Assessing v. Income Tax Officer (W.p

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 03.04.2019 Coram The Honourable DR.JUSTICE ANITA SUMANTHW.P. Nos.9789 & 9925 of 2019& W.M.P.No.10392, 10511 & 10513 of 2019 M/s Oren Hydrocarbons Private Ltd.Represented by its Director,Ramesh Krishnamoorthy....Petitioner in both WPs /Vs/ 1.Assistant Commissioner of Income Tax, Company Circle 5(1) No.121, Mahatma Gandhi Road Chennai-600034...R1 in both WPs2.The Manager, Axis Bank Ltd., Corporate Banking Branch, Second Floor, No.3 (Old No.2), Club House Road, Anna Salai, Chennai -600002 ...R2 in WP No.9925 of 2019 3.The Manager, State Bank of India Leather and International Branch, 177/1, Poonamalle High Road, MJV Tower Kilpauk Chennai-600010...R3 in WP No.9925 of 20194.Additional Commissioner of Income Tax Range-5 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600034...R2 WP No.9789 of 2019 5.Principal Commissioner of Income Tax-5 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600034 ...R3 in WP No.9789 of 2019 https://hcservices.ecourts.gov.in/hcservices/ 6. Commissioner of Income Tax(Appeals)-3 No.121, Mahatma Gandhi Road, Nungambakkam Chennai 600034 ...R4 in WP No.9789 of 2019 P R A Y E R in W.P.No.9789 of 2019: WRIT PETITIONs underArticle 226 of the Constitution in the nature ofCertiorarified Mandamus calling for the recordspertaining to the order passed by the 1[st] respondent on12.02.2019 rejecting the stay petition filed by thepetitioner vide letter dated 11.02.2019 and quash thesame as illegal, arbitrary and devoid of merits andconsequently direct the 1[st] respondent to grant stay ofall further recover proceedings pertaining to theA.Y.2016-17 pending disposal of the appeal before the 4[th]respondent filed by the petitioner. P R A Y E R in W.P.No.9925 of 2019: WRIT PETITIONs underArticle 226 of the Constitution in the nature ofCertiorarified Mandamus calling for the recordspertaining to the notice u/S.226(3) of the income TaxAct, 1961 dated 12.12.2019 issued by the 1[st] respondent torespondents 2 and 3 and quash the same and direct the 1[st]respondent to lift the attachment of the bank accounts ofthe petitioner pending disposal of the appeal before theCommissioner of Income-Tax (Appeals) filed by thepetitioner. For Petitioner : Mr.K.Ravi in both WPsFor Respondents : Mr.Naveen Durai Babu for Mrs.Hema Muralikrishnan, Sr.S.C. Heard Mr.K.Ravi, learned counsel for the petitionersand Mr.Naveen Durai Babu, learned counel for Mrs.HemaMurali Krishnan, learned Senior Standing Counsel for therespondents. By consent and since a short point isinvolved in both the writ petitions they are disposed offinally even at the time of admission. 2. The writ petitions came up for hearing on02.04.2019, when learned Standing Counsel sought a days'time to obtain instructions. W.P.No.9789 of 2019challenges an order dated 12.02.2019, which is a singleline, hand written order rejecting the stay petitionfiled by assessee. The officer says:As the assessee has filed appeal https://hcservices.ecourts.gov.in/hcservices/ before CIT(A) and 20% of the tax demandis not paid on additions made. Hencethis application is here by rejected.The stay petition filed by theassessee is hereby rejected. (Assessing Officer) 3. This order is non-speaking, merely makingreference to non-payment of 20% of the tax demand by theassessee. I have had occasion to consider the impact ofthe Circulars on the powers of the AssessingOfficer/Authorities under the Act to grant a stay, in thecase of Mrs.Kannammal V. Income Tax Officer (W.P.No.3849of 2019 dated 13.02.2019) and have held as follows: https://hcservices.ecourts.gov.in/hcservices/ before CIT(A) and 20% of the tax demandis not paid on additions made. Hencethis application is here by rejected.The stay petition filed by theassessee is hereby rejected. (Assessing Officer) 3. This order is non-speaking, merely makingreference to non-payment of 20% of the tax demand by theassessee. I have had occasion to consider the impact ofthe Circulars on the powers of the AssessingOfficer/Authorities under the Act to grant a stay, in thecase of Mrs.Kannammal V. Income Tax Officer (W.P.No.3849of 2019 dated 13.02.2019) and have held as follows: '7. The parameters to be taken into account inconsidering the grant of stay of disputed demandare well settled – the existence of . ‘Financialstringency’ would include within its ambit thequestion of 'irreparable injury' and ‘undue hard-ship’ as well. It is only upon an application ofthe three factors as aforesaid that the assessingofficer can exercise discretion for the grant orrejection, wholly or in part, of a request forstay of disputed demand. 8. In addition, periodic Instructions/Circularsin regard to the manner of adjudication of staypetitions are issued by the Central Board of Di-rect Taxes (CBDT) for the guidance of the Depart-mental authorities. The one oft-quoted by the as-sessee is Office Memorandum F.No.1/6/69/-ITCC,dated 21.08.1969 that states as follows: '1. One of the points that came up forconsideration in the 8th Meeting of theInformal Consultative Committee was thatincome-taxassessmentswereoftenarbitrarily pitched at higher figures andthat the collection of disputed demand as aresult thereof was also not stayed in spiteof the specific provision in the matter ins. 220(6) of the IT Act, 1961. 2. The then Deputy Prime Minister hadobserved as under : ".........Where the income determined onassessment was substantially higher than thereturned income, say twice the latter amountor more, the collection of the tax indispute should be held in abeyance till the decision on the appeal provided there wereno lapses on the part of the assessees." 3. The Board desire that the aboveobservations may be brought to the notice ofall the Income-tax Officers working underyou and the powers of stay of recovery insuch cases up to the stage of first appealmay be exercised by the Inspecting AssistantCommissioner/Commissioner of Income-tax.' 9. Thereafter, Instruction No.1914 was issued bythe CBDT on 21.03.1996 and states as follows: 1. Recovery of outstanding tax demands[Instruction No. 1914 F. No. 404/72/93 ITCCdated 2-12-1993 from CBDT]The Board has felt the need for acomprehensive instruction on the subject ofrecovery of tax demand in order tostreamlinerecoveryprocedures.Thisinstruction is accordingly being issued insupersession of all earlier instructions onthe subject and reiterates the existingCirculars on the subject. 2. The Board is of the view that, as amatter of principle, every demand should berecovered as soon as it becomes due. Demandmay be kept in abeyance for valid reasonsonly in accordance with the guidelines givenbelow :A. Responsibility:i. It shall be the responsibility of theAssessing Officer and the TRO to collectevery demand that has been raised, exceptthe following: (a) Demand which has notfallen due;(b) Demand which has been stayedby a Court or ITAT or Settlement Commission;(c) Demand for which a proper proposal forwrite-off has been submitted;(d) Demandstayed in accordance with paras B & C below.ii. Where demand in respect of which arecovery certificate has been issued or astatement has been drawn, the primaryresponsibility for the collection of taxshall rest with the TRO. iii. It would be the responsibility of thesupervisory authorities to ensure that theAssessing Officers and the TROs take allsuch measures as are necessary to collectthe demand. It must be understood that mere iii. It would be the responsibility of thesupervisory authorities to ensure that theAssessing Officers and the TROs take allsuch measures as are necessary to collectthe demand. It must be understood that mere issue of a show cause notice with no follow-up is not to be regarded as adequate effortto recover taxes. B. Stay Petitions: i. Stay petitions filed with the AssessingOfficers must be disposed of within twoweeks of the filing of petition by the tax-payer. The assessee must be intimated of thedecision without delay. ii. Where stay petitions are made to theauthorities higher than the AssessingOfficer(DC/CIT/CC),itistheresponsibility of the higher authorities todispose of the petitions without any delay,and in any event within two weeks of thereceipt of the petition. Such a decisionshould be communicated to the assessee andthe Assessing Officer immediately. iii. The decision in the matter of stay ofdemand should normally be taken by AssessingOfficer/TRO and his immediate superior. Ahigher superior authority should interferewith the decision of the AO/TRO only inexceptional circumstances; e.g., where theassessment order appears to be unreasonablyhigh-pitched or where genuine hardship islikely to be caused to the assessee. Thehigher authorities should discourage theassessee from filing review petitions beforethem as a matter of routine or in afrivolous manner to gain time forwithholding payment of taxes. C. Guidelines for staying demand: i. A demand will be stayed only if there arevalid reasons for doing so. Mere filing anappeal against the assessment order will notbe a sufficient reason to stay the recoveryof demand. A few illustrative situationswhere stay could be granted are:It is clarified that in these situationsalso, stay may be granted only in respect ofthe amount attributable to such disputedpoints. Further where it is subsequentlyfound that the assessee has not co-operatedin the early disposal of appeal or where asubsequent pronouncement by a higherappellate authority or court alters theabove situation, the stay order may bereviewedandmodified.Theabove illustrationsare,ofcourse,notexhaustive. ii. In granting stay, the Assessing Officermay impose such conditions as he may thinkfit. Thus he may — a. require the assesseeto offer suitable security to safeguard theinterest of revenue; b. require the assesseeto pay towards the disputed taxes areasonable amount in lump sum or ininstalments; c. require an undertaking fromthe assessee that he will co-operate in theearly disposal of appeal failing which thestay order will be cancelled. d. reserve theright to review the order passed afterexpiry of a reasonable period, say up to 6months, or if the assessee has not co-operated in the early disposal of appeal, orwhere a subsequent pronouncement by a higherappellate authority or court alters theabove situations; e. reserve a right toadjust refunds arising, if any, against thedemand.iii. Payment by instalments may be liberallyallowed so as to collect the entire demandwithin a reasonable period not exceeding 18months.iv. Since the phrase “stay of demand” doesnot occur in section 220(6) of the Income-tax Act, the Assessing Officer should alwaysuse in any order passed under section 220(6)[or under section 220(3) or section 220(7)],the expression that occurs in the sectionviz., that he agrees to treat the assesseeas not being default in respect of theamount specified, subject to such conditionsas he deems fit to impose.v. While considering an application undersection 220(6), the Assessing Officer shouldconsider all relevant factors having abearing on the demand raised and communicatehis decision in the form of a speakingorder. D. Miscellaneous: D. Miscellaneous: i. Even where recovery of demand has beenstayed, the Assessing Officer will continueto review the situation to ensure that theconditions imposed are fulfilled by theassessee failing which the stay order wouldneed to be withdrawn. ii. Where the assessee seeks stay of demandfrom the Tribunal, it should be stronglyopposed. If the assessee presses hisapplication, the CIT should direct thedepartmental representative to request thatthe appeal be posted within a month so thatTribunal’s order on the appeal can be knownwithin two months. iii. Appeal effects will have to be givenwithin 2 weeks from the receipt of theappellate order. Similarly, rectificationapplication should be decided within 2 weeksof the receipt t hereof. Instances wherethere is undue delay in giving effect toappellateorders,orindecidingrectification applications, should be dealtwith very strictly by the CCITs/CITs.3. The Board desires that appropriate actionis taken in the matter of recovery inaccordance with the above procedure. TheAssessing Officer or the TRO, as the casemay be, and his immediate superior officershall be held responsible for ensuringcompliance with these instructions.4. This procedure would apply mutatismutandis to demands created under otherDirect Taxes enactments also.' 10. Instruction 1914 was partially modified byOffice Memorandum dated 29.02.2016 taking intoaccount the fact that Assessing Officers insistedon payment of significant portions of the disput-ed demand prior to grant of stay resulting in ex-treme hardship for tax payers. Thus, in order tostreamline the grant of stay and standardize theprocedure, modified guidelines were issued whichare as follows: '....... (A) In a case where the outstanding demandis disputed before CIT (A), the assessingofficer shall grant stay of demand tilldisposal of first appeal on payment of 15%of the disputed demand, unless the casefalls in the category discussed in pars (B)hereunder.(B) In a situation where, (a) the assessing officer is of the viewthat the nature of addition resulting in thedisputed demand is such that payment of alump sum amount higher than 15% is warranted(e.g. in a case where addition on the sameissue has been confirmed by appellateauthorities in earlier years or the decisionof the Supreme Court /or jurisdictional HighCourt is in favour of Revenue or addition isbased on credible evidence collected in asearch or survey operation, etc.) or, (b) the assessing officer is of the viewthat the nature of addition resulting in thedisputed demand is such that payment of alump sum amount lower than 15% is warranted(e.g. in a case where addition on the sameissue has been deleted by appellate authori-ties in earlier years or the decision of theSupreme Court or jurisdictional High Courtis in favour of the assessee, etc.), the as-sessing officer shall refer the matter tothe administrative Pr. CIT/ CIT, who afterconsidering all relevant facts shall decidethe quantum/ proportion of demand to be paidby the assessee as lump sum payment forgranting a stay of the balance demand.' 11. Instruction 1914 was further modified by Of-fice Memorandum bearing number F.No.404/72/93 –ITCC dated 31.07 2017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCCdated 31.07.2017 Subject: Partial modification of InstructionNo. 1914 dated 21.3.1996 to provide forguidelines for stay of demand at the firstappeal stage.Reference: Board’s O.M. of even number dated29.2.2016Instruction No. 1914 dated 21.3.1996contains guidelines issued by the Boardregarding procedure to be followed forrecovery of outstanding demand, includingprocedure for grant of stay of demand.Vide O.M. N0.404/72/93-ITCC dated 29.2.2016revised guidelines were issued in partialmodification of instruction No 1914,wherein, inter alia, vide para 4(A) it hadbeen laid down that in a case where theoutstanding demand is disputed before CIT Subject: Partial modification of InstructionNo. 1914 dated 21.3.1996 to provide forguidelines for stay of demand at the firstappeal stage.Reference: Board’s O.M. of even number dated29.2.2016Instruction No. 1914 dated 21.3.1996contains guidelines issued by the Boardregarding procedure to be followed forrecovery of outstanding demand, includingprocedure for grant of stay of demand.Vide O.M. N0.404/72/93-ITCC dated 29.2.2016revised guidelines were issued in partialmodification of instruction No 1914,wherein, inter alia, vide para 4(A) it hadbeen laid down that in a case where theoutstanding demand is disputed before CIT (A), the Assessing Officer shall grant stayof demand till disposal of first appeal onpayment of 15% of the disputed demand unlessthe case falls in the category discussed inpara (B) thereunder. Similar references tothe standard rate of 15% have also been madein succeeding paragraphs therein. 2. The matter has been reviewed by the Boardin the light of feedback received from fieldauthorities. In view of the Board’s effortsto contain over pitched assessments throughseveral measures resulting in fairer andmore reasonable assessment orders, thestandard rate of 15% of the disputed demandis found to be on the lower side.Accordingly. it has been decided that thestandard rate prescribed in O.M. dated29.2.2016 be revised to 20% of the disputeddemand, where the demand is contested beforeCIT(A). Thus all references to 15% of thedisputed demand in the aforesaid O.M dated29.2.2016 hereby stand modified to 20% ofthe disputed demand. Other guidelinescontained in the O.M. dated 29.2.2016 shallremain unchanged.These modifications may be immediatelybrought to the notice of all officersworking in your jurisdiction for propercompliance.' 12. The Circulars and Instructions as extractedabove are in the nature of guidelines issued toassist the assessing authorities in the matter ofgrant of stay and cannot substitute or overridethe basic tenets to be followed in the considera-tion and disposal of stay petitions. The exis-tence of a prima facie case for which some illus-trations have been provided in the Circularsthemselves, the financial stringency faced by anassessee and the balance of convenience in thematter constitute the ‘trinity’, so to say, andare indispensable in consideration of a stay pe-tition by the authority. The Board has, whilestating generally that the assessee shall becalled upon to remit 20% of the disputed demand,granted ample discretion to the authority to ei-ther increase or decrease the quantum demandedbased on the three vital factors to be taken intoconsideration. https://hcservices.ecourts.gov.in/hcservices/ 13. In the present case, the assessing officerhas merely rejected the petition by way of a non-speaking order reading as follows: 'Kindly refer to the above. This is to in-form you that mere filing of appeal againstthe said order is not a ground for stay ofthe demand. Hence your request for stay ofdemand is rejected and you are requested topay the demand immediately. Notice u/s.221(1) of the Income Tax Act, 1961 is enclosedherewith.' https://hcservices.ecourts.gov.in/hcservices/ 13. In the present case, the assessing officerhas merely rejected the petition by way of a non-speaking order reading as follows: 'Kindly refer to the above. This is to in-form you that mere filing of appeal againstthe said order is not a ground for stay ofthe demand. Hence your request for stay ofdemand is rejected and you are requested topay the demand immediately. Notice u/s.221(1) of the Income Tax Act, 1961 is enclosedherewith.' 14. The disposal of the request for stay bythe petitioner leaves much to be desired. I am ofthe categoric view that the Assessing Officerought to have taken note of the conditionsprecedent for the grant of stay as well asthe Circulars issued by the CBDT and passed aspeaking order. Of course the petition seekingstay filed by the petitioner is itself cryptic.However, as noted by the Supreme Court in thecase of Commissioner of Income tax vs MahindraMills, ((2008) 296 ITR 85 (Mad)) in the contextof grant of depreciation, the Circular of theCentral Board of Revenue (No. 14 (SL- 35) of 1955dated April 11, 1955) requires the officers ofthe department ‘to assist a taxpayer in everyreasonable way, particularly in the matter ofclaiming and securing reliefs. .... Although,therefore, the responsibility for claimingrefunds and reliefs rests with the assessees onwhom it is imposed by law, officers should drawtheir attention to any refunds or reliefs towhich they appear to be clearly entitled butwhich they have omitted to claim for some reasonor other......’. Thus, notwithstanding that theassessee may not have specifically invoked thethree parameters for the grant of stay, it isincumbent upon the assessing officer to examinethe existence of a prima facie case as well ascall upon the assessee to demonstrate financialstringency, if any and arrive at the balance ofconvenience in the matter. ' 4. In the light of my order as above, the impugnedorder which is unacceptable on all counts, is quashed inlimine. Pursuant to rejection of stay application on12.12.2019, the Assessing Officer has issued noticesunder Section 226(3) of the Income Tax Act to the AxisBank, Anna Salai branch and the State Bank of India, Leather and International Branch, Kilpauk. Consequentupon my quashing of the order dated 12.02.2019, theaforesaid notices also stand quashed and the bankattachments stand lifted forthwith. 6. These writ petitions are allowed. Consequently,connected miscellaneous petitions are closed. No costs. Sd/- Assistant Registrar(CS) //True Copy// Sub Assistant RegistrarskaTo1.Assistant Commissioner of Income Tax, Company Circle 5(1) No.121, Mahatma Gandhi Road Chennai-6000342.The Manager, Axis Bank Ltd., Corporate Banking Branch, Second Floor, No.3 (Old No.2), Club House Road, Anna Salai, Chennai -6000023.The Manager, State Bank of India Leather and International Branch, 177/1, Poonamalle High Road, MJV Tower Kilpauk Chennai-6000104.Additional Commissioner of Income Tax Range-5 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-6000345.Principal Commissioner of Income Tax-5 No.121, Mahatma Gandhi Road, Nungambakkam Chennai-600034 6. Commissioner of Income Tax(Appeals) 3 No.121, Mahatma Gandhi Road, Nungambakkam Chennai 600034 +2ccs to Mr. K.Ravi, Advocate SR.No. 32089,32090W.P. Nos.9789 & 9925 of 2019& W.M.P.No.10392, 10511 & 10513 of 2019A.SK(03/04/2019)