K.alagammaiw/O.c.karuppaiah v. The Income Tax Officer,Non Corporate Ward 13(1)Room

THE HONOURABLE DR. JUSTICE ANITA SUMANTHW.P. No.8301 of 2019andW.M.P.No.8842 of 2019 K.AlagammaiW/o.C.Karuppaiah, aged about 50 years,New No.40/1, Citi Star Anjali Apartment,Dr.Raghavan Colony Main Road,Vadapalani, Chennai 600 026. Vs. ... Petitioner 1.The Income Tax Officer,Non Corporate Ward 13(1)Room No.507, V Floor, Wanaparthy Block,No.121, M.G. Road, Nungambakkam, Chennai 600 034. 2.The Commissioner of Income Tax (appeals)No.108, M.G.Road, Nungambakkam,Chennai 600 034. ... Respondents PRAYER:- Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of Certiorari,calling for the records of the impugned proceedings of the 1[st]respondent bearing PAN dated 12.03.2019 and quash thesame. The petitioner challenges an order passed by the 1[st]respondent upon the stay application filed by the petitioner on01.03.2019. https://hcservices.ecourts.gov.in/hcservices/ 2.Mr.J.Narayanaswamy, learned senior standing counsel takesnotice for the respondents. 3.By consent of both learned counsel and upon hearingdetailed submissions advanced by them, this Court takes up anddisposes the matter even at the stage of admission itself. 4.An assessment is made under the provisions of Income TaxAct, 1961 by the 1[st] respondent in respect of assessment for theyear 2016-17. The assessment is challenged and pending inappeal before the 2[nd] respondent, the Commissioner of Income tax(Appeals). 5.Pending appeal, the petitioner approached the 1[st]respondent with a request for stay of demand under Section 220(6) of the Income Tax Act. It is seen that the application forstay is detailed and in conclusion the petitioner has alsosought personal hearing of the matter. 6.Stay application dated 01.03.2019 has been disposed of bythe 1[st] respondent by the impugned order dated 12.03.2019 asfollows:“Please refer to the above. With reference to the stay petition filed by youthrough your AR for the Asst. Year 2016-17, it isstated that as per the Govt. of India, CBDT OfficeMemorandum in F.No.404/72/93-ITCC dated 29.12.2016, ina case where the outstanding demand is disputed beforeCIT(A), the assessing officer shall grant stay ofdemand till disposal of first appeal on payment of 20%of the disputed demand. Accordingly, your petition forstay of demand has been disposed off. In view of the above, you are requested to pay 20%of the arrear demand for the Asst. year 2016-17immediately and produce the copy of the challan on orbefore 20.03.2019 for our necessary action. Pleasenote that failure to pay the demand by due date shallinvite coercive measures for recovery of the arreardemand as per the provision of Income Tax Act, 1961.” 7.No reference is made by the Officer to the facts of primafacie case, financial stringency and balance of convenience.Moreover, the personal hearing as sought for, has also not beengranted as fairly confirmed by Mr.Narayanaswamy, learned seniorstanding counsel, upon instructions received from the officer.Further more, the officer calls upon the petitioner to pay 20%of the arrears immediately being of the view that CBDT officememorandum in F.No.404/72/93-ITCC dated 29.12.2016, is mandatory. 8.As far as first two points are concerned, there is clearviolation of principles of natural justice insofar as nopersonally opportunity has been granted and the order itself ismechanical and non speaking. As far as the third aspect isconcerned, I have had occasion to deal with similar orderspassed by assessing officers in my order dated 13.02.2019,passed in W.P.No.3849 of 2019. The relevant portion of the orderbelow: 8.As far as first two points are concerned, there is clearviolation of principles of natural justice insofar as nopersonally opportunity has been granted and the order itself ismechanical and non speaking. As far as the third aspect isconcerned, I have had occasion to deal with similar orderspassed by assessing officers in my order dated 13.02.2019,passed in W.P.No.3849 of 2019. The relevant portion of the orderbelow: '7. The parameters to be taken into account inconsidering the grant of stay of disputed demand are wellsettled – the existence of a prima facie case, financialstringency and the balance of convenience. ‘Financialstringency’ would include within its ambit the question of'irreparable injury' and ‘undue hardship’ as well. It isonly upon an application of the three factors as aforesaidthat the assessing officer can exercise discretion for thegrant or rejection, wholly or in part, of a request for stayof disputed demand. 8. In addition, periodic Instructions/Circulars inregard to the manner of adjudication of stay petitions areissued by the Central Board of Direct Taxes (CBDT) for theguidance of the Departmental authorities. The one oft-quotedby the assessee is Office Memorandum F.No.1/6/69/-ITCC, dated21.08.1969 that states as follows: '1. One of the points that came up for considerationin the 8th Meeting of the Informal ConsultativeCommittee was that income-tax assessments were oftenarbitrarily pitched at higher figures and that thecollection of disputed demand as a result thereof wasalso not stayed in spite of the specific provision inthe matter in s. 220(6) of the IT Act, 1961. 2. The then Deputy Prime Minister had observed asunder : ".........Where the income determined on assessmentwas substantially higher than the returned income, saytwice the latter amount or more, the collection of thetax in dispute should be held in abeyance till thedecision on the appeal provided there were no lapseson the part of the assessees." 3. The Board desire that the above observations may bebrought to the notice of all the Income-tax Officersworking under you and the powers of stay of recoveryin such cases up to the stage of first appeal may beexercisedbytheInspectingAssistant Commissioner/Commissioner of Income-tax.' 9. Thereafter, Instruction No.1914 was issued by theCBDT on 21.03.1996 and states as follows: 1. Recovery of outstanding tax demands [Instruction No. 1914 F. No. 404/72/93 ITCC dated2-12-1993 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 accordingly beingissued 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 matter ofprinciple, every demand should be recovered assoon as it becomes due. Demand may be kept inabeyance for valid reasons only in accordancewith 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 the demand.It must be understood that mere issue of a showcause notice with no follow-up is not to beregarded as adequate effort to recover taxes. 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 the demand.It must be understood that mere issue of a showcause notice with no follow-up is not to beregarded as adequate effort to recover taxes. B. Stay Petitions: i. Stay petitions filed with the AssessingOfficers must be disposed of within two weeks of the filing of petition by the tax- payer. Theassessee 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 of demandshould normally be taken by Assessing Officer/TROand his immediate superior. A higher superiorauthority should interfere with the decision ofthe AO/TRO only in exceptional circumstances;e.g., where the assessment order appears to beunreasonably high-pitched or where genuinehardship is likely to be caused to the assessee.The higher authorities should discourage theassessee from filing review petitions before themas a matter of routine or in a frivolous mannerto gain time for withholding payment of taxes. C. Guidelines for staying demand: i. A demand will be stayed only if there arevalid reasons for doing so. Mere filing an appealagainst the assessment order will not be asufficient reason to stay the recovery of demand.A few illustrative situations where stay could begranted are: It is clarified that in these situations also,stay may be granted only in respect of the amountattributable to such disputed points. Furtherwhere it is subsequently found that the assesseehas not co-operated in the early disposal ofappeal or where a subsequent pronouncement by ahigher appellate authority or court alters theabove situation, the stay order may be reviewedand modified. The above illustrations are, ofcourse, not exhaustive. ii. In granting stay, the Assessing Officer mayimpose such conditions as he may think fit. Thushe 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 an undertaking from the assessee that he will co-operate in theearly disposal of appeal failing which the stayorder will be cancelled. d. reserve the right toreview the order passed after expiry of areasonable period, say up to 6 months, or if theassessee has not co-operated in the earlydisposal of appeal, or where a subsequentpronouncement by a higher appellate authority orcourt alters the above situations; e. reserve aright to adjust refunds arising, if any, againstthe demand. iii. Payment by instalments may be liberallyallowed so as to collect the entire demand withina reasonable period not exceeding 18 months. 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)], the expressionthat occurs in the section viz., that he agreesto treat the assessee as not being default inrespect of the amount specified, subject to suchconditions as he deems fit to impose. iii. Payment by instalments may be liberallyallowed so as to collect the entire demand withina reasonable period not exceeding 18 months. 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)], the expressionthat occurs in the section viz., that he agreesto treat the assessee as not being default inrespect of the amount specified, subject to suchconditions as he deems fit to impose. v. While considering an application under section220(6), the Assessing Officer should consider allrelevant factors having a bearing on the demandraised and communicate his decision in the formof a speaking order. D. Miscellaneous: i. Even where recovery of demand has been stayed,the Assessing Officer will continue to review thesituation to ensure that the conditions imposedare fulfilled by the assessee failing which thestay order would need to be withdrawn. ii. Where the assessee seeks stay of demand fromthe Tribunal, it should be strongly opposed. Ifthe assessee presses his application, the CITshould direct the departmental representative torequest that the appeal be posted within a monthso that Tribunal’s order on the appeal can beknown within two months. iii. Appeal effects will have to be given within2 weeks from the receipt of the appellate order.Similarly, rectification application should bedecided within 2 weeks of the receipt t hereof.Instances where there is undue delay in giving effect to appellate orders, or in decidingrectification applications, should be dealt withvery strictly 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 his immediatesuperior officer shall be held responsible forensuring compliance with these instructions. 4. This procedure would apply mutatis mutandis todemands created under other Direct Taxesenactments also.' 10. Instruction 1914 was partially modified by OfficeMemorandum dated 29.02.2016 taking into account the fact thatAssessing Officers insisted on payment of significantportions of the disputed demand prior to grant of stayresulting in extreme hardship for tax payers. Thus, in orderto streamline the grant of stay and standardize theprocedure, modified guidelines were issued which are asfollows: (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 a lump sum amount lower than 15% is warranted(e.g. in a case where addition on the sameissue has been deleted by appellateauthorities in earlier years or the decisionof the Supreme Court or jurisdictional HighCourt is in favour of the assessee, etc.),the assessing officer shall refer the matterto the administrative Pr. CIT/ CIT, whoafter considering all relevant facts shalldecide the quantum/ proportion of demand tobe paid by the assessee as lump sum paymentfor granting a stay of the balance demand.' (b) the assessing officer is of the viewthat the nature of addition resulting in thedisputed demand is such that payment of a lump sum amount lower than 15% is warranted(e.g. in a case where addition on the sameissue has been deleted by appellateauthorities in earlier years or the decisionof the Supreme Court or jurisdictional HighCourt is in favour of the assessee, etc.),the assessing officer shall refer the matterto the administrative Pr. CIT/ CIT, whoafter considering all relevant facts shalldecide the quantum/ proportion of demand tobe paid by the assessee as lump sum paymentfor granting a stay of the balance demand.' 11. Instruction 1914 was further modified by OfficeMemorandum bearing number F.No.404/72/93 – ITCC dated 31.072017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated31.07.2017 Subject: Partial modification of Instruction No. 1914dated 21.3.1996 to provide for guidelines for stay ofdemand at the first appeal stage.Reference: Board’s O.M. of even number dated 29.2.2016 Instruction No. 1914 dated 21.3.1996 containsguidelines issued by the Board regarding procedure tobe followed for recovery of outstanding demand,including procedure for grant of stay of demand. Vide O.M. N0.404/72/93-ITCC dated 29.2.2016 revisedguidelines were issued in partial modification ofinstruction No 1914, wherein, inter alia, vide para 4(A) it had been laid down that in a case where theoutstanding demand is disputed before CIT(A), theAssessing Officer shall grant stay of demand tilldisposal of first appeal on payment of 15% of thedisputed demand unless the case falls in the categorydiscussed in para (B) thereunder. Similar referencesto the standard rate of 15% have also been made insucceeding paragraphs therein. 2. The matter has been reviewed by the Board in thelight of feedback received from field authorities. Inview of the Board’s efforts to contain over pitchedassessments through several measures resulting infairer and more reasonable assessment orders, thestandard rate of 15% of the disputed demand is foundto be on the lower side. Accordingly. it has beendecided that the standard rate prescribed in O.M. dated 29.2.2016 be revised to 20% of the disputeddemand, where the demand is contested before CIT(A).Thus all references to 15% of the disputed demand inthe aforesaid O.M dated 29.2.2016 hereby standmodified to 20% of the disputed demand. Otherguidelines contained in the O.M. dated 29.2.2016 shallremain unchanged. These modifications may be immediately brought to thenotice of all officers working in your jurisdictionfor proper compliance.' 12. The Circulars and Instructions as extracted aboveare in the nature of guidelines issued to assist theassessing authorities in the matter of grant of stay andcannot substitute or override the basic tenets to befollowed in the consideration and disposal of staypetitions. The existence of a prima facie case for whichsome illustrations have been provided in the Circularsthemselves, the financial stringency faced by an assesseeand the balance of convenience in the matter constitute the‘trinity’, so to say, and are indispensable in considerationof a stay petition by the authority. The Board has, whilestating generally that the assessee shall be called upon toremit 20% of the disputed demand, granted ample discretionto the authority to either increase or decrease the quantumdemanded based on the three vital factors to be taken intoconsideration.' 9.The above order is applicable on all fours to the facts ofthe present case. In the light of the fact that the personalhearing sought for has not been granted accordingly, the orderis not speaking and mechanical and there is absolutely noapplication of mind of the officer to the existence of primafacie case, financial stringency and balance of convenience,there is a merit in the submission of the petitioner that theorder requires to be set aside. I accordingly do so. 10.The officer shall fix a date for hearing of the stayapplication, issue notice to the petitioner and pass orders inaccordance with law, within a period of four weeks from thedate of receipt of a copy of this order. Till the disposal ofthe said petition, no coercive proceedings shall be initiated asregards recovery of the disputed demand. https://hcservices.ecourts.gov.in/hcservices/ 11.The Writ Petition is disposed of in the above terms. Nocosts. Consequently, connected Miscellaneous Petition isclosed. -s/d- Assistant Registrar(CCC) True Copy Sub-Assistant Registrar saiTo 1.The Income Tax Officer,Non Corporate Ward 13(1)Room No.507, V Floor, Wanaparthy Block,No.121, M.G. Road, Nungambakkam, Chennai 600 034. 2.The Commissioner of Income Tax (appeals)No.108, M.G.Road, Nungambakkam,Chennai 600 034. +1 CC to Mr.S.Ravee Kumar, Advocate sr 28772.+1 CC to Mr.J.Narayanamoorthy, Advocate sr 29456. W.P. No.8301 of 2019 SAI(CO)SP(30/04/2019) https://hcservices.ecourts.gov.in/hcservices/