of income for assessment year 2008-09, declaring income of Rs.7,66, 99,04,200/-. revised return was filed on 29.03.2010, reducing earlier return of income by Rs.26,24,296/-. return was selected for scrutiny vide order dated 27.12.2010, passed under Section 143 (3) of Income Tax Act, 1961 (hereinafter referred to NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -7- as 'the Act'). total income was assessed at Rs.10,33,26,17,030/-. Commissioner of Income Tax noticing that deduction of Rs.81.59 crore on account of sales tax subsidy/capital reserve, entry tax subsidy and electricity duty subsidy have been wrongly claimed, variation in statutory liability regarding provision for gratuity and as consequence in claim for deduction under Section 43B of Act and additional depreciation of Rs.5,91,106/- has been wrongly claimed on computers, initiated proceedings under Section 263 of Act and vide order dated 25.03.2013, partly set aside assessment order, and restored assessment to file of Assessing Officer. fresh assessment 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 Act and Rs.5,91,106/- on account of additional depreciation for computers. assessee filed appeal against order passed under Section 263 of Act, before Tribunal. After re-assessment, assessee filed appeal against fresh assessment before Commissioner of Income Tax, Rohtak, which was dismissed on 10.03.2014. Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of Act and eventually passed order dated 28.11.2013, imposing penalty. assessee challenged order imposing penalty before Commissioner of Income Tax(Appeals), Rohtak, which was also dismissed. assessee, thereafter, filed two appeals, one being quantum appeal and other against penalty. Thus, three appeals, one against order passed under Section 263, second against NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -8- assessment order and third against levy of penalty, were filed, were pending before Income Tax Appellate Tribunal, when revenue served notice dated 26.12.2014, calling upon assessee to show cause, why prosecution be not initiated, under Section 276C(1). assessee, did not file reply but instead filed application in appeal, challenging imposition of penalty, before Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') for stay of prosecution. revenue urged before Tribunal, lack of jurisdiction to stay prosecution, as well as raised other pleas. Tribunal, vide order dated 23.01.2015, ordered that launching of prosecution shall remain in abeyance upto next date of hearing i.e. 02.02.2015. relevant extract from order reads as follows:- 4. Regarding application for staying prosecution under Sec. 276C(1) of Act, we direct that so far as filing of reply to show-cause notice and rejoinder, if any, are concerned, Department will be at liberty to proceed but will keep in abeyance launching of prosecution before Court concerned till next date of hearing i.e. 02.02.2015. We also direct that on 02.02.2015, priority of hearing will be given to appeal questioning penalty. Copy of this order be supplied to both parties. NARESH KUMAR application for stay was adjourned to 10.02.2015, 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -9- 17.02.2015 and 18.05.2015. In between, stay application was taken up for hearing on 13.02.2015 and while adjourning matter to 27.02.2015, interim order dated 23.01.2015 was ordered to continue. application for stay, finally came up for hearing on 23.03.2015, when Tribunal granted stay against initiation of prosecution. perusal of this order reveals that Tribunal has recorded finding that it is empowered by Section 254 of Act to stay prosecution. said finding is bone of contention between parties. After appraising submissions by counsel for parties, findings recorded in impugned order, following questions were framed:- a) Whether Section 254 of Income Tax Act, 1961 empowers Income Tax Appellate Tribunal to interfere in prosecution proceedings either at stage of show cause notice or at any other stage? b) Whether pendency of quantum appeals by assessee and revenue, appeals against penalty and appeals challenging orders passed consequent to order passed under Section 263 of Income Tax Act, would confer power/jurisdiction upon Tribunal to stay show cause notice calling upon assessee to show cause why prosecution be not launched? We have heard counsel for parties, perused impugned orders but before proceeding to answer questions NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -10- posed, would once again recapitulate that proceedings pending before Appellate Tribunal are appeal challenging order passed under Section 263 of Act, quantum appeal against assessment order, passed pursuant to order passed under Section 263 of Act, and order imposing penalty. revenue has served notice upon assessee to show cause why prosecution be not launched. Tribunal has recorded finding, while directing revenue to keep consideration of show cause notice re-prosecution in abeyance that it is empowered by Section 254(1) to pass such order. answer to questions posed would require consideration as to nature of power conferred by Section 254 of Act. Section 254 of Act as originally enacted did not confer power upon Income Tax Appellate Tribunal to grant stay. debate, therefore, raged whether Section 254 of Act inhered power, to grant, stay. After considering countors of Section 254 of Act as well as various precedents, Supreme Court in Income Tax Officer, Cannanore (supra) held as follows:- According to decision in Burhanpur Tapti Mill Ltd. v. Board of Revenue, Madhya Pradesh,, since Board of Revenue had power to adjudge correctness of order passed by Commissioner under Section 22B reopening assessment, Board had also power to stay fresh assessment proceedings started by NARESH KUMAR Assistant Commissioner in pursuance of that 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -11- order. It was said that general principle was that in taxing statute there was no room for what could be called equitable construction, but that principle applied only to taxing part of statute and not to procedural part. It has further been observed that where legislature invests Appellate Tribunal with powers to prevent injustice, it impliedly empowers it to stay proceedings which may result in causing further mischief. and, thereafter, held as follows:- Section 255(5) of Act does empower Appellate Tribunal to regulate its own procedure, but it is very doubtful if power of stay can be spelt out from that provision. In our opinion, Appellate Tribunal must be held to have power to grant stay as incidental or ancillary to its appellate jurisdiction. This is particularly so when section 220(6) deal expressly with situation when appeal is pending before Appellate Assistant Commissioner, but Act is silent in that behalf when appeal is pending before Appellate Tribunal. It would well be said that when section 254 confers appellate jurisdiction, it impliedly grants power of doing all such acts, or employing such means, as are essentially NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -12- necessary to its execution and that statutory power carries with it duty in proper cases to make such orders for staying proceeding as will prevent appeal if successful from being rendered nugatory. perusal of aforesaid judgment reveals that power to grant stay was held to be inherent in Section 254, (as it existed before power to grant stay was conferred),i.e., inhers power to do all such acts or employ all such means, as are essential for exercise of power of appeal including power to grant stay, in proper cases and to make such orders for staying proceeding to prevent appeal, if successful being rendered nugatory. Thus, power to grant stay was read into Section 254 of Act but to limited extent. Section 254 (1) was, thereafter, amended and as existing on statute book, reads as follows:- 254(1)- Appellate Tribunal may, after giving both parties to appeal opportunity of being heard, pass such orders thereon as it thinks fit Provided that Appellate Tribunal may, after considering merits of application made by assessee, pass order of stay in any proceedings relating to appeal filed under sub- section (1) of section 253, for period not NARESH KUMAR exceeding one hundred and eighty days from 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -13- date of such order and Appellate Tribunal shall dispose of appeal within said period of stay specified in that order Counsel for parties have fairly conceded that Act does not empower Tribunal to consider or entertain appeal against legality or validity of prosecution launched under Act. arguments for and against impugned orders have primarily centered around interpretation of words pass such orders thereon as it thinks fit , used in Section 254(1) and any proceedings relating to appeal used in first proviso to Section 254(1) of Act, with counsel for revenue urging that power conferred by Section 254(1) to grant stay cannot be extended to any matter, which is not subject matter of appeal before Tribunal, whether incidental or collateral but with counsel for assessee urging to contrary, namely, that these expressions inhere plenary power, in Appellate Tribunal, to stay proceedings which though independent are intrinsically linked to outcome of appeal. due consideration of arguments, statutory provisions and precedents cited for and against reveal that Section 254(1) confers power to decide appeal and pass such orders thereon as it thinks fit and when read along with proviso includes power to pass interim orders, in any proceeding relating to appeal , thereby indicating that stay order so passed must relate to proceedings in appeal pending before NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -14- Tribunal. question that, however, requires answer is whether these words and expressions would include power to stay proceedings or orders, which are not appealable or appealed against during pendency of appeal but are likely to be affected by outcome of appeal. key to understanding of power to grant stay lies in expressions pass such orders thereon as it thinks fit and any proceedings relating to appeal , used in Section 254(1) and proviso appended thereto. aforesaid expressions, in our considered opinion, confine power of Tribunal, to pass interim order in relation to matters pending before Tribunal and at best to matters that are so intrinsically linked to lis pending before Tribunal, as to be inseparable. exercise of power must be confined to matters that are directly and substantially in issue or matters that flow directly and substantially from order impugned before Tribunal but cannot be extended to matters in which Tribunal has no jurisdiction even, though, these matters may be incidentally affected by outcome of appeal. This apart once it is accepted that proceedings for prosecution are independent of assessment and penalty, and Tribunal is neither appellate nor revisional authority in case where prosecution is launched, mere fact that decision in appeal may have impact on prosecution, in our considered opinion, cannot be used to read into expressions pass such orders thereon as it thinks fit or any proceedings relating to NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -15- appeal , power in Tribunal to direct that prosecution or show cause notice shall be kept in abeyance. There is another aspect of case, namely, if such power, as has been canvassed by assessee, were available to Tribunal, prosecution would have to await final outcome of proceedings up to Supreme Court. We are unable to discern any legislative intent or power as would confer upon Tribunal power to stay consideration of show cause notice proposing to initiate prosecution, by reading into Section 254, power to stay independent proceedings merely because they may be affected by decision of pending appeal. legislature having conferred power to grant stay in terms, used in Section 254 (1) and first proviso, we cannot add to or subtract from words and expressions used in Section 254(1) or by process of interpretation confer jurisdiction which legislature, in our considered opinion, did not intend to confer. prosecution being consequence of infractions by assessee cannot be said to be act of harassment or mischief so as to confer power upon Tribunal, to order that prosecution shall be kept in abeyance. judgment by Delhi High Court in Commissioner of Income Tax (Central-II) v. Income Tax Appellate Tribunal and others (supra), has to be read in context of its own peculiar facts, namely, order was passed under Section 263, restoring assessment to Assessing Officer, assessee filed appeal. Income Tax Appellate Tribunal, stayed assessment proceedings. order was upheld, by Delhi High Court as assessment proceedings were intrinsically linked to and not NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -16- severable from legality of order passed, under Section 263, namely, jurisdiction to re-open assessment. situation in present case, as already noticed, is entirely different. All that revenue has initiated is notice to show cause why prosecution be not launched. Admittedly, Tribunal is neither appellate nor revisional forum against prosecution. prayer for stay of prosecution or stay of show cause would, therefore, have to be made by resort to other remedies provided under law and not by praying for stay before Tribunal. It would also be appropriate to point out that notice to show cause why prosecution be not initiated is purely administrative act and it is only after consideration upon notice and reply reaches fruition, may assessee seek his legal remedies in accordance with law. As already recorded, appeal may have bearing on consideration of show cause notice and reply filed thereto, but we are not inclined to read into Section 254(1) or proviso thereto, power in Tribunal to stay consideration of show cause notice or power to direct that show cause notice be kept in abeyance. judgments pressed into service by counsel for revenue, namely, Gulab Chand Sharma v. H.P.Sharma etc., (1974) ILR 1 (Delhi), 190; P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin, 1984 (149) ITR, 692(Mad); P.Jayappan v. S.K.Perumal, First Income Tax Officer, Tuticorin,, 1984 (149) ITR, 696(SC); Ashok Buscuit Works and Ors v. Income Tax Officer, Hyderabad, 1988 (171) ITR 300 (AP): Rinkoo Steels and others v. NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -17- K.P.Ganguli, Income Tax Officer and another, 1989 (179) ITR 482 (Delhi); Sant Parkash and Ors. V. Commissioner of Income tax and Ors., 1991 (188) ITR 732 (P&H): Universal Supply Corporation and Ors. v. State of Rajasthan and another, 1994 (206) ITR 222; Commissioner of Income Tax v. Bhupen Champak Lal Dalal and Anr. Etc., 2001 (248) ITR, 830 (SC) are not relevant as they only hold that prosecution is independent of assessment proceedings. judgment in Assistant Commissioner, Assessment-II, Bangalore and ors v. Velliappa Textiles Ltd. and Ors., 2003(263) ITR, 550 (SC) pertains to question whether company can be prosecuted and is, therefore, not relevant at this stage. judgment in Madras Bar Association v. Uinon of India, 2014 (10) SCC 1, is also irrelevant as it does not advance arguments raised by counsel for revenue. Consequently, we answer two questions by holding that we cannot read into Section 254 of Act, any power in Income Tax Appellate Tribunal to interfere in prosecution under Act, either at stage of show cause notice or at any other stage. pendency of appeals regarding quantum and penalty and appeal challenging order passed under Section 263 would not, in our considered opinion, confer power upon Tribunal to stay consideration of show cause notice calling upon assessee to show cause why prosecution be not launched. Before we part with judgment, we would like to clarify that we have confined consideration to power of Tribunal but NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Civil Writ Petition No.15239 of 2015 -18- have not recorded any opinion with respect to any other remedy that may or may not be available to assessee against show cause notice. Consequently, writ petition is allowed and orders dated 23.01.2015 (Annexure P-12) and 25.03.2015 (Annexure P-16), passed by Income Tax Appellate Tribunal, Delhi Bench, New Delhi, are set aside. (RAJIVE BHALLA) JUDGE 31st October, 2015 (REKHA MITTAL) nt JUDGE NARESH KUMAR 2015.11.20 15:41 I attest to accuracy and authenticity of this document Chandigarh Pr. Commissioner of Income Tax v. Income Tax Appellate Tribunal