Section 263 of the Income Tax Act provides power to the Commissioner of Income Tax to pass any order as he thinks fit , if he /she finds the order of the assessing officer prejudicial to revenue and erroneous. It is found that the power , many time, is used in a very routine manner . So, if audit gives objection which may not be correct , but just to appease the CAG or follow the procedure set by CAG and CBDT collectively, the power u/s 263 of the Income Tax Act is used. Under this provision i.e sec. 263 , although the CIT has the power to enhance the assessed income , yet the CIT often set aside the order and directs the A.O to pass a fresh assessment order.
Supreme Court on powers of ITAT to Stay
Mumbai High Court had occasion to interpret the powers of ITAT to stay the demand and all proceeding in a case before it, in case of Ritz Ltd vs Vyas (1990) 185 ITR 311 . The Hon’ble High Court and held on the basis of two supreme court decisions :CIT v. Bansi Dhar & Sons [1986] 157 ITR 665/ 24 Taxman 11 & ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 to show that the powers conferred by section 254 of the Act on the Tribunal were of widest possible ..
8. ….It can now be taken as a settled law that the Tribunal continues to have all powers necessary to make the right of appeal effective during the pendency of the appeal as also after the appeal is disposed of and reference is pending before the High Court.
Andhra High Court Order on Power of ITAT on Stay of Proceeding
In case of ITO vs Khalid Khan (1977) 110 ITR 79 (AP) , the High Court held that the tribunal has all the power of stay of proceeding , if an appeal is pending before it. In the said case , the facts in brief was that the Commissioner, in exercise of his powers under section 263 revised the order of assessment and directed the ITO to reassess the same. The Commissioner expressed his prima facie opinion that the lease income from the said theatre should be assessed in the hands of the association of persons comprising of the assessee and other interested persons, and not separately in the hands of each assessee. The assessee preferred appeals before the Tribunal along with application for stay of further proceedings in pursuance of the orders of the Commissioner. The Tribunal, granted stay of further proceedings, including the making of a fresh assessment in pursuance of the orders of the Commissioner and directed the appeals to be posted for hearing within two months.
When the department appealed against the order of ITAT by contending that even if the Tribunal was presumed to have the power to grant stay of operation of the order appealed against, even then, by virtue of the introduction of sub-section (2A) in section 153 by the Taxation Laws (amendment) Act, 1970, with effect from 1-4-1971, the said power was curtailed and that Tribunal had, therefore, no power to grant stay of the proceedings, the Hon’ble High Court held as under :
it would be seen that neither sub-section (2A) nor any other provision in the Act expressly qualifies or abridges the power of the Tribunal to pass all necessary orders under section 254(1) of the Act. Does it do so by necessary implication ? It is, no doubt, true that clause (ii) in explanation 1 may not help the department in seeking to exclude the period during which the stay granted by a Tribunal is in operation, since the Tribunal is, admittedly, not a court, yet we are not convinced that subsection (2A) has the effect of depriving or abridging the power of the Tribunal to grant appropriate interim orders under section 254(1) of the Act.
In Puranmal vs ITO ,(1975) 98 ITR 39 Patna High Court held in favour of assessee that the ITAT has the inherent power of stay of proceedings , if appeal is pending before it. The facts of the case was that the assessee filed appeal before the Tribunal against the order of the AAC making a grievance that the AAC could not, while rectifying the mistake in exercise of the power under section 154, have cancelled the whole order. The said appeal was admitted by the Tribunal and was pending disposal.
Later, when the AAC in pursuance of his order under section 154, purported to proceed with the matter, an application was filed before the Tribunal to stay further proceedings before the AAC. The Tribunal, rejected the said prayer of the petitioner, holding that under the Act there was no provision conferring any such power on the Tribunal to stay the proceeding before the AAC or before the ITO.
The assessee filed a Writ petition in the Patna High Court , which held as under :
The view taken by the Tribunal was erroneous that it had no such power. If the Tribunal had rejected the prayer for stay on merits the matter would have been different but from the order it appeared that the prayer for stay made by the petitioner had been rejected simply on the ground that the Tribunal did not possess any such power under the statute. In that view of the mater, the said order had to be quashed and the Tribunal had to be directed to hear the application for stay of further proceedings before the AAC on merits and to pass appropriate orders in accordance with law.
Conclusion on Stay of Proceeding
In case , an order u/s 263 has been passed by the Commissioner of Income Tax whereby he directs for an order from A.O , you can file a separate appeal for stay of order by the A.O while filing appeal against the order u/s 263 of the Income Tax Act.
Even if the appeal has been disposed off , the proceeding is before High Court, an assessee can apply for stay of recovery or other proceeding as held by the Supreme Court in CIT v. Bansi Dhar & Sons in which it was held that the Tribunal’s power to grant stay on recovery or other proceedings can be exercised by it even after it has passed the order in appeal and when a reference against its order is pending in the High Court. In such cases, the assessee must apply to the Tribunal afresh for stay during the pendency of the reference. Without such a fresh application before the Tribunal, the original stay order will lapse.