Settlement Commission cannot automatically stop prosecution, but can put it on hold pending final decision.

The court dismissed both applications, stating that the mere filing of an application before the Settlement Commission is not sufficient grounds to quash or stay prosecution. However, if the Settlement Commission allows the application to proceed, the prosecution should be stayed until a final decision is reached.

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Issues Involved:
1. Whether the prosecution under sections 276C and 277 of the Income-tax Act, 1961 should be quashed or stayed during the pendency of an application before the Settlement Commission.

Detailed Analysis:

Issue 1: Quashing of Prosecution During Pendency of Settlement Application
The petitioners challenged the cognizance taken under sections 276C and 277 of the Income-tax Act, 1961, arguing that their prosecution should be quashed or stayed during the pendency of their applications before the Settlement Commission under section 245C of the Act.

Legal Provisions and Arguments:
- Section 276C: Prescribes punishment for wilful attempts to evade tax.
- Section 277: Prescribes punishment for making false statements in verification.
- Section 245C: Allows an assessee to apply for settlement of cases.
- Section 245D: Details the procedure for the Settlement Commission to follow upon receiving an application.
- Section 245H: Grants the Settlement Commission the power to grant immunity from prosecution and penalty.
- Section 245F: Provides the Settlement Commission with exclusive jurisdiction over the case once an application is allowed to be proceeded with.

The petitioners argued that the pendency of their applications before the Settlement Commission should lead to the quashing or staying of their prosecution, citing various case laws in support. The Department countered that mere pendency of an application before the Settlement Commission is not a valid ground to quash or stay the prosecution.

Court's Analysis:
- The court examined the relevant provisions of the Income-tax Act and previous judgments, including Uttam Chand v. ITO [1982] 133 ITR 909 (SC) and P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC). It concluded that the mere expectation of success in proceedings before the Settlement Commission does not justify quashing or staying the prosecution.
- The court noted that the Settlement Commission's jurisdiction and powers come into play only after an application is allowed to be proceeded with under section 245D(1). Until then, the prosecution can continue.

Conclusion:
The court held that the mere filing of an application before the Settlement Commission is not a ground for quashing the prosecution. The prosecution can only be quashed if the Settlement Commission passes a final order granting immunity from prosecution and penalty.

Issue 2: Staying of Prosecution During Pendency of Settlement Application
The court also considered whether the prosecution should be stayed during the pendency of the application before the Settlement Commission.

Legal Provisions and Arguments:
- The petitioners cited cases where prosecutions were stayed during the pendency of applications before the Settlement Commission, arguing that allowing the prosecution to continue would render section 245H redundant.
- The Department argued that the filing of an application does not automatically stay the prosecution.

Court's Analysis:
- The court referred to Ashwini Kumar Vadilal Patel (Dalal) v. P. T. Mehta, ITO [1989] 178 ITR 385 (Guj) and Kothari and Sons v. N. Subramanian, ITO [1992] 196 ITR 82 (Mad), where prosecutions were stayed after the applications were allowed to be proceeded with by the Settlement Commission.
- It emphasized that the Settlement Commission's exclusive jurisdiction under section 245F(2) comes into effect only after the application is allowed to be proceeded with.

Conclusion:
The court held that the prosecution should not be stayed merely because an application has been filed before the Settlement Commission. However, if the application is allowed to be proceeded with under section 245D(1), the prosecution should be stayed until the final decision by the Settlement Commission.

Final Judgment:
- In Criminal Miscellaneous No. 3398 of 1992, the court dismissed the application, stating that the prosecution cannot be stayed merely because an application has been filed before the Settlement Commission.
- In Criminal Miscellaneous No. 5422 of 1993, the court also dismissed the application, noting that no averment was made that the Settlement Commission had allowed the application to be proceeded with. The court allowed the petitioners to move the magistrate for a stay if the Settlement Commission later allows the application to be proceeded with.

Summary:
The court dismissed both applications, holding that mere filing of an application before the Settlement Commission is not a ground for quashing or staying prosecution. However, if the Settlement Commission allows the application to be proceeded with, the prosecution should be stayed until the final decision.

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