Mere Pendency of Revenue’s Appeal without Stay of ITAT Order cannot Prevent HC from quashing Income-Tax Prosecution: Rajasthan HC [Read Order]
The High Court held that a pending revenue appeal without a stay cannot bar the quashing of an income-tax prosecution when the ITAT has already removed the factual basis of the case.
In a recent ruling, the Rajasthan High Court explained that when the Income Tax Appellate Tribunal has already removed a penalty on merits and there is no stay on that order, the mere pendency of the department’s appeal cannot stop the High Court from quashing a criminal prosecution founded on the same allegation of concealment.
Nagendra Choudhary, the petitioner, filed a criminal miscellaneous petition challenging the prosecution initiated against him under Section 276C(1) of the Income Tax Act. The prosecution was based on entries found during a search on 4 September 2013, which the department claimed represented undisclosed income.
Although the department had imposed a penalty under Section 271AAB, the Income Tax Appellate Tribunal later removed it after examining the seized material and finding that the entries did not amount to undisclosed income. The department then filed an appeal under Section 260A, but no stay was granted against the tribunal’s order.
The petitioner’s counsel argued that since the tribunal had already found no concealment, the prosecution had lost its factual basis. They argued that the pendency of an appeal without a stay does not revive the findings that the tribunal has already set aside, and continuing the prosecution despite the tribunal’s decision would be unfair.
The department’s counsel argued that the appeal filed under Section 260A should be treated as sufficient ground to allow the prosecution to continue. They argued that because substantial questions of law had been admitted, the tribunal’s order should not prevent the criminal case from moving forward.
The bench comprising Justice Anand Sharma observed that the mere filing of an appeal does not undo the Tribunal’s factual findings unless a superior court formally stays them. It pointed out that the Tribunal is the final fact-find body and that its conclusions remain operative until stayed or reversed.
The court added that the prosecution could not survive when its foundation had disappeared, stating that “the prosecution is untenable in the absence of the foundational finding of concealment, which stands judicially negated.”
The court explained that allowing a criminal prosecution to proceed in such circumstances would amount to an abuse of process, as the court would be compelling the accused to face a case based on facts already rejected by the competent authority.
The court added that the High Court’s inherent power under Section 482 CrPC could be used even when an appeal is pending if the continuation of proceedings would not serve justice.
The court held that the pendency of the revenue’s appeal without a stay could not prevent it from quashing the prosecution, as the Tribunal’s findings remained binding and had removed the very basis of the criminal case.
The court quashed the criminal proceedings in Criminal Case No. 140/2017, while leaving it open to the department to seek revival of the prosecution if its appeal ultimately succeeds.
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