Ii Floor, Greams Road, Chennai 600 006 v. Assistant Commissioner Of Income Tax,Corporate Circle 5(1)

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 08.03.2019 CORAM : THE HONOURABLE DR. JUSTICE ANITA SUMANTH Oasys Cybernetics Private Limited,Represented by its authorised signatory,Mr.E.Venkatakrishnaiah, Having office at No.99, M.N. Complex, II Floor, Greams Road, Chennai 600 006. ... Petitioner Vs. Assistant Commissioner of Income Tax,Corporate Circle 5(1),No.121, Mahatma Gandhi Road,Nungambakkam, Chennai 600 034. ... Respondent PRAYER:- Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ ofCertiorarified Mandamus, calling for the records of therespondent contained in its order bearing referenceNo.ACIT/Corp.Cir 5-(1)/2018-19, dated 6.2.2019 withrespect to PAN: in respect of AY 2016-17 andquash the same as arbitrary, illegal and unjust and toconsequently direct the respondents on any of theirsubordinates, agents, representatives or any other personclaiming under/through the Respondents to refrain from inany manner seeking to enforce and/or initiate recoveryproceedings pursuant to the Respondent's Notice of Demandbearing No.ITBA/AST/S/156/2018-19/1014633458(1) dated28.12.2018 for PAN: in respect of AY 2016-17. For Petitioner : Mr.SuhrithParthasarathyFor Respondent : Mr.Hema Muralikrishnan This Writ Petition falls within a short compass. Thepetitioner challenges an order dated 06.02.2019, seekinga Writ of Certiorarified Mandamus quashing the aforesaidorder and a direction to the respondent to refrain frominitiating recovery proceedings, pursuant to notice ofdemand dated 28.12.2018 for the assessment year 2016-17. 2.This Court had on 14.02.2019 noted prima faciethat the impugned order was cryptic and non speakingorder as follows: ‘Ms.Hema Muralikrishnan, learned SeniorStanding counsel takes notice for therespondent and seeks two (2) weeks time tofile a counter with a specific reference tothe Circulars issued by the Income TaxDepartment in relation to the stay of demand. 2.The petitioner has filed a detailed staypetition in terms of section 220 (6) of theIncome Tax Act, 1961 (in short 'Act') dated11.01.2019 before the assessing officer. Inresponse, the impugned order dated 06.02.2019states as follows: 'Your application for stay of demand hasbeen perused but it cannot be considered.You are directed to remit 20% of thedisputed demand on or before 11/02/2019,failing which collection will be enforcedas per the provisions on the Income TaxAct, 1961' 3.I am of the view that the manner of disposalof the Stay Petition leaves much to be desiredinsofar as the order is wholly non-speaking. 4.Accordingly, there shall be an order ofinterim stay as prayed for, for a period oftwo (2) weeks. 5.List on 04.03.2019.’An interim stay for two weeks was granted and at requestof the departmental counsel, the matter was adjourned to04.03.2019 to file a counter. 3.When the matter is called for hearing today, thelearned standing counsel for the revenue states, uponinstruction that the matter may be remitted back to theAssessing officer for hearing de novo in the light of https://hcservices.ecourts.gov.in/hcservices/ order dated 01.03.2019, passed by this Court inWP.No.5425 of 2019. The order is extracted as follows: 3.I am of the view that the manner of disposalof the Stay Petition leaves much to be desiredinsofar as the order is wholly non-speaking. 4.Accordingly, there shall be an order ofinterim stay as prayed for, for a period oftwo (2) weeks. 5.List on 04.03.2019.’An interim stay for two weeks was granted and at requestof the departmental counsel, the matter was adjourned to04.03.2019 to file a counter. 3.When the matter is called for hearing today, thelearned standing counsel for the revenue states, uponinstruction that the matter may be remitted back to theAssessing officer for hearing de novo in the light of https://hcservices.ecourts.gov.in/hcservices/ order dated 01.03.2019, passed by this Court inWP.No.5425 of 2019. The order is extracted as follows: ‘5. This Court had occasion to considerchallenge to orders in stay applications thatcryptic and non speaking relying wholly on thecircular issued by Central Board of DirectTaxes (CBDT). I have, in the aforesaid order,concluded that circulars / instructions issuedby the CBDT only set out a series of guidelinesto the Assessing Officers in the matter ofgrant of stay, holding in the case ofMrs.KannammalV.IncomeTaxOfficer(W.P.No.3849 of 2019 dated 13.02.2019) asfollows:'7. The parameters to be taken into account inconsidering the grant of stay of disputeddemand are well settled – the existence of .‘Financial stringency’ would include within itsambit the question of 'irreparable injury' and‘undue hardship’ as well. It is only upon anapplication of the three factors as aforesaidthat the assessing officer can exercisediscretion for the grant or rejection, whollyor in part, of a request for stay of disputeddemand. 8. In addition, periodic Instructions/Circularsin regard to the manner of adjudication of staypetitions are issued by the Central Board ofDirect Taxes (CBDT) for the guidance of theDepartmental authorities. The one oft-quoted bythe assessee 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-tax assessments were often arbitrarilypitched at higher figures and that thecollection of disputed demand as a resultthereof was also not stayed in spite of thespecific provision in the matter in s. 220(6)of the IT Act, 1961. 2. The then Deputy Prime Minister had observedas under : ".........Where the income determined onassessment was substantially higher than the returned income, say twice the latter amount ormore, the collection of the tax in disputeshould be held in abeyance till the decision onthe appeal provided there were no lapses on thepart of the assessees." 3. The Board desire that the above observationsmay be brought to the notice of all the Income-tax Officers working under you and the powersof stay of recovery in such cases up to thestage of first appeal may be exercised by theInspecting Assistant Commissioner/Commissionerof Income-tax.' 9. Thereafter, Instruction No.1914 was issuedby the CBDT on 21.03.1996 and states asfollows: 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 a comprehensiveinstruction on the subject of recovery of taxdemand in order to streamline recoveryprocedures. This instruction is accordinglybeing issued in supersession of all earlierinstructions on the subject and reiterates theexisting Circulars on the subject. 2. The Board is of the view that, as a matterof principle, every demand should be recoveredas soon as it becomes due. Demand may be keptin abeyance for valid reasons only inaccordance with the guidelines given below : A. Responsibility: 9. Thereafter, Instruction No.1914 was issuedby the CBDT on 21.03.1996 and states asfollows: 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 a comprehensiveinstruction on the subject of recovery of taxdemand in order to streamline recoveryprocedures. This instruction is accordinglybeing issued in supersession of all earlierinstructions on the subject and reiterates theexisting Circulars on the subject. 2. The Board is of the view that, as a matterof principle, every demand should be recoveredas soon as it becomes due. Demand may be keptin abeyance for valid reasons only inaccordance with the guidelines given below : A. Responsibility: i. It shall be the responsibility of theAssessing Officer and the TRO to collect everydemand that has been raised, except thefollowing: (a) Demand which has not fallen due;(b) Demand which has been stayed by a Court orITAT or Settlement Commission;(c) Demand forwhich a proper proposal for write-off has beensubmitted;(d) Demand stayed in accordance withparas B & C below. ii. Where demand in respect of which a recoverycertificate has been issued or a statement hasbeen drawn, the primary responsibility for thecollection of tax shall rest with the TRO. iii. It would be the responsibility of thesupervisory authorities to ensure that theAssessing Officers and the TROs take all suchmeasures as are necessary to collect thedemand. It must be understood that mere issueof a show cause notice with no follow-up is notto be regarded as adequate effort to recovertaxes. B. Stay Petitions: i. Stay petitions filed with the AssessingOfficers must be disposed of within two weeksof the filing of petition by the tax- payer.The assessee must be intimated of the decisionwithout delay. ii. Where stay petitions are made to theauthorities higher than the Assessing Officer(DC/CIT/CC), it is the responsibility of thehigher authorities to dispose of the petitionswithout any delay, and in any event within twoweeks of the receipt of the petition. Such adecision should be communicated to the assesseeand the 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 interfere withthe decision of the AO/TRO only in exceptionalcircumstances; e.g., where the assessment orderappears to be unreasonably high-pitched orwhere genuine hardship is likely to be causedto the assessee. The higher authorities shoulddiscourage the assessee from filing reviewpetitions before them as a matter of routine orin a frivolous manner to gain time forwithholding payment of taxes. i. A demand will be stayed only if there arevalid reasons for doing so. Mere filing anappeal against the assessment order will not bea sufficient reason to stay the recovery ofdemand. A few illustrative situations wherestay could be granted are: It is clarified that in these situations also,stay may be granted only in respect of theamount attributable to such disputed points. Further where it is subsequently found that theassessee has not co-operated in the earlydisposal of appeal or where a subsequentpronouncement by a higher appellate authorityor court alters the above situation, the stayorder may be reviewed and modified. The aboveillustrations are, of course, not exhaustive. i. A demand will be stayed only if there arevalid reasons for doing so. Mere filing anappeal against the assessment order will not bea sufficient reason to stay the recovery ofdemand. A few illustrative situations wherestay could be granted are: It is clarified that in these situations also,stay may be granted only in respect of theamount attributable to such disputed points. Further where it is subsequently found that theassessee has not co-operated in the earlydisposal of appeal or where a subsequentpronouncement by a higher appellate authorityor court alters the above situation, the stayorder may be reviewed and modified. The aboveillustrations are, of course, not exhaustive. ii. In granting stay, the Assessing Officer mayimpose such conditions as he may think fit.Thus he may — a. require the assessee to offersuitable security to safeguard the interest ofrevenue; b. require the assessee to pay towardsthe disputed taxes a reasonable amount in lumpsum or in instalments; c. require anundertaking from the assessee that he will co-operate in the early disposal of appeal failingwhich the stay order will be cancelled. d.reserve the right to review the order passedafter expiry of a reasonable period, say up to6 months, 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 the abovesituations; e. reserve a right to adjustrefunds arising, if any, against the demand.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” does notoccur in section 220(6) of the Income-tax Act,the Assessing Officer should always use in anyorder passed under section 220(6) [or undersection 220(3) or section 220(7)], theexpression that occurs in the section viz.,that he agrees to treat the assessee as notbeing default in respect of the amountspecified, subject to such conditions as hedeems fit to impose.v. While considering an application undersection 220(6), the Assessing Officer shouldconsider all relevant factors having a bearingon the demand raised and communicate hisdecision in the form of a speaking order.D. Miscellaneous:i. Even where recovery of demand has been stayed, the Assessing Officer will continue toreview 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 that theappeal 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 weeks ofthe receipt t hereof. Instances where there isundue delay in giving effect to appellateorders,orindecidingrectificationapplications, should be dealt with verystrictly by the CCITs/CITs. 3. The Board desires that appropriate action istaken in the matter of recovery in accordancewith the above procedure. The Assessing Officeror the TRO, as the case may be, and hisimmediate superior officer shall be heldresponsible for ensuring compliance with theseinstructions. 4. This procedure would apply mutatis mutandisto demands created under other Direct Taxesenactments also.' iii. Appeal effects will have to be givenwithin 2 weeks from the receipt of theappellate order. Similarly, rectificationapplication should be decided within 2 weeks ofthe receipt t hereof. Instances where there isundue delay in giving effect to appellateorders,orindecidingrectificationapplications, should be dealt with verystrictly by the CCITs/CITs. 3. The Board desires that appropriate action istaken in the matter of recovery in accordancewith the above procedure. The Assessing Officeror the TRO, as the case may be, and hisimmediate superior officer shall be heldresponsible for ensuring compliance with theseinstructions. 4. This procedure would apply mutatis mutandisto demands created under other Direct Taxesenactments also.' 10. Instruction 1914 was partially modified byOffice Memorandum dated 29.02.2016 taking intoaccount the fact that Assessing Officersinsisted on payment of significant portions ofthe disputed demand prior to grant of stayresulting in extreme hardship for tax payers.Thus, in order to streamline the grant of stayand standardize the procedure, modifiedguidelines were issued which are as follows: '....... (A) In a case where the outstanding demand is disputed before CIT (A), the assessing officershall grant stay of demand till disposal offirst appeal on payment of 15% of the disputeddemand, unless the case falls in the categorydiscussed in pars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view thatthe nature of addition resulting in thedisputed demand is such that payment of a lumpsum amount higher than 15% is warranted (e.g.in a case where addition on the same issue hasbeen confirmed by appellate authorities inearlier years or the decision of the SupremeCourt /or jurisdictional High Court is infavour of Revenue or addition is based oncredible evidence collected in a search orsurvey operation, etc.) or, (b) the assessing officer is of the view thatthe nature of addition resulting in thedisputed demand is such that payment of a lumpsum amount lower than 15% is warranted (e.g. ina case where addition on the same issue hasbeen deleted by appellate authorities inearlier years or the decision of the SupremeCourt or jurisdictional High Court is in favourof the assessee, etc.), the assessing officershall refer the matter to the administrativePr. CIT/ CIT, who after considering allrelevant facts shall decide the quantum/proportion of demand to be paid by the assesseeas lump sum payment for granting a stay of thebalance demand.' 11. Instruction 1914 was further modified byOffice Memorandum bearing number F.No.404/72/93– ITCC dated 31.07 2017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated31.07.2017Subject: 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 21.3.1996 containsguidelines issued by the Board regarding procedure to be followed for recovery ofoutstanding demand, including procedure forgrant of stay of demand. 11. Instruction 1914 was further modified byOffice Memorandum bearing number F.No.404/72/93– ITCC dated 31.07 2017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated31.07.2017Subject: 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 21.3.1996 containsguidelines issued by the Board regarding procedure to be followed for recovery ofoutstanding demand, including procedure forgrant 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 had been laiddown that in a case where the outstandingdemand is disputed before CIT(A), the AssessingOfficer shall grant stay of demand tilldisposal of first appeal on payment of 15% ofthe disputed demand unless the case falls inthe category discussed in para (B) thereunder.Similar references to the standard rate of 15%have also been made in succeeding paragraphstherein.2. The matter has been reviewed by the Board inthe light of feedback received from fieldauthorities. In view of the Board’s efforts tocontain over pitched assessments throughseveral measures resulting in fairer and morereasonable assessment orders, the standard rateof 15% of the disputed demand is found to be onthe lower side. Accordingly. it has beendecided that the standard rate prescribed inO.M. dated 29.2.2016 be revised to 20% of thedisputed demand, where the demand is contestedbefore CIT(A). Thus all references to 15% ofthe disputed demand in the aforesaid O.M dated29.2.2016 hereby stand modified to 20% of thedisputed demand. Other guidelines contained inthe O.M. dated 29.2.2016 shall remainunchanged. These modifications may be immediately broughtto the notice of all officers working in yourjurisdiction for proper compliance.' 12. The Circulars and Instructions as extractedabove are in the nature of guidelines issued toassist the assessing authorities in the matterof grant of stay and cannot substitute oroverride the basic tenets to be followed in theconsideration and disposal of stay petitions.The existence of a prima facie case for whichsome illustrations have been provided in theCirculars themselves, the financial stringencyfaced by an assessee and the balance of convenience in the matter constitute the‘trinity’, so to say, and are indispensable inconsideration of a stay petition by theauthority. The Board has, while statinggenerally that the assessee shall be calledupon to remit 20% of the disputed demand,granted ample discretion to the authority toeither increase or decrease the quantumdemanded based on the three vital factors to betaken into consideration. 13. In the present case, the assessing officerhas merely rejected the petition by way of anon-speaking order reading as follows: convenience in the matter constitute the‘trinity’, so to say, and are indispensable inconsideration of a stay petition by theauthority. The Board has, while statinggenerally that the assessee shall be calledupon to remit 20% of the disputed demand,granted ample discretion to the authority toeither increase or decrease the quantumdemanded based on the three vital factors to betaken into consideration. 13. In the present case, the assessing officerhas merely rejected the petition by way of anon-speaking order reading as follows: 'Kindly refer to the above. This is to informyou that mere filing of appeal against the saidorder is not a ground for stay of the demand.Hence your request for stay of demand isrejected and you are requested to pay thedemand immediately. Notice u/s.221(1) of theIncome Tax Act, 1961 is enclosed herewith.'14. The disposal of the request for stay by thepetitioner 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 as theCirculars 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) of1955 dated April 11, 1955) requires theofficers of the department ‘to assist ataxpayer in every reasonable way, particularlyin the matter of claiming and securing reliefs..... Although, therefore, the responsibilityfor claiming refunds and reliefs rests with theassessees on whom it is imposed by law,officers should draw their attention to anyrefunds or reliefs to which they appear to beclearly entitled but which they have omitted toclaim for some reason or other......’. Thus,notwithstanding that the assessee may not have specifically invoked the three parameters forthe grant of stay, it is incumbent upon theassessing officer to examine the existence of aprima facie case as well as call upon theassessee to demonstrate financial stringency,if any and arrive at the balance of conveniencein the matter. ' 6. My observations and conclusions in the aboveorder would apply equally to the facts andcircumstances of the present case and may beread as part and parcel of this order. 7. In the light the above, I am inclined to setaside the impugned order dated 07.02.2019, asbeing mechanical and passed without applicationof mind. 8. In the light of the above, the Writ Petitionis disposed in the following terms: i) The petitioner will appear before thePrincipal Commissioner of Income Tax-1, thefirst respondent herein, on 08.03.2019 at 02:30pm along with a stay petition covering thethree (3) aspects as referred to aforesaid. ii) After hearing the petitioner, the PrincipalCommissioner of Income Tax shall pass areasoned and speaking order in accordance withlaw and in accordance with the circulars issuedby Central Board of Direct Tax (CBDT) within aperiod of two (2) weeks from the date ofconclusion of the personal hearing i.e. on orbefore 22.03.2019. iii) Till the disposal of stay application, status quo, as of today, shall be maintainedwith regard to recovery.’ 4. In the light of my observations in the matter asextracted above, that are equally applicable to the factsand circumstances of the present case, the petitioner isdirected to appear before the Assessing authority on15.03.2019 at 2.30 pm. Appropriate orders on theapplication for stay shall be passed by the assessingauthority after hearing the petitioner and consideringthe materials placed by the petitioner in support of the request for stay, within a period of two weeks thereafter(i.e.,) on or before 29.03.2019. There shall be an orderof interim stay of recovery, till then. iii) Till the disposal of stay application, status quo, as of today, shall be maintainedwith regard to recovery.’ 4. In the light of my observations in the matter asextracted above, that are equally applicable to the factsand circumstances of the present case, the petitioner isdirected to appear before the Assessing authority on15.03.2019 at 2.30 pm. Appropriate orders on theapplication for stay shall be passed by the assessingauthority after hearing the petitioner and consideringthe materials placed by the petitioner in support of the request for stay, within a period of two weeks thereafter(i.e.,) on or before 29.03.2019. There shall be an orderof interim stay of recovery, till then. 5. The Writ Petition is disposed of in the aboveterms. No costs. Consequently, connected miscellaneouspetitions are closed. Sd/- Assistant Registrar(CS) //True Copy// Sub Assistant RegistrarsaiToThe Assistant Commissioner of Income Tax,Corporate Circle 5(1),No.121, Mahatma Gandhi Road,Nungambakkam, Chennai 600 034.+1cc to Mr.Arun Karthik Mohan , Advocate SR.No. 22267+1cc to Mr.Hema Muralikrishnan , Advocate SR.No. 22736W.P. No.4310 of 2019A.SK(28/03/2019)