Is Stay of prosecution proceedings under the Income Tax Act during the pendency of assessment proceedings justified?
A “stay of proceedings” or a “stay order” simply means that the party against whom such an order is issued is prevented from taking further actions in relation to the subject matter pending the occurrence of an event or a determination of a suit. So, till a stay order is in action, the operation of the Court’s proceedings is made standstill, and the party who seeks it can cause the operation of the other party (against whom the order is given) to cease. The Supreme Court had ruled that whatever stay has been granted by any court, including the high court, automatically expires within a period of six months, unless extension is granted for good reason.
Let us refer to the case of CIT v. Bhupen Champak Lal Dalal (2001) where the issue under consideration was whether a stay of proceedings could be granted in a criminal prosecution when appeals against an assessment order were pending before authorities under the Income Tax Act
Facts of the Case:
- Before the jurisdictional Metropolitan Magistrate, there were pending 12 complaints and cases lodged against one Bhupen Champaklal Dalal and another (the Respondents) for offences punishable under the Income Tax Act, 1961.
- At the same time, appeals against assessment of income by the Assessing Officer (AO) were preferred before either the CIT(A) or the ITAT.
- Therefore, the Respondents had filed for a stay of criminal proceedings on the basis of the reasoning that appeal proceedings were pending before the authorities under the Act, which would have an effect and be relevant to the criminal proceedings instituted against the Respondents.
Order by The Metropolitan Magistrate
The Metropolitan Magistrate, after considering the position of law and the possibility of conflict passed an interim order putting a stay upon the framing of charge and discharge or acquittal but allowing collection of evidence, for the period of pendency of appeals against the assessment.
Petitions before Sessions Court
- Revision petitions were filed against the said order before the Sessions Court, by those aggrieved by it.
- However, the Sessions Court chose not to interfere with the order passed by the Metropolitan Magistrate and dismissed the review petitions.
- Thereafter on appeal by the way of a writ petition to the jurisdictional High Court, a plethora of decisions on the subject were taken into consideration and the High Court passed an interim order granting a stay of proceedings before the Metropolitan Magistrate.
- It was against the impugned interim order of the High Court that special leave petitions were filed before the Supreme Court of India.
Observations of the Supreme Court (SC)
- The prosecution under criminal law and proceedings arising out of assessments under the Act were, undoubtedly, independent in nature and there was no legal encumbrance against the initiation of criminal proceedings vis-à-vis the pendency of appellate proceedings under the Act.
- However, a wholesome rule should be employed in cases where courts have taken the view that each set of proceedings would have bearing upon the conclusions reached by the courts.
- Reliance was placed upon a decision of the same court in G. L. Didwania v. ITO 1995 wherein the fact pattern was similar to the present case.
- Dismissing the petitions of the revenue department, SC held that in the event that the ultimate result of the proceedings before the appellate authorities had a definite bearing on the cases alleged against the Respondents, the High Court would be justified in granting interim stay when the quantum appeals were pending before the appellate authorities under the Act.
- SC held that despite the stay on criminal prosecution, the work of recording of evidence would proceed during the pendency of the appeals.
- Therefore, it was held that there was no reason for interference in the interim order passed by the High Court and the appeals were dismissed.
In simple words, stay of prosecution proceedings under the Income Tax Act, 1961 during the pendency of assessment proceedings before authorities is justified