22 May 2015

ITAT can extend stay beyond 365 days

Does the Income Tax Appellate Tribunal (ITAT) have power to extend stay beyond 365 days? The Delhi High Court in Pepsi Foods Pvt. Ltd v. ACIT, WP(C )1334/2015 decided on 19-5-2015 held that when the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days.


Question of discrimination, based on an impermissible or invalid classification

The petitioner challenged the constitutional validity of third proviso to Section 254(2A) of the Income Tax Act, 1961 (the Act).  Prior to the amendment brought about by Finance Act, 2008, the Bombay High Court in Narang Overseas Private Limited v. Income Tax Appellate Tribunal [295 ITR 22 (Bombay)] had read down the  third proviso to Section 254(2A) such 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 petitioner argued that post amendment, assessees, who are not responsible for delay in hearing of the appeal, have been clubbed together with those assessees to whom the delay was attributable and hence law abiding assessees were being discriminated against.


Bombay High Court’s view in Narang Overseas and amendments

The Bombay High Court opined that if the Tribunal did not have the power to continue the grant of interim relief for no fault of the assessee, while it had the power to pass an order in an appeal, it would be violative of Article 14 of the Constitution.  However post amendment by addition of the words ‘even if the delay in disposing of the appeal is not attributable to the assessee’ this decision could not be relied upon.

The Division Bench of Delhi High Court considered the provisions, post-amendment, in CIT v. Maruti Suzuki (India) Limited [(2014) 362 ITR 215 (Delhi) (DB)], it did not examine the constitutional validity and observed that while as per the provisions the Tribunal could not extend stay beyond 365 days, the remedy of writ before High Courts was still available to the assessee in deserving cases and it could seek stay of recovery.


Delhi High Court on constitutionality

The Delhi High Court observed that a very small percentage of appeals before the Tribunal  remain pending beyond the period of 365 days in which stay orders were granted and that the earlier decision on Maruti referred only to legislative intent which was very clear. Referring to  ITO v. M. K. Mohammed Kunhi [71 ITR 815 (SC)], the Court said that the power to grant stay is incidental or ancillary to the appellate jurisdiction of the Tribunal  and that the power would be exercised only when a strong prima facie case was made out before the Tribunal.
The Court  examining the provisos which provided for grant of extension first upto 180 days and then a further period of 180 days not exceeding 365 days in total within which period the appeal is to be disposed, opined that while the condition that the stay order could be extended beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable restriction on the power of the Tribunal,  it cannot be argued that even when the delay is not caused by the assessee, the Tribunal would have no power to extend stay.

Thus the petitioner’s argument that unequal persons have been treated equally was accepted by the Court and the writ petitions were allowed.


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