Bhil Employees Welfare Fund v. Income Tax Officer, Ward 9(1), Pune And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO. 315 OF 2023ALONG WITHWRIT PETITION NO. 316 OF 2023 BHIL Employees Welfare Fund No.4(formerly known as Bajaj AutoEmployees Welfare Fund No.4).. Petitioner Vs.Income Tax Officer,Ward 9(1), Pune and Ors. .. Respondents Mr. P. J. Pardiwalla, Senior Advocate a/w. Mr. Jeet Kamdar and Mr. AtulK. Jasani for the Petitioner. Mr. Suresh Kumar for Respondents. CORAM : DATED : DHIRAJ SINGH THAKUR &KAMAL KHATA, JJ.7TH JANUARY, 2023. P.C. :[PER KAMAL KHATA, J.] 1.The Writ Petition no.315 of 2023 is with regard to the assessment year 2014-15 and the Writ Petition no.316 of 2023 is with regardto the assessment year 2017-18. Since the facts of these petitionsare common, we shall dispose of both the petitions by a common order. For the sake brevity we advert to the facts stated in WritPetition no.315 of 2023. 2.This petition no. 315 of 2023 challenges the impugned ordersdated 5th May, 2022 and 13th July, 2022 passed by Respondentnos.1 & 2 whereby the application of the Petitioner for stay ofrecovery of the entire demand for AY-2014-15 was rejected.Further, the petition challenges the impugned letter dated 22ndJuly, 2022 whereby the Respondent no.1 sought payment ofoutstanding income tax dues of Rs.9.63 crores for A.Y. 2014-15;and also challenges the inaction of the CIT(A) in disposing of thePetitioner’s application filed on 16th November 2022 against therecovery of demand by the Respondent.dated 5th May, 2022 and 13th July, 2022 passed by Respondentnos.1 & 2 whereby the application of the Petitioner for stay ofrecovery of the entire demand for AY-2014-15 was rejected.Further, the petition challenges the impugned letter dated 22ndJuly, 2022 whereby the Respondent no.1 sought payment ofoutstanding income tax dues of Rs.9.63 crores for A.Y. 2014-15;and also challenges the inaction of the CIT(A) in disposing of thePetitioner’s application filed on 16th November 2022 against therecovery of demand by the Respondent. 3.It is the case of the Petitioner that the demand raised byRespondent no.3 in the sum of Rs.9,62,39,316/- on account of theaddition made u/s 69 of the Act, ought not to have been made asthe conditions laid down in Section 69 of the Act have not beenfulfilled. Respondent no.3 in the sum of Rs.9,62,39,316/- on account of theaddition made u/s 69 of the Act, ought not to have been made asthe conditions laid down in Section 69 of the Act have not beenfulfilled. Brief facts : 4.On 9th March, 1981 the Petitioner trust was formed for the benefitof the employees of the erstwhile Bajaj Auto Ltd. The Petitioner2/17of the employees of the erstwhile Bajaj Auto Ltd. The Petitioner2/17 formerly known as “Bajaj Auto Employees Welfare Fund No.4” wasallotted a permanent account number (PAN) with astatus of a firm. 5.As per the scheme of demerger of Bajaj Auto Limited approved bythis Court, by its order dated 18th December 2007, the automobilebusiness was transferred to Bajaj Auto Limited, and finance wastransferred to Bajaj Finserv Limited with effect from 31st March2007. Bajaj Auto Limited’s name was changed to Bajaj Holdingsand Investment Limited (for short “BHIL”) on 5th March 2008. this Court, by its order dated 18th December 2007, the automobilebusiness was transferred to Bajaj Auto Limited, and finance wastransferred to Bajaj Finserv Limited with effect from 31st March2007. Bajaj Auto Limited’s name was changed to Bajaj Holdingsand Investment Limited (for short “BHIL”) on 5th March 2008. 5.As per the scheme of demerger of Bajaj Auto Limited approved bythis Court, by its order dated 18th December 2007, the automobilebusiness was transferred to Bajaj Auto Limited, and finance wastransferred to Bajaj Finserv Limited with effect from 31st March2007. Bajaj Auto Limited’s name was changed to Bajaj Holdingsand Investment Limited (for short “BHIL”) on 5th March 2008. this Court, by its order dated 18th December 2007, the automobilebusiness was transferred to Bajaj Auto Limited, and finance wastransferred to Bajaj Finserv Limited with effect from 31st March2007. Bajaj Auto Limited’s name was changed to Bajaj Holdingsand Investment Limited (for short “BHIL”) on 5th March 2008. 6.Pursuant to the scheme of demerger, the name of Bajaj AutoEmployees Welfare Fund No. 4 was changed to “BHIL EmployeesWelfare Fund No.4” as per trust deed dated 16th February 2015.The Petitioner on application, was allotted a new PAN bearingno. with a status of a trust. Employees Welfare Fund No. 4 was changed to “BHIL EmployeesWelfare Fund No.4” as per trust deed dated 16th February 2015.The Petitioner on application, was allotted a new PAN bearingno. with a status of a trust. 7.On 31st March 2021 the Respondent no.1 issued a notice undersection (u/s) 148 of the Income Tax Act, 1961 (the Act) as theyhad reason to believe that the Petitioners income chargeable to taxfor AY-2014-15 had escaped assessment within the meaning ofSection 147 of the Act and called upon the Petitioner to file itssection (u/s) 148 of the Income Tax Act, 1961 (the Act) as theyhad reason to believe that the Petitioners income chargeable to taxfor AY-2014-15 had escaped assessment within the meaning ofSection 147 of the Act and called upon the Petitioner to file its return of income within a period of 30 days from the date ofservice of the notice as per the necessary sanction issued by thePCIT, Pune-3 (Respondent no.2). On 31st March, 2021 theRespondent no.2 vide his letter granted approval u/s 151 of the Act for reopening for the following reasons: “1.As per the PAN data the assessee is a firm and no e-filing record has been found for earlier years. Further, it is seenthat, M/s Bajaj Auto Employees Welfare Fund No 4 has not filedhis return of income for A.Y.2014-15, within the prescribedtime limit as per the provisions of section 139 of the IncomeTax Act, 1961. 2.On going through the AIMS data available in the ITBA,it is seen that the assessee has made the following transactions:it is seen that the assessee has made the following transactions: (i) Time Deposit of Rs. 1425000/- with a Banking Company.(ii) TDS Return – Other Interest (Section 194A) of Rs. 270868/-.(iii) TDS Return – Salary to employee (Section 192A) ofRs.270868/- (iv) Paid Rs. 5825000/- for Purchase of Units of Mutual Fund.(v) Paid Rs. 87800000/- for acquiring Bonds/ Debentures.(vi) Paid Rs. 2720949/- for acquiring Shares. 3.In view of the above facts, the income raised out of theabove transaction/receipts have not been brought to tax.Therefore, I have reason to believe that the income of theassessee more than Rs.1.00 lakh has escaped assessment as perexplanation 2(a) of section 147 for the A.Y.2014-15. 4.In this case, no return of income has been filed by theassessee for the year under consideration, no assessment wasmade and the only requirement to initiate proceedings u/s 147is reason to believe which has been recorded above (referparagraph 3).” 8.On 20th July, 2021 the Respondent no.1 issued a notice u/s 142 (1)of the Act under the old name and PAN of the Petitioner, askingthem to furnish details of various information stated therein by 4thAugust, 2021.of the Act under the old name and PAN of the Petitioner, askingthem to furnish details of various information stated therein by 4thAugust, 2021. 4.In this case, no return of income has been filed by theassessee for the year under consideration, no assessment wasmade and the only requirement to initiate proceedings u/s 147is reason to believe which has been recorded above (referparagraph 3).” 8.On 20th July, 2021 the Respondent no.1 issued a notice u/s 142 (1)of the Act under the old name and PAN of the Petitioner, askingthem to furnish details of various information stated therein by 4thAugust, 2021.of the Act under the old name and PAN of the Petitioner, askingthem to furnish details of various information stated therein by 4thAugust, 2021. 9.On 16th December, 2021 the Respondent no.3 issued a notice u/s142(1) of the Act under the old name and PAN of the Petitioner,asking them to file a return of income in response to the notice u/s148(1) of the Act and to furnish various details pertaining to the10 items mentioned in the Annexure to the notice by 27thDecember, 2021.142(1) of the Act under the old name and PAN of the Petitioner,asking them to file a return of income in response to the notice u/s148(1) of the Act and to furnish various details pertaining to the10 items mentioned in the Annexure to the notice by 27thDecember, 2021. 10.On 21st December, 2021 the Petitioner addressed a letter toRespondent nos.1 and 3 and pointed out that the earlier noticewas missed since most employees of the Petitioners were workingfrom home during the second wave of covid pandemic and theirtax personnel Mr. Eugene Waradkar had quit the organization inSeptember 2021 and the new personnel joined only in November2021 in addition to the technical difficulties faced by them onaccount of the change of name and status of the PAN from firm totrust. The letter also pointed out that the Income Tax Utility autoselected the status of the Petitioner as a firm in view of the old PANRespondent nos.1 and 3 and pointed out that the earlier noticewas missed since most employees of the Petitioners were workingfrom home during the second wave of covid pandemic and theirtax personnel Mr. Eugene Waradkar had quit the organization inSeptember 2021 and the new personnel joined only in November2021 in addition to the technical difficulties faced by them onaccount of the change of name and status of the PAN from firm totrust. The letter also pointed out that the Income Tax Utility autoselected the status of the Petitioner as a firm in view of the old PAN and directly computed tax at the rate of 30% plus surcharge andcess instead of applying slab rates and allowing the basicexemption limit for income upto Rs.2 lakhs. It was further pointedout that the income tax utility did not allow the Petitioner to selectany other status other than the ‘firm’ on account of which theywere unable to file the return of income. It was urged that even ifthe assessment was reopened, the reopening proceeding should beconducted on the new PAN and not the old one. 11.On 14th March, 2022 the Respondent no.3 issued a notice u/s142(1) of the Act asking the Petitioner to furnish various details by16th March, 2022. On 16th March, 2022 the Petitioner replied tothe Respondent no.1 and pointed out that they were facingtechnical difficulty in submitting the return of income.142(1) of the Act asking the Petitioner to furnish various details by16th March, 2022. On 16th March, 2022 the Petitioner replied tothe Respondent no.1 and pointed out that they were facingtechnical difficulty in submitting the return of income. 11.On 14th March, 2022 the Respondent no.3 issued a notice u/s142(1) of the Act asking the Petitioner to furnish various details by16th March, 2022. On 16th March, 2022 the Petitioner replied tothe Respondent no.1 and pointed out that they were facingtechnical difficulty in submitting the return of income.142(1) of the Act asking the Petitioner to furnish various details by16th March, 2022. On 16th March, 2022 the Petitioner replied tothe Respondent no.1 and pointed out that they were facingtechnical difficulty in submitting the return of income. 12.On 25th March 2022 Respondent no.1 issued a show cause noticewherein the extracted variations proposed in the draft assessmentorder by referring to reasons recorded for reopening theassessment and mentioned that the Petitioner was given ampleopportunities to file its return of income and since the Petitionerhad not filed he had no option but to complete the assessmentproceedings ex parte u/s 144 of the Act. The Respondent no.3wherein the extracted variations proposed in the draft assessmentorder by referring to reasons recorded for reopening theassessment and mentioned that the Petitioner was given ampleopportunities to file its return of income and since the Petitionerhad not filed he had no option but to complete the assessmentproceedings ex parte u/s 144 of the Act. The Respondent no.3 made an addition and proposed the total income of the Petitionerat Rs.9,83,12,685/-. The Petitioner submitted a response on 26thMarch 2022 and raised its objections to the said notice. On 27thMarch 2022, Respondent no.3 addressed a letter intimating theschedule of personal hearing through Video conferencing andfixed the personal hearing for 29th March 2022. On 30th March2022 the Respondent no.3 passed the final assessment order u/s147 r.w.s. 144 and 144B of the Act. Thereafter, the Respondentno.3 passed a computation sheet referring to the order u/s 147r.w.s. 144 of the Act and determined a demand ofRs.9,62,39,316/- from the Petitioner. 13.On 25th April 2022 the Petitioner filed an appeal before the CIT(A) (National Faceless Appeal Centre) challenging the order passedu/s 147 r.w.s. 144 and 144B of the Act. On 27th April 2022 thePetitioner also filed an application before Respondentno.1/Respondent no.3 for stay of the entire demand u/s 220 (6) ofthe Act to keep the demand in abeyance till the appeal is decidedby the CIT(A). (A) (National Faceless Appeal Centre) challenging the order passedu/s 147 r.w.s. 144 and 144B of the Act. On 27th April 2022 thePetitioner also filed an application before Respondentno.1/Respondent no.3 for stay of the entire demand u/s 220 (6) ofthe Act to keep the demand in abeyance till the appeal is decidedby the CIT(A). 14.On 5th May 2022, the Respondent no.1 granted the stayapplication of the Petitioner subject to fulfilment of certainapplication of the Petitioner subject to fulfilment of certain conditions viz. (a) the Petitioner pays 20% of the demand i.e.Rs.19247864/- within 15 days of receipt of the order (b)cooperate in early disposal of the appeal (c) Respondent no.1reserves the right to review the order passed after expiry of areasonable period and (d) Respondent no.1 reserves the right toadjust refund, if any, against the demand to the extent of theamount required from granting stay subject to the provisions ofSection 245 of the Act. The Respondent no.1 also held that in thecase the Petitioner fails to fulfil the conditions it will be treated asan assessee in default and recovery proceedings shall be initiatedas per the Act. th15.The Petitioner filed an application for stay of demand on 18 May2022 with Respondent no.2 and pointed out the factual position.The Petitioner contended that no addition could be made u/s 69 ofthe Act and that the assessment had been done on the basis thatthe Petitioner was a firm instead of an individual. The Petitioneralso contended undue financial hardship if demand was recoveredfrom Petitioner. th15.The Petitioner filed an application for stay of demand on 18 May2022 with Respondent no.2 and pointed out the factual position.The Petitioner contended that no addition could be made u/s 69 ofthe Act and that the assessment had been done on the basis thatthe Petitioner was a firm instead of an individual. The Petitioneralso contended undue financial hardship if demand was recoveredfrom Petitioner. 16.On 13th July 2022 the Respondent no.2 passed an order disposingof the stay application of the Petitioner for AY 2014-15 and AYof the stay application of the Petitioner for AY 2014-15 and AY 2017-18 by relying on the CBDT instruction no.1914 dated 2ndDecember 1993. Respondent No. 2 granted stay of demand for AY2017-18 on the condition that the Petitioner paid 10% of the totaldisputed demand i.e. Rs. 21,05,721 on or before 31st August2022. 17.On 22nd July 2022 the Respondent No. 1 addressed a letter to thePetitioner calling upon them to pay the outstanding income taxdues for AY 2012-13, AY 2014-15 and AY 2017-18 and furnishproof within 10 days of the receipt of the notice. The Petitionerwas called upon to pay 20% of the outstanding demand if anappeal was filed before the CIT(A) and was informed that failureto do so within 10 days would result in penalty u/s 221 of the Actwhich may be 100% of the arrears. The letter reads as under: “As per the records available in this office it is seen thatthe following demand(s) are still outstanding against you.If you have already paid the dues, you may please producethe proof for the same, including a copy of challan withinTen days of receipt of this notice. If you have not paid thesame, you are called upon to pay the demand(s)outstanding and the interest u/s 220(2) of the Income TaxAct, 1961, immediately and produce copy of the challan,failing which the undersigned will be forced to takecoercive actions, as may be found necessary, for recoveryof the demand, as per the provisions of Income Tax Act,1961. 18.On 16th November 2022 the Petitioner filed an application forstay of the demand before the CIT(A) and requested to fix the datefor hearing at an early date. Furthermore, the Respondent nos. 1 &3 were requested not to initiate any action for recovery of theoutstanding demand till the order is passed by the CIT(A).stay of the demand before the CIT(A) and requested to fix the datefor hearing at an early date. Furthermore, the Respondent nos. 1 &3 were requested not to initiate any action for recovery of theoutstanding demand till the order is passed by the CIT(A). 19.The learned counsel for the Petitioner submitted that theRespondent nos. 1 & 2 have arbitrarily and capriciously rejectedthe Petitioner’s stay application. The learned counsel furthersubmits that the impugned letter was issued in grosscontravention of the parameters laid down by this court in thecase of, KEC International v B R Balakrishnan (2001) 251 ITR 158which are required to be mandatorily followed by the appellateauthorities whilst deciding the stay applications. The learnedcounsel failed to deal with the stay application and incorrectlypassed an order granting a conditional stay requiring thePetitioner to pay 20 % of the demand within 15 days withoutappreciating the facts and circumstances of the case and without considering the merits of the addition made in the assessmentorder. considering the merits of the addition made in the assessmentorder. 20.The learned counsel further submitted that the Respondent no. 2passed an order by simply relying on the CBDT Instruction no.1914 dated 2nd December 1993 and wrongly held that demandwill be stayed only if there are valid reasons and mere filing anappeal against the assessment order will not be a sufficient reasonto stay recovery of the demand. He submitted that the Respondentno. 2 ought to have considered the stay application and therebyconsidered the factual position that the income tax return couldnot be filed since the old PAN no. was in the name of the firm andconsequently the utility computes tax at the rate of 30% plusapplicable surcharge and cess instead of giving the benefit of basicexemption limit and computing tax at slab rates applicable toindividuals, AOPs and AJPs. He further submitted that theRespondent no. 2 ought to have considered the merits of theaddition and followed the guidelines issued by the CBDT forrecovery of taxes as per the office memorandum dated 29thFebruary 2016. He submitted that the Respondent no. 2 ought tohave passed a complete stay of the demand and not levied thecondition of deposit of 10% of the total disputed demand. 21.The learned counsel further submitted that the impugned letterissued by the Respondent no. 1 ought to be quashed as it wasissued without considering the impugned order passed by theRespondent no. 2 who is superior to Respondent no.1, andwhereby the Petitioner was directed to pay 10% of the totaldisputed demand as against 20% directed to be paid byRespondent no.1.issued by the Respondent no. 1 ought to be quashed as it wasissued without considering the impugned order passed by theRespondent no. 2 who is superior to Respondent no.1, andwhereby the Petitioner was directed to pay 10% of the totaldisputed demand as against 20% directed to be paid byRespondent no.1. 22.The learned counsel further submitted that the Respondent no. 3ought to have passed an assessment order u/s 143(3) and not u/s144 of the Act as the Petitioner had filed detailed submissionsdated 17th December 2021.ought to have passed an assessment order u/s 143(3) and not u/s144 of the Act as the Petitioner had filed detailed submissionsdated 17th December 2021. 23.The learned counsel further pointed out various documents insupport of his contention that the conditions of section 69 werenot fulfilled as the Respondents have not disputed that theinvestments have not been made during the year and recorded inthe balance sheet and the source of investments were alsoexplained.support of his contention that the conditions of section 69 werenot fulfilled as the Respondents have not disputed that theinvestments have not been made during the year and recorded inthe balance sheet and the source of investments were alsoexplained. 24.The learned counsel submitted that the income determined in theassessment was substantially higher than the returned income, netassessment was substantially higher than the returned income, net profit and revenue of the Petitioner i.e. the income assessed was Rs2,81,68,968/- whereas the total income was Rs 6,59,851/- i.e. 42times the total income. It is submitted that the Respondent failed toconsider the Instruction no. 96 dated 21st August 1969 issued bythe CBDT which states that when income determined inassessment was substantially higher than the returned income, therecovery of the tax should be kept in abeyance till the decision inrelation to the appeal filed is pronounced. 25.The learned counsel submitted that the Petitioner was created forbenefitting the employees and calling upon them to pay tax onaccount of an incorrect assessment would cause financialhardship to them. 26.The learned counsel relied upon the following judgments insupport of his contentions: profit and revenue of the Petitioner i.e. the income assessed was Rs2,81,68,968/- whereas the total income was Rs 6,59,851/- i.e. 42times the total income. It is submitted that the Respondent failed toconsider the Instruction no. 96 dated 21st August 1969 issued bythe CBDT which states that when income determined inassessment was substantially higher than the returned income, therecovery of the tax should be kept in abeyance till the decision inrelation to the appeal filed is pronounced. 25.The learned counsel submitted that the Petitioner was created forbenefitting the employees and calling upon them to pay tax onaccount of an incorrect assessment would cause financialhardship to them. 26.The learned counsel relied upon the following judgments insupport of his contentions: (i)Humuza Consultants versus Assistant Commissioner ofIncome Tax, passed in WP (L) 38423 of 2022 dated 16thDecember 2022; (ii)UTI Mutual Fund vs Income-tax Officer, 19(3)(2) reportedin [2012] 345 ITR 71; (iii)UTI Mutual Fund vs Income-tax Officer, 19(3)(2), Mumbai reported in [2013] 31 taxmann.com 222 (Bombay). 27.The learned counsel for the Respondent relied upon theassessment order and more particularly paragraph 5.2 at page234 and page 268 and submitted that the AO has considered allthe contentions of the Petitioner. Conclusion: 28.We have heard the counsels. 29.We are unable to accept the contentions of the respondents thatthey have considered all the contentions of the petitionerinasmuch as the revert relied upon at page no.234 and pageno.269 clearly evince that the respondents have not consideredthe various letters addressed by the petitioner from time to timeand their request to change their status from a Firm to a Trust. 30.Apropos the judgement in the case of UPI Mutual Fund v/s.Income Tax Officer reported in [2012] 345 ITR 71 (Bombay)wherein it followed the judgement of the division bench of thiscourt in KEC International Ltd. v/s. B. R. Balakrishnan [2011] 251ITR 158 / 119 Taxman 974 (Bom) laying down the parameters for14/17 disposing of the application for stay, more particularly, theparameter that: “In exercising the powers of stay, the Income Tax Officershould not act as a mere tax gatherer but as a quasijudicial authority vested with the public duty of protectingthe interest of the Revenue while at the same timebalancing the need to mitigate hardship to the assessee.Though the assessing officer has made an assessment, hemust objectively decide the application for stayconsidering that an appeal lies against his order : thematter must be considered from all its facets, balancing theinterest of the assessee with the protection of the Revenue.” We are of the opinion that these parameters have not beenconsidered by the respondents in true letter and spirit as is evidentfrom the orders passed that are based on the petitioner’s status asa Firm instead of as a Trust. 31.Apropos the judgment in the case of UPT Mutual Fund v/s. Income Tax Officer reported in [2013] 31 taxmann.com 222 (Bombay)wherein this Court held that in considering whether a stay ofdemand granted, the Court is duty bound to consider not merelythe issue of financial hardship if any, but also whether a strongprima facie case is made out and serious triable issues are raisedthat would warrant a dispensation of deposit. It was further heldthat calling upon petitioner to deposit, would itself occasion15/17 undue hardship where a strong prima facie case has been madeout. We are of the opinion that the respondents have failed toconsider the ratio of the judgment in its true letter and spiritinasmuch as respondents called upon the petitioner to deposit10% of the demand when the petitioner had a strong prima faciecase. In our view, the deposit would itself occasion unduehardship to the petitioner who are Trust created for the purpose ofbenefiting the employees. undue hardship where a strong prima facie case has been madeout. We are of the opinion that the respondents have failed toconsider the ratio of the judgment in its true letter and spiritinasmuch as respondents called upon the petitioner to deposit10% of the demand when the petitioner had a strong prima faciecase. In our view, the deposit would itself occasion unduehardship to the petitioner who are Trust created for the purpose ofbenefiting the employees. 32.Apropos with regard to judgment Humuza Consultant v/s.Assistant Commissioner of Income Tax (supra) this Court has heldthat where a prima facie case in favour of the petitioner wasfound and it appeared that the assessment was high pitched, a staywas granted with regard to the impugned demand notices. In thiscase too it appears that the petitioner would have a strong primafacie case and they would not be liable to pay such a high demandif their assessment was considered in their capacity/status of aTrust as against the status of a Firm. 33.In view of the aforesaid, we are in agreement with the legalpropositions enunciated in the aforesaid three judgments of thispropositions enunciated in the aforesaid three judgments of this Court and are bound by it and do not propose to take a differentview. Accordingly, we are of the opinion that both the mattersdeserve to be remanded back with a direction that theRespondents to consider the Petitioner’s application under theirstatus as a Trust and try to dispose of the matter preferably withina period of 4 months from the date of this order. No coercive stepsshall be taken against the assessee for the recovery of the demandin pursuance of the impugned notice dated 30th March 2022. 34.Petitions stand disposed of accordingly with no order as to costs. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)