Settlement application does not automatically bar tax prosecution or invalidate prior sanction during pending proceedings.

Filing a settlement application under Chapter XIX-A does not, by itself, oust the Income Tax Department's jurisdiction or invalidate prior sanction for prosecution. Exclusive jurisdiction under the settlement scheme arises only after the application is allowed to proceed, so a sanction under Section 279(1) issued before that stage remains valid. Pending settlement proceedings also do not automatically justify quashing or staying criminal prosecution under Sections 276C and 277. Any protection depends on the settlement process and the court's discretion in an appropriate case, not on pendency alone.

---

---

Issues: (i) Whether the Income Tax Commissioner lacked jurisdiction to sanction prosecution under Section 279(1) of the Income Tax Act, 1961 after the assessee had filed an application under Section 245C of the Income Tax Act, 1961 before the Settlement Commission. (ii) Whether the criminal prosecution under Sections 276C and 277 of the Income Tax Act, 1961 ought to be quashed or stayed during pendency of the settlement proceedings.

Issue (i): Whether the Income Tax Commissioner lacked jurisdiction to sanction prosecution under Section 279(1) of the Income Tax Act, 1961 after the assessee had filed an application under Section 245C of the Income Tax Act, 1961 before the Settlement Commission.

Analysis: The filing of an application under Section 245C does not, by itself, divest the Income Tax authorities of all jurisdiction. The exclusive jurisdiction contemplated by Section 245F(2) arises only after the Settlement Commission allows the application to be proceeded with under Section 245D(1). Until that stage, the powers of the Income Tax authority under Section 279(1) remain unaffected, and Section 245F(4) preserves the operation of provisions relating to matters not before the Settlement Commission. The sanction for prosecution was issued before the Commission decided to proceed with the application, and the sanctioning authority was not exercising power in relation to the assessment case pending before the Commission.

Conclusion: The sanction order under Section 279(1) was valid, and the complaint was not a nullity.

Issue (ii): Whether the criminal prosecution under Sections 276C and 277 of the Income Tax Act, 1961 ought to be quashed or stayed during pendency of the settlement proceedings.

Analysis: Pendency of settlement proceedings, even after the application is allowed to be proceeded with, is not by itself a ground to quash the prosecution. The scheme of Chapter XIX-A shows that immunity under Section 245H is discretionary and depends on the Commission's satisfaction regarding cooperation and full disclosure. Criminal prosecution and settlement proceedings are distinct, and a blanket stay would not be justified merely because a settlement application is pending. However, where a criminal court finds that the disposal of the settlement matter is imminent and has a direct bearing on the prosecution, it may exercise discretion under Section 309 of the Code of Criminal Procedure in an appropriate case.

Conclusion: Neither quashing nor a blanket stay of the prosecution was warranted.

Final Conclusion: The petitioners failed to establish any legal basis to interfere with the prosecution or to suspend the criminal proceedings on account of the pending settlement application.

Ratio Decidendi: Filing a settlement application under Chapter XIX-A does not automatically bar prosecution or oust the jurisdiction of the Income Tax authority; exclusive jurisdiction and any consequential protection arise only after the application is allowed to be proceeded with, and pendency of settlement proceedings alone does not justify quashing or staying a valid criminal prosecution.

---