Income Tax Case

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 01.03.2019 CORAM : THE HONOURABLE DR.JUSTICE ANITA SUMANTH W.P.No.5425 of 2019andWMP.Nos.6166 & 6168 of 2019 M/s.Shriram FinanceRepresented by its PartnerMs.G.Vijaya, No.4, Mookambika Complex,4[th] Floor, Lady Desika Road,Mylapore, Chennai – 600 004. ...Petitioner Vs. 1. The Principal Commissioner of Income Tax-1, Room No.701, VII Floor, New Block, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2. The Income Tax Officer, Non-Corporate Ward 2 (4), Wanaparthy Block, III Floor, Room No.319, Aayarkar Bhavan, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 3. The Commissioner of Income Tax (Appeals) -2, 121, Mahatma Gandhi Road, Nungambakkam, Chennai –600034. ... Respondents PRAYER:- Writ Petition filed under Article 226 of the Constitution ofIndia praying to issue a Writ of Certiorarified Mandamus, tocall for the records on the files of the respondents inC.No.233/Pr.CIT-1/2018-19 in passing the impugned order dated07.02.2019 by the 1[st] respondent rejecting the stay petitionfiled by the petitioner and quash the same as illegal, arbitraryand devoid of merit and consequentially direct the 1[st] respondentto grant stay of all further recovery proceedings pertaining tothe AY 2011-12 pending disposal of the appeal before the 3[rd]respondent. https://hcservices.ecourts.gov.in/hcservices/ For Petitioner : Mr.R.Sivaraman For Respondent : Ms.Hema Muralikrishnan, Senior Standing Counsel ORDER This Writ Petition is disposed at the stage of adjournedadmission by consent expressed by both learned counsel,Mr.R.Shivaraman, learned counsel appearing for the petitionerand Ms.Hema Mulikrishnan, learned senior standing counselappearing for the respondents. 2. The Writ Petition challenges an order dated 07.02.2019,passed by the 1[st] respondent rejecting the application for stayfiled by the petitioner. The petitioner had suffered an orderof re-assessment in respect of Assessment Year 2011-12 dated20.12.2018. The order is pending appeal before the Commissionerof Income Tax (Appeals)/3[rd] respondent. 3. Pending appeal, the petitioner has approached the 2[nd]respondent praying for the grant of stay of recovery. The staypetition is extracted below: ------ We are in receipt of the assessment order citedunder reference. You have raised a demand of Rs.62,77,980/- for thisassessment year as a result of addition ofRs.96,78,267/- At the time of scrutiny assessment wehave explained that we are maintaining cash systemof accounting and income has been recognizedaccordingly in tune with the system of accountingcontinuously followed by us, and the matchingprinciple cannot be applied to our case. We have pointed out that we have contested similarissue before the ITAT, Chennai in one of our group https://hcservices.ecourts.gov.in/hcservices/ cases viz., M/s.Shriram Investments and the “B”Bench of the ITAT Chennai in its order in ITANo.995/CHNY/2017 dated 19.07.2018 held that thematching principle will not apply to cases whereaccounts are maintained on cash basis. Further, theCommissioner (Appeals)-02, Chennai, has allowed ourappeal on similar issue in the case M/s.Shri KaveryCommercial Corporation. Vide order dated 20.12.2018in ITA No.299/2016-17. These decisions are squarelyapplicable to our case. In view of the above facts, we request you to kindlykeep the tax of Rs.62,77,980/- in abeyance till thedisposal of appeal. Thanking you,Yours faithfully,For Shriram Finance,*********Authorised Signatory. https://hcservices.ecourts.gov.in/hcservices/ cases viz., M/s.Shriram Investments and the “B”Bench of the ITAT Chennai in its order in ITANo.995/CHNY/2017 dated 19.07.2018 held that thematching principle will not apply to cases whereaccounts are maintained on cash basis. Further, theCommissioner (Appeals)-02, Chennai, has allowed ourappeal on similar issue in the case M/s.Shri KaveryCommercial Corporation. Vide order dated 20.12.2018in ITA No.299/2016-17. These decisions are squarelyapplicable to our case. In view of the above facts, we request you to kindlykeep the tax of Rs.62,77,980/- in abeyance till thedisposal of appeal. Thanking you,Yours faithfully,For Shriram Finance,*********Authorised Signatory. 4. The aforesaid stay petition has been rejected by the 2[nd]respondent on 17.01.2019. Pursuant to that, the petitioner hasfiled a second stay application before the PrincipalCommissioner of Income Tax I, arrayed as first respondent. Thepetitioner was awaiting a notice of hearing in respect of thestay application but received instead the impugned order dated07.02.2019 in the following terms. “C.No.233/Pr.CIT-1/2018-2019Dated: 07.02.2019ToThe Income-tax Officer, Non-Corporate Ward 2(4),Chennai.Sir, Sub: Stay Petition filed by the assessee M/s.Shriram Finance, Mookambika Complex, 4[th] floor, 4 Lady Desikachari Road, Mylapore, Chennai- 600 004 – dated 04.02.2018 – PAN -Reg.Ref : Assessee's petition filed in 04.02.2019.***** Kindly refer to the above.I am directed to convey the comments of the Pr. Commissionerof Income-Tax-1, Chennai as follows: “Petition rejected vide Board's Instruction. AO to collect 20% demand.” Yours faithfully, ***********(G.RADHAKRISHNAN)Income-tax Officer (HQ) O/o. Pr.Commissioner of Income-Tax -1 Chennai. Copy to:1.The JCIT NCR-2, Chennai. 2.The assessee, M/s.Shriram Finance Mookambika Complex, 4[th] floor, 4 Lady Desikachari Road, Mylapore, Chennai.It is as against the aforesaid order, the petitioner hasfiled the present writ petition before this Court. 5. This Court had occasion to consider challenge to ordersin stay applications that cryptic and non speaking relyingwholly on the Circulars issued by Central Board of Direct Taxes(CBDT). I have, in the aforesaid order, concluded thatcirculars / instructions issued by the CBDT only set out aseries of guidelines to the Assessing Officers in the matter ofgrant of stay, holding in the case of Mrs.Kannammal V. IncomeTax Officer (W.P.No.3849 of 2019 dated 13.02.2019) as follows: '7. The parameters to be taken into account in consider-ing the grant of stay of disputed demand are well set-tled – the existence of . ‘Financial stringency’ wouldinclude within its ambit the question of 'irreparableinjury' and ‘undue hardship’ as well. It is only uponan application of the three factors as aforesaid thatthe assessing officer can exercise discretion for thegrant or rejection, wholly or in part, of a request forstay of disputed demand. 8. In addition, periodic Instructions/Circulars in re-gard to the manner of adjudication of stay petitions areissued by the Central Board of Direct Taxes (CBDT) forthe guidance of the Departmental authorities. The oneoft-quoted by the assessee is Office MemorandumF.No.1/6/69/-ITCC, dated 21.08.1969 that states as fol-lows:'1. One of the points that came up forconsideration in the 8th Meeting of the Informal Consultative Committee was that income-taxassessments were often arbitrarily pitched athigher figures and that the collection of disputeddemand as a result thereof was also not stayed inspite of the specific provision in the matter in s.220(6) of the IT Act, 1961. 2. The then Deputy Prime Minister had observed asunder : 8. In addition, periodic Instructions/Circulars in re-gard to the manner of adjudication of stay petitions areissued by the Central Board of Direct Taxes (CBDT) forthe guidance of the Departmental authorities. The oneoft-quoted by the assessee is Office MemorandumF.No.1/6/69/-ITCC, dated 21.08.1969 that states as fol-lows:'1. One of the points that came up forconsideration in the 8th Meeting of the Informal Consultative Committee was that income-taxassessments were often arbitrarily pitched athigher figures and that the collection of disputeddemand as a result thereof was also not stayed inspite of the specific provision in the 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,say twice the latter amount or more, the collectionof the tax in dispute should be held in abeyancetill the decision on the appeal provided there wereno lapses on the part of the assessees." 3. The Board desire that the above observations maybe brought to the notice of all the Income-taxOfficers working under you and the powers of stayof recovery in such cases up to the stage of firstappeal may be exercised by the Inspecting AssistantCommissioner/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 recovery procedures.This instruction is accordingly being issued insupersession of all earlier instructions on thesubject and reiterates the existing Circulars onthe subject. 2. The Board is of the view that, as a matter ofprinciple, every demand should be recovered as soonas it becomes due. Demand may be kept in abeyancefor valid reasons only in accordance with theguidelines given below : A. Responsibility: i. It shall be the responsibility of the AssessingOfficer and the TRO to collect every demand thathas been raised, except the following: (a) Demand which has not fallen due;(b) Demand which has beenstayed by a Court or ITAT or Settlement Commission;(c) Demand for which a proper proposal for write-off has been submitted;(d) Demand stayed inaccordance with paras B & C below. ii. Where demand in respect of which a recoverycertificate has been issued or a statement has beendrawn, 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. Itmust be understood that mere issue of a show causenotice with no follow-up is not to be regarded asadequate effort to recover taxes. B. Stay Petitions: i. Stay petitions filed with the Assessing Officersmust be disposed of within two weeks of the filingof petition by the tax- payer. The assessee must beintimated of the decision without delay. ii. Where stay petitions are made to theauthorities higher than the Assessing Officer(DC/CIT/CC), it is the responsibility of the higherauthorities to dispose of the petitions without anydelay, and in any event within two weeks of thereceipt of the petition. Such a decision should becommunicated to the assessee and the AssessingOfficer immediately. B. Stay Petitions: i. Stay petitions filed with the Assessing Officersmust be disposed of within two weeks of the filingof petition by the tax- payer. The assessee must beintimated of the decision without delay. ii. Where stay petitions are made to theauthorities higher than the Assessing Officer(DC/CIT/CC), it is the responsibility of the higherauthorities to dispose of the petitions without anydelay, and in any event within two weeks of thereceipt of the petition. Such a decision should becommunicated to the assessee and the AssessingOfficer 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 of theAO/TRO only in exceptional circumstances; e.g.,where the assessment order appears to beunreasonably high-pitched or where genuine hardshipis likely to be caused to the assessee. The higherauthorities should discourage the assessee fromfiling review petitions before them as a matter ofroutine or in a frivolous manner to gain time forwithholding payment of taxes. C. Guidelines for staying demand: i. A demand will be stayed only if there are validreasons for doing so. Mere filing an appeal against the assessment order will not be a sufficientreason to stay the recovery of demand. A fewillustrative situations where stay could be grantedare: It is clarified that in these situations also, staymay be granted only in respect of the amountattributable to such disputed points. Further whereit is subsequently found that the assessee has notco-operated in the early disposal of appeal orwhere a subsequent pronouncement by a higherappellate authority or court alters the abovesituation, the stay order may be reviewed andmodified. The above illustrations are, of course,not exhaustive.ii. In granting stay, the Assessing Officer mayimpose such conditions as he may think fit. Thus hemay — a. require the assessee to offer suitablesecurity to safeguard the interest of revenue; b.require the assessee to pay towards the disputedtaxes a reasonable amount in lump sum or ininstalments; c. require an undertaking from theassessee that he will co-operate in the earlydisposal of appeal failing which the stay orderwill be cancelled. d. reserve the right to reviewthe order passed after expiry of a reasonableperiod, say up to 6 months, or if the assessee hasnot 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 adjust refundsarising, if any, against the demand.iii. Payment by instalments may be liberallyallowed so as to collect the entire demand within areasonable period not exceeding 18 months.iv. Since the phrase “stay of demand” does notoccur in section 220(6) of the Income-tax Act, theAssessing Officer should always use in any orderpassed under section 220(6) [or under section 220(3) or section 220(7)], the expression that occursin the section viz., that he agrees to treat theassessee as not being default in respect of theamount specified, subject to such conditions as hedeems 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 form ofa 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 imposed arefulfilled by the assessee failing which the stayorder would need to be withdrawn. D. Miscellaneous: i. Even where recovery of demand has been stayed, the Assessing Officer will continue to review thesituation to ensure that the conditions imposed arefulfilled by the assessee failing which the stayorder would need to be withdrawn. ii. Where the assessee seeks stay of demand fromthe Tribunal, it should be strongly opposed. If theassessee presses his application, the CIT shoulddirect the departmental representative to requestthat the appeal be posted within a month so thatTribunal’s order on the appeal can be known withintwo months. iii. Appeal effects will have to be given within 2weeks 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 givingeffect 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 accordance withthe above procedure. The Assessing Officer or theTRO, as the case may be, and his immediate superiorofficer shall be held responsible for ensuringcompliance with these instructions. 4. This procedure would apply mutatis mutandis todemands created under other Direct Taxes enactmentsalso.' 10. Instruction 1914 was partially modified by OfficeMemorandum dated 29.02.2016 taking into account the factthat Assessing Officers insisted on payment of signifi-cant portions of the disputed demand prior to grant ofstay resulting in extreme hardship for tax payers. Thus,in order to streamline the grant of stay and standardizethe procedure, modified guidelines were issued which areas follows: '....... (A) In a case where the outstanding demand isdisputed before CIT (A), the assessing officershall grant stay of demand till disposal of firstappeal on payment of 15% of the disputed demand,unless the case falls in the category discussed inpars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view that thenature of addition resulting in the disputed demand is such that payment of a lump sum amount higherthan 15% is warranted (e.g. in a case whereaddition on the same issue has been confirmed byappellate authorities in earlier years or thedecision of the Supreme Court /or jurisdictionalHigh Court is in favour of Revenue or addition isbased on credible evidence collected in a search orsurvey operation, etc.) or, (b) the assessing officer is of the view that thenature of addition resulting in the disputed demandis such that payment of a lump sum amount lowerthan 15% is warranted (e.g. in a case where addi-tion on the same issue has been deleted by appel-late authorities in earlier years or the decisionof the Supreme Court or jurisdictional High Courtis in favour of the assessee, etc.), the assessingofficer shall refer the matter to the administra-tive Pr. CIT/ CIT, who after considering all rele-vant facts shall decide the quantum/ proportion ofdemand to be paid by the assessee as lump sum pay-ment for granting a stay of the balance demand.' 11. Instruction 1914 was further modified by Office Mem-orandum 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.1914 dated 21.3.1996 to provide for guidelines forstay of demand at the first appeal stage.Reference: Board’s O.M. of even number dated29.2.2016 11. Instruction 1914 was further modified by Office Mem-orandum 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.1914 dated 21.3.1996 to provide for guidelines forstay of demand at the first appeal stage.Reference: Board’s O.M. of even number dated29.2.2016 Instruction No. 1914 dated 21.3.1996 containsguidelines issued by the Board regarding procedureto be 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 para4(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 thecategory discussed in para (B) thereunder. Similarreferences to the standard rate of 15% have alsobeen made in succeeding paragraphs therein.2. The matter has been reviewed by the Board in thelight of feedback received from field authorities. In view of the Board’s efforts to contain overpitched assessments through several measuresresulting in fairer and more reasonable assessmentorders, the standard rate of 15% of the disputeddemand is found to be on the lower side.Accordingly. it has been decided that the standardrate prescribed in O.M. dated 29.2.2016 be revisedto 20% of the disputed demand, where the demand iscontested before CIT(A). Thus all references to 15%of the disputed demand in the aforesaid O.M dated29.2.2016 hereby stand modified to 20% of thedisputed demand. Other guidelines contained in theO.M. dated 29.2.2016 shall remain unchanged.These modifications may be immediately brought tothe notice of all officers working in yourjurisdiction for proper compliance.' 12. The Circulars and Instructions as extracted aboveare in the nature of guidelines issued to assist the as-sessing authorities in the matter of grant of stay andcannot substitute or override the basic tenets to befollowed in the consideration and disposal of stay peti-tions. The existence of a prima facie case for whichsome illustrations have been provided in the Circularsthemselves, the financial stringency faced by an as-sessee and the balance of convenience in the matter con-stitute the ‘trinity’, so to say, and are indispensablein consideration of a stay petition by the authority.The Board has, while stating generally that the assesseeshall be called upon to remit 20% of the disputed de-mand, granted ample discretion to the authority to ei-ther increase or decrease the quantum demanded based onthe three vital factors to be taken into consideration. 13. In the present case, the assessing officer has mere-ly rejected the petition by way of a non-speaking orderreading as follows: 'Kindly refer to the above. This is to inform youthat mere filing of appeal against the said orderis not a ground for stay of the demand. Hence yourrequest for stay of demand is rejected and you arerequested to pay the demand immediately. Noticeu/s.221(1) of the Income Tax Act, 1961 is enclosedherewith.' 14. The disposal of the request for stay by thepetitioner leaves much to be desired. I am of thecategoric view that the Assessing Officer ought to havetaken note of the conditions precedent for the grant of https://hcservices.ecourts.gov.in/hcservices/ 13. In the present case, the assessing officer has mere-ly rejected the petition by way of a non-speaking orderreading as follows: 'Kindly refer to the above. This is to inform youthat mere filing of appeal against the said orderis not a ground for stay of the demand. Hence yourrequest for stay of demand is rejected and you arerequested to pay the demand immediately. Noticeu/s.221(1) of the Income Tax Act, 1961 is enclosedherewith.' 14. The disposal of the request for stay by thepetitioner leaves much to be desired. I am of thecategoric view that the Assessing Officer ought to havetaken note of the conditions precedent for the grant of https://hcservices.ecourts.gov.in/hcservices/ stay as well as the Circulars issued by the CBDT andpassed a speaking order. Of course the petition seekingstay filed by the petitioner is itself cryptic. However,as noted by the Supreme Court in the case ofCommissioner of Income tax vs Mahindra Mills, ((2008)296 ITR 85 (Mad)) in the context of grant ofdepreciation, the Circular of the Central Board ofRevenue (No. 14 (SL- 35) of 1955 dated April 11, 1955)requires the officers of the department ‘to assist ataxpayer in every reasonable way, particularly in thematter of claiming and securing reliefs. .... Although,therefore, the responsibility for claiming refunds andreliefs rests with the assessees on whom it is imposedby law, officers should draw their attention to anyrefunds or reliefs to which they appear to be clearlyentitled but which they have omitted to claim for somereason or other......’. Thus, notwithstanding that theassessee may not have specifically invoked the threeparameters for the grant of stay, it is incumbent uponthe assessing officer to examine the existence of aprima facie case as well as call upon the assessee todemonstrate financial stringency, if any and arrive atthe balance of convenience in the matter. ' 6. My observations and conclusions in the above order wouldapply equally to the facts and circumstances of the present caseand may be read as part and parcel of this order. 7. In the light the above, I am inclined to set aside theimpugned order dated 07.02.2019, as being mechanical and passedwithout application of mind. 8. In the light of the above, the Writ Petition is disposedin the following terms: i) The petitioner will appear before the PrincipalCommissioner of Income Tax-1, the first respondent herein, on08.03.2019 at 02:30 pm along with a stay petition covering thethree (3) aspects as referred to aforesaid. ii) After hearing the petitioner, the Principal Commissionerof Income Tax shall pass a reasoned and speaking order inaccordance with law and in accordance with the circulars issuedby Central Board of Direct Tax (CBDT) within a period of two (2)weeks from the date of conclusion of the personal hearing i.e.on or before 22.03.2019. https://hcservices.ecourts.gov.in/hcservices/ iii) Till the disposal of stay application, status quo, asof today, shall be maintained with regard to recovery. Consequently, Miscellaneous Petitions are closed. No costs. Sd/- Assistant Registrar(CS V) rkpTo //True Copy// Sub Assistant Registrar 1. The Principal Commissioner of Income Tax-1, Room No.701, VII Floor, New Block, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.2. The Income Tax Officer, Non-Corporate Ward 2 (4), Wanaparthy Block, III Floor, Room No.319, Aayarkar Bhavan, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034.3. The Commissioner of Income Tax (Appeals) -2, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. +1cc to Ms.Hema Muralikrishnan,, Advocate, S.R.No.19415+1cc to Mr.R.Sivaraman, Advocate, S.R.No.19473 W.P. No.5425 of 2019 andWMP. Nos.6166 & 6168 of 2019 CS/07/03/2019 https://hcservices.ecourts.gov.in/hcservices/