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Volume XVII Part 3 November 10, 2016 3 Business Advisor
Income Tax Appellate Tribunal has no
power to stay prosecution of taxpayers in
respect of matters in appeal before it
T. N. Pandey
The Income Tax Act, 1961 (Act) broadly comprises two
parts, i.e., (i) assessment of income-tax liability; and (ii)
ensuring payment of assessed tax. Other aspects are of
ancillary nature. Assessment implies computation of tax
that is rightfully payable by the taxpayers, and to ensure
this, 4-tier appellate procedure has been provided for in
the Act to file objections regarding mistakes of law,
aberrations, non-adherence to the principle of natural
justice, over-assessment, etc. The Assessing Officer (AO)
makes the computation of taxable income and determines the quantum of
tax payable taking into consideration the returns filed by the taxpayers and
other information available with him. If a taxpayer feels dissatisfied by the
assessment of the AO, he can file an appeal before the Commissioner of
Income Tax (Appeals) [CIT (A)]. Against the order of the CIT(A), both the
assessee and the AO can file appeal to the ITAT, the second tier of appellate
machinery in the Act in regard to those aspects of the AO‟s order, which are
unacceptable and where no relief has been given by the CIT(A). There are
two other forums of appeal, i.e., HC and SC, against the Tribunal‟s order,
which, being not relevant in the context of the issue being discussed, are
not considered in the present article.
2. Powers of the Tribunal
The powers of the Tribunal have been held to be wide. Section 254(1) states
that the Appellate Tribunal may, after giving both the parties to the appeal
an opportunity of being heard, pass such orders thereon as it thinks fit. The
phrase „pass such orders thereon‟ does not in any way restrict the
jurisdiction of the Tribunal but, on the contrary, confers the widest possible
jurisdiction on the Tribunal. Thus, Tribunal enjoys a large range of powers,
viz., power to admit additional grounds, power to remand, power to grant
relief to the assessee, power to stay recovery of tax, etc. Amongst these,
power to admit additional ground, power to admit additional evidence,
power to stay recovery of tax have been subject of judicial discussion on
several occasions. But the power and jurisdiction of the Tribunal are of wide
amplitude and depending upon the exigencies in a given case it has power

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to pass such appropriate orders thereon as justice of the case demands. The
powers of the Tribunal are expressed in widest possible terms similar to the
power of Civil Appellate Court u/s 96 of the Code of Civil Procedure [see
New India Life Assurance Co. Ltd. v. CIT (1957) 31 ITR 844 (Bom), Pathikonda
Balasubba Setty v. CIT (1967) 65 ITR 252 (Mys), and Vishnu Kumar Gupta v.
CIT (1983) 143 ITR 69 (All)]. However, the Tribunal has to exercise the
powers in accordance with the law confined to subject matters in appeal.
2.1 Power to stay demand
Earlier, there was no specific provision in the Act authorising the Tribunal
to stay demands against the assessees. The courts held that the Tribunal
had inherent powers to stay disputed demands in respect of the matters
before it [see ITO v. M.K. Mohd. Kunhi (1969) 71 ITR 815 (SC)].
2.2 The settled legal position is that the Tribunal, while granting interim
relief in the form of stay of recovery of outstanding demand, is required to
keep in mind all the four relevant factors like prima facie case, balance of
convenience, possibility of irreparable injury and safeguarding of public
interest, and proper weightage to each of the said factors needs to be given/
assigned depending on the facts and circumstances of each case on hand,
therefore, in assessee‟s case as ingredients stated above are satisfied, the
stay of outstanding demand is granted – vide Bechtel India (P) Ltd. v. Asst.
CIT (2005) 6 (II) ITCL 125 (Del ‘A’-Trib)/(2005) 92 ITD 205 (Del-Trib).
3. Power conferred statutorily to stay demand in cases in appeal before the
Tribunal
However, 3 provisos were added to confer power though limited one on the
Tribunal regarding stay of demand.
3.1 The Finance Act, 2007 substituted proviso to section 254(2) effective
from 1.6.2007. The substituted provisos are as under:-
[i] Passing an order of stay for a period not exceeding 180 days [first proviso
to section 254(2A)]
3.2 The first proviso as substituted by the Finance Act, 2007 provides that
the Appellate Tribunal, after considering the merits of the application made
by the assessee, may pass an order of stay in any proceeding relating to an
appeal filed under sub-section (1) of section 253, for a period not exceeding
180 days from the date of such order. The Appellate Tribunal shall dispose
of the appeal within the said period of stay specified in that order.
[ii] Extension of period of stay [second proviso to s.254(2A)]

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3.3 The substituted second proviso to s.254(2) provides that where such
appeal is not disposed of within the aforesaid period of stay, the Appellate
Tribunal may extend the period of stay or pass an order of stay for a further
period or periods as it thinks fit. Such extension in the period of stay is to
be granted on an application made in this behalf by the assessee and after
the Appellate Tribunal is satisfied that the delay in disposing of the appeal
is not attributable to the assessee. It is further provided that the aggregate
of the period originally allowed and the period or periods so extended or
allowed shall not in any case exceed 365 days. The Appellate Tribunal shall
dispose of the appeal within the period or periods of stay so extended or
allowed.
[iii] Consequences of non-disposal of appeal within period originally allowed
or subsequently extended [third proviso to s.254(2) as existed up to
30.9.2008]
3.4 The third proviso to s.254(2A) provides that if the appeal is not disposed
of within the period originally allowed or within the period or periods,
subsequently extended, the order of stay shall stand vacated after the expiry
of such period or periods.
4. Whether Tribunal has power to stay the prosecution of the assessee in
respect of matter in appeal before it?
The issue came in for consideration before the P&H HC in the case of Pr. CIT
v. ITAT, Delhi Bench & Anr. (2015) 281 CTR (P&H) 251. The facts of the case,
the law applicable and the contents of the Tribunal‟s decision are mentioned
in later paragraphs.
4.1 Three appeals were pending before the Tribunal, namely an appeal
challenging the order passed u/s 263, the second against the assessment
order, and the third against an order imposing penalty. A notice, proposing
to launch prosecution u/s 276C of the Act, was also issued to the assessee.
The assessee‟s case was that the show-cause notice, proposing to launch
prosecution, was based on the assessment order, CIT‟s order u/s 263, and
the penalty notice. The claim made was that the issue relating to penalty
was intrinsically linked to the outcome of the appeals and, hence, would
require the Revenue to keep consideration of the show-cause notice in
abeyance. Counsel for the assessee also submitted that 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 reconsidered. It was also said
that the words „relating to an appeal‟ used in s.254 of the Act and the words

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„pass such orders thereon as it thinks fit‟ used in the proviso empower the
Tribunal to stay consideration of the show-cause notice. The consideration
of the notice is so linked to the outcome of the appeals, as to be inseparable.
Counsel for the assessee also submitted that, as there is no limitation for
launching prosecution, it is rather surprising that the authorities have
decided to issue a show-cause particularly when they are contesting the
appeals filed by the assessee.
4.2 Based on SC‟s decision in the case of ITO v. M.K. Mohd. Kunhi (supra), it
was claimed that like the power to stay demand is also power to stay
prosecution incidental or ancillary to the appellate jurisdiction as the same
inhers in the appellate authority to do all such acts or employ all such
means as are essentially necessary for the exercise of the power of appeal by
the Tribunal. Tribunal is expected to employ all such means as are
essentially necessary for the exercise of this power, which carried with it the
duty, in proper cases, to pass such orders for staying proceedings as it will
prevent the appeal from being rendered nugatory. It was contended that 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 s.254(1) and
the proviso appended thereto. However, these expressions 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
case 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 and it 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.
5. The I.T. Dept.‟s case was that prosecution proceedings are independent
proceedings and the mere fact that the decision in the appeal may have an
impact on the prosecution cannot be used to read into the expressions „pass
such orders thereon as it thinks fit‟ or „any proceedings relating to an
appeal‟, a power in the Tribunal to direct that prosecution or a show-cause
notice shall be kept in abeyance. There is another aspect of the case,
namely, if such a power, as has been canvassed by the assessee were
available to the Tribunal, prosecution would have to await the final outcome
of proceedings up to the SC.
6. Tribunal‟s order
However, the Tribunal has not accepted the assessee‟s grounds and decided
the appeal against it on the issue relating to stay of prosecution proceedings

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till the appeal is disposed of. The main grounds given by the Tribunal for
not accepting the assessee‟s plea are:-
[i] No legislative intent or power is discernible as would confer upon the
Tribunal power to stay consideration of a show-cause notice, proposing to
initiate prosecution by reading into s.254, the power to stay independent
proceedings merely because they may be affected by the decision of a
pending appeal. The legislature having conferred power to grant stay in
terms used in s.254(1) and the first proviso, the court cannot add to or
subtract from the words and expressions used in s.254(1) or by a process of
interpretation confer jurisdiction, which legislature did not intend to confer.
A prosecution, being a consequence of infractions by an assessee, cannot be
said to be act of harassment or mischief so as to confer power upon the
Tribunal to order that prosecution shall be kept in abeyance.
[ii] Admittedly, the Tribunal is neither the appellate nor the revisional forum
against a prosecution. 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. 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. Pendency of
appeals regarding quantum and penalty and an appeal, challenging an
order passed u/s 263, would not 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.
7. Concluding comments
The Tribunal has passed a realistic, well-reasoned, and pragmatic order, in
accordance with the provisions of the Act and it should be acceptable to the
taxpayer.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes.)
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.