Whether ITAT has power to grant stay of income tax proceedings beyond a period of 360 days? . This question was recently answered in May, 2015 by the Hon’ble Delhi High Court in Pepsi Foods Pvt. Ltd. vs. ACIT (WP-C 1334/2015) in affirmative by holding third proviso to section 254 as unconstitutional and striking it off.

It would be worthwhile to reproduce sub-section 2A to section 254 as amended by Finance Act, 2012 as under:

“SECTION 254—ORDERS OF APPELLATE TRIBUNAL

(2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub-section (1) or sub-section (2) or sub-section (2A) of section 253.

Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order:

Provided further that where such appeal is not so disposed of within the said period of stay as specified in the order of stay, the Appellate Tribunal may, on an application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee, extend the period of stay, or pass an order of stay for a further period or periods as it thinks fit; so, however, that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty-five days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed:

Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee.”

Conflict in High Court Judgments:

It must be borne in mind that on 30-07-2007, in the case of Narang Overseas Private Limited vs. Icome Tax Appellate Tribunal Bombay High Court has interpreted the third proviso to Section 254(2A) in such a manner that even if the period of 365 days from the initial grant of stay had expired, the Tribunal could extend the stay granted, provided the delay was not attributable to the assessee. The amendment brought about by the Finance Act, 2008 in fact sought to nullify this judgment by introducing the words –

'even if the delay in disposing of the appeal is not attributable to the assessee'.

However, in a subsequent judgment delivered on 05-07-2012, the Hon’ble Karnataka High Court in the case of CIT Vs. Ecom Gill Coffee Trading (P) Ltd (ITA-160-161/2012) held that as per the third proviso to Sec.254(2A) of the Act, the total duration of the stay of demand granted by the Tribunal cannot exceeded 365 days. The Hon’ble Karnataka High Court held that the third proviso to s. 254(2A) not merely indicates that the extension of stay order cannot be beyond total number of 365 days put together, but also indicates that even assuming an order of this nature had been passed, such an order of stay shall stand vacated after the expiry of outer limit of 365 days and, in the first instance, the Tribunal which is the creature of statute should abide by these statutory provisions in letter and spirit and the introduction of the third proviso to Finance Act 2008 makes it abundantly clear that the purpose of putting the outer limits is only for curtailing the period an order of stay can operate and to ensure that it has no effect after the period of 365 days from the date of initial order. The Hon’ble Court further held that the interpretation of provision of this nature particularly to interpret in a manner so as to enable or confer power on the Tribunal to extend a stay order beyond 365 days, would be to understand contrary to such statutory provision. The language of the Section cannot be ignored and intended amendment brought about by the Finance Act, 2008 and the language of the legislature being quite clear about the outer time limit stipulated for the duration of the operation of stay and if the legislature has stipulated the outer time limit of 365 days within which the stay order granted by the Tribunal can operate, the Tribunal is not enabled to pass orders granting stay beyond the period of 365 days.

Efffect of Delhi High Court Judgment on other ITATs

The Karnataka High Court did not deal with the constitutional validity of the 3^rd proviso to Section 254(2A). The Court only held that Tribunal has no power to extend stay beyond a period of 365 days in view of the clear language and that statutory tribunals have to follow the statutory provisions as it is.

In view of the Supreme Court judgment in K. S. Venkataraman and Co. (P) Ltd. vs. State of Madras, it is the settled legal position that an authority like the Tribunal created by a statute cannot question the vires of that statute or any of the provisions thereof whereunder it functions.

After the judgment of Delhi High Court as above, the question arises that what lines of decision should be followed by the Tribunals which fall out of the jurisdiction of the Delhi High Court? and in particular if there is a contrary judgment of the jurisdictional High Court of the State of the ITAT concerned.

The Hon’ble Supreme Court on 28-04-2004 in the case of Kusum Ingots and Alloys Ltd. Vs. Union of India and another held that an order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final, in the light of Article 226(2) of the Constitution of India, will have effect throughout the territory of India.

Hon’ble Karnataka High Court on 03-02-2014 in the case of Mr. Shiv Kumar Vs. Union of India and others W.P.No.13112/2012 following the ruling laid down by Supreme Court in the case of Kusum Ingots (supra) held that a provision of the Central Act declared unconstitutional by Hon’ble Kerala High Court will be applicable throughout India.

A similar issue concerning the constitutional validity of section 140A(3) came up before the Hon’ble Bombay High Court in the case of CIT Vs. Godavaridevi Saraf. In this case, an order imposing penalty u/s 140A(3) was cancelled by the ITAT Bom. on the basis of a judgment of the Madras High Court in A. M. Sali Maricar 90 ITR declaring section violative the provisions of Article 19(1)(f) of the Constitution and was struck down. The Tribunal held that it had no jurisdiction to go into the question of vires of particular provisions under the Act but nevertheless proceeded on the footing that s. 140A(3) was non-existent in view of the decision of the Madras High Court. On further appeal by the revenue, the Bombay High Court considered the following substantial question of law:

"Whether, on the facts and in the circumstances of the case and in view of the decision in the case of A. M. Sali Maricar (1973) 90 ITR 116 (Mad), the penalty imposed on the assessee under s. 140A(3) was legal?"

The Bombay High Court by judgment dated 27-09-1977 went on to hold as under:

It should not be overlooked that the IT Act is an All-India statute and if an Tribunal in Madras, in view of the decision of the Madras High Court, has to proceed on the footing that s. 140A(3) was non-existent, the order of penalty thereunder cannot be imposed by the authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. When the Tribunal set aside the order of penalty it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of s. 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question.

Conclusion:

Therefore, in view of the forgoing discussion and law laid down by Hon’ble Supreme Court and High Courts, it can be safely inferred that as on date the third proviso of section 254(2A) of the Income Tax Act, 1961 which is a Central Act stands as struck down being voilative of constitution. Since currently there is no conflicting judgments on the constitutional validity of the said provisions, all Tribunals are bound to follow the decision of the Hon’ble Delhi High Court so long as their jurisdictional High Court(s) decides otherwise.