R.k.venkataraman v. The Assistant Commissioner Of Income Tax, Central Circle-1(1), Investigation Wing, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HONOURABLE DR. JUSTICE ANITA SUMANTH W.P. Nos.7534 & 7552 of 2019andW.M.P. Nos.8193, 8198, 8202, 8205 & 8207 of 2019 R.K.Venkataraman ... Petitioner in both writ petitions Vs. 1.The Assistant Commissioner of Income Tax, Central Circle-1(1), Investigation Wing, Room No.320, New No.46, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2.The Commissioner of Income Tax (Appeals) – 18, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. ... Respondents in both writ petitions Common Prayer : Writ Petitions in W.P. Nos.7534 and 7552 of 2019filed under Article 226 of the Constitution of India forissuance of a Writ of Certiorarified Mandamus calling for therecords on the file of the 1[st] respondent in PAN: andquash the impugned order in F.No.276 & 277/ /AYs 2016-17 & 2017-18/ACIT/CC-1(1)/CHENNAI dated 28.02.2019 passed by the1[st]respondent rejecting the stay petition filed by thepetitioner seeking stay of collection of demand for theAssessment Years 2016-17 and 2017-18, respectively, as illegal,arbitrary and devoid of merit and consequentially directing the1[st] respondent to grant stay of all further proceedings, pursuantto the impugned order passed by the respondent in F.No.276 &277/ACPPV4708D/AYs 2016-17 & 2017-18/ACIT/CC-1(1)/CHENNAI dated28.02.2019 pending disposal of the appeals preferred by thepetitioner before the 2[nd] respondent. https://hcservices.ecourts.gov.in/hcservices/ The challenge in these writ petitions is to an order passedby the 1[st] respondent/Assessing Officer, upon anapplication for stay filed by the petitioner on 11.02.2019. 2.Heard Mr.R.Sivaraman, learned counsel appearing for thepetitioner and Mr.A.P.Srinivas, learned Standing Counsel,appearing for the respondents in both the writ petitions. 3.The petitioner is an assessee on the file of the 1[st]respondent and has suffered an order of assessment forAssessment Years 2016-17 and 2017-18, both dated 31.12.2018.Appeals are stated to have been filed before the Commissioner ofIncome Tax (Appeals), the 2[nd] respondent, challenging theaforesaid assessments. 4. While this was so, the 2[nd] respondentissued a communication dated 05.02.2019 calling upon thepetitioner to remit the outstanding disputed demands on orbefore 11.02.2019. In response thereto, the petitioner filedapplications dated 11.02.2019 seeking interim stay of recovery.The applications have been disposed of by impugned order dated28.02.2019, extracted in entirety below: 2.On consideration of your stay petition dated NILreferred to above, it is informed that your staypetition is rejected and you are requested to pay 20%of the disputed demand in terms of the CBDT's OfficeMemorandum dated 31.07.2017 in F.No.404/72/93 – ITCC,since the appeals filed by you before the CIT(Appeal)are pending. On payment of 20% of the disputed demands https://hcservices.ecourts.gov.in/hcservices/ of Rs.3,79,21,487 for A.Y.2016-17 & Rs.2,28,72,512 forA.Y.2017-18 respectively and on furnishing proof forpayment of the same, balance demands will beconsidered for grant of stay subject to certainconditions.3.You are requested to pay the 20% of the disputeddemand on or before 05.03.2019, failing whichnecessary coercive action for collection of the demandwill be taken as per the provisions of Income Tax Act,1961 without any further notice.' 5.The Assessing Officer is expected, while disposing of astay application, to go into the existence of a prima faciecase, financial stringency faced by the assessee and the balanceof convenience in the matter, before coming to a conclusion onthe grant of stay on otherwise or the terms to which theassessee is to be put, while granting conditional stay. In thepresent case, discussion upon the aforesaid factors areconspicuous by their absence. 5.The Assessing Officer is expected, while disposing of astay application, to go into the existence of a prima faciecase, financial stringency faced by the assessee and the balanceof convenience in the matter, before coming to a conclusion onthe grant of stay on otherwise or the terms to which theassessee is to be put, while granting conditional stay. In thepresent case, discussion upon the aforesaid factors areconspicuous by their absence. 6. I have had occasion to deal with similar matters, whereAssessing Officer have passed cryptic orders while disposing ofstay applications and I extract the text of one of my orders inthe case of Kannammal v. Income Tax Officer in W.P.No.3849 of2019, which would be equally applicable to the facts andcircumstances of the present case. '7. The parameters to be taken into account inconsidering the grant of stay of disputed demand arewell settled – the existence of a prima facie case,financial stringency and the balance of convenience.‘Financial stringency’ would include within its ambitthe question of 'irreparable injury' and ‘undue hard-ship’ as well. It is only upon an application of thethree factors as aforesaid that the assessing officercan exercise discretion for the grant or rejection,wholly or in part, of a request for stay of disputeddemand. 8. In addition, periodic Instructions/Circularsin regard to the manner of adjudication of stay peti-tions are issued by the Central Board of Direct Taxes(CBDT) for the guidance of the Departmental authori-ties. The one oft-quoted by the assessee is OfficeMemorandum F.No.1/6/69/-ITCC, dated 21.08.1969 thatstates 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 the collection 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 beexercisedbytheInspectingAssistantCommissioner/Commissioner of Income-tax.' 9. Thereafter, Instruction No.1914 was issued bythe CBDT on 21.03.1996 and states as follows: 1. Recovery of outstanding tax demands [Instruction No. 1914 F. No. 404/72/93 ITCC dated 2-12-1993 from CBDT] The Board has felt the need for a comprehensiveinstruction on the subject of recovery of tax demandin order to streamline recovery procedures. Thisinstruction is accordingly being issued insupersession of all earlier instructions on thesubject and reiterates the existing Circulars on thesubject. 2. The Board is of the view that, as a matter ofprinciple, every demand should be recovered as soon asit becomes due. Demand may be kept in abeyance forvalid reasons only in accordance with the guidelinesgiven below : A. Responsibility: i. It shall be the responsibility of the AssessingOfficer and the TRO to collect every demand that hasbeen raised, except the following: (a) Demand whichhas not fallen due;(b) Demand which has been stayed bya Court or ITAT or Settlement Commission;(c) Demandfor which a proper proposal for write-off has been https://hcservices.ecourts.gov.in/hcservices/ submitted;(d) Demand stayed in accordance with paras B& C below. 2. The Board is of the view that, as a matter ofprinciple, every demand should be recovered as soon asit becomes due. Demand may be kept in abeyance forvalid reasons only in accordance with the guidelinesgiven below : A. Responsibility: i. It shall be the responsibility of the AssessingOfficer and the TRO to collect every demand that hasbeen raised, except the following: (a) Demand whichhas not fallen due;(b) Demand which has been stayed bya Court or ITAT or Settlement Commission;(c) Demandfor which a proper proposal for write-off has been https://hcservices.ecourts.gov.in/hcservices/ submitted;(d) Demand stayed in accordance 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 the collectionof tax shall rest with the TRO. iii. It would be the responsibility of the supervisoryauthorities to ensure that the Assessing Officers andthe TROs take all such measures as are necessary tocollect the demand. It must be understood that mereissue of a show cause notice with no follow-up is notto be regarded as adequate effort to recover taxes. B. Stay Petitions: i. Stay petitions filed with the Assessing Officersmust be disposed of within two weeks of the filing ofpetition by the tax- payer. The assessee must beintimated of the decision without delay. ii. Where stay petitions are made to the authoritieshigher than the Assessing Officer (DC/CIT/CC), it isthe responsibility of the higher authorities todispose of the petitions without any delay, and in anyevent within two weeks of the receipt of the petition.Such a decision 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/TRO andhis immediate superior. A higher superior authorityshould interfere with the decision of the AO/TRO onlyin exceptional circumstances; e.g., where theassessment order appears to be unreasonably high-pitched or where genuine hardship is likely to becaused to the assessee. The higher authorities shoulddiscourage the assessee from filing review petitionsbefore them as a matter of routine or in a frivolousmanner to gain time for withholding 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 againstthe assessment order will not be a sufficient reasonto stay the recovery of demand. A few illustrativesituations where stay could be granted are: It is clarified that in these situations also, staymay be granted only in respect of the amountattributable to such disputed points. Further where itis subsequently found that the assessee has not co- operated in the early disposal of appeal or where asubsequent pronouncement by a higher appellateauthority or court alters the above situation, thestay order may be reviewed and modified. The aboveillustrations are, of course, not exhaustive. ii. In granting stay, the Assessing Officer may imposesuch conditions as he may think fit. Thus he may — a.require the assessee to offer suitable security tosafeguard the interest of revenue; b. require theassessee to pay towards the disputed taxes areasonable amount in lump sum or in instalments; c.require an undertaking from the assessee that he willco-operate in the early disposal of appeal failingwhich the stay order will be cancelled. d. reserve theright to review the order passed after expiry of areasonable period, say up to 6 months, or if theassessee has not co-operated in the early disposal ofappeal, or where a subsequent pronouncement by ahigher appellate authority or court alters the abovesituations; e. reserve a right to adjust refundsarising, if any, against the demand. iii. Payment by instalments may be liberally allowedso as to collect the entire demand within a reasonableperiod not exceeding 18 months. iv. Since the phrase “stay of demand” does not occurin section 220(6) of the Income-tax Act, the AssessingOfficer should always use in any order passed undersection 220(6) [or under section 220(3) or section 220(7)], the expression that occurs in the section viz.,that he agrees to treat the assessee as not beingdefault in respect of the amount specified, subject tosuch conditions as he deems fit to impose. v. While considering an application under section 220(6), the Assessing Officer should consider allrelevant factors having a bearing on the demand raisedand communicate his decision in the form of a speakingorder. D. Miscellaneous: i. Even where recovery of demand has been stayed, theAssessing Officer will continue to review thesituation to ensure that the conditions imposed arefulfilled by the assessee failing which the stay orderwould need to be withdrawn. ii. Where the assessee seeks stay of demand from theTribunal, it should be strongly opposed. If theassessee presses his application, the CIT should direct the departmental representative to request thatthe appeal be posted within a month so that Tribunal’sorder on the appeal can be known within two months. iii. Appeal effects will have to be given within 2weeks from the receipt of the appellate order.Similarly, rectification application should be decidedwithin 2 weeks of the receipt t hereof. Instanceswhere there is undue delay in giving effect toappellate orders, or in deciding rectificationapplications, should be dealt with very strictly bythe CCITs/CITs. 3. The Board desires that appropriate action is takenin the matter of recovery in accordance with the aboveprocedure. The Assessing Officer or the TRO, as thecase may be, and his immediate superior officer shallbe held responsible for ensuring compliance with theseinstructions. 4. This procedure would apply mutatis mutandis todemands created under other Direct Taxes enactmentsalso.' 10. Instruction 1914 was partially modified byOffice Memorandum dated 29.02.2016 taking into accountthe fact that Assessing Officers insisted on paymentof significant portions of the disputed demand priorto grant of stay resulting in extreme hardship for taxpayers. Thus, in order to streamline the grant of stayand standardize the procedure, modified guidelineswere issued which are as follows: (A) In a case where the outstanding demand is disputedbefore CIT (A), the assessing officer shall grant stayof demand till disposal of first appeal on payment of15% of the disputed demand, unless the case falls inthe category discussed in pars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view that thenature of addition resulting in the disputed demand issuch that payment of a lump sum amount higher than 15%is warranted (e.g. in a case where addition on thesame issue has been confirmed by appellate authoritiesin earlier years or the decision of the SupremeCourt /or jurisdictional High Court is in favour ofRevenue or addition is based on credible evidencecollected in a search or survey operation, etc.) or, (b) the assessing officer is of the view that the na-ture of addition resulting in the disputed demand issuch that payment of a lump sum amount lower than 15%is warranted (e.g. in a case where addition on thesame issue has been deleted by appellate authoritiesin earlier years or the decision of the Supreme Courtor jurisdictional High Court is in favour of the as-sessee, etc.), the assessing officer shall refer thematter to the administrative Pr. CIT/ CIT, who afterconsidering all relevant facts shall decide the quan-tum/ proportion of demand to be paid by the assesseeas lump sum payment for granting a stay of the balancedemand.' 11. Instruction 1914 was further modified by Of-fice Memorandum bearing number F.No.404/72/93 – ITCCdated 31.07 2017 as follows: (b) the assessing officer is of the view that the na-ture of addition resulting in the disputed demand issuch that payment of a lump sum amount lower than 15%is warranted (e.g. in a case where addition on thesame issue has been deleted by appellate authoritiesin earlier years or the decision of the Supreme Courtor jurisdictional High Court is in favour of the as-sessee, etc.), the assessing officer shall refer thematter to the administrative Pr. CIT/ CIT, who afterconsidering all relevant facts shall decide the quan-tum/ proportion of demand to be paid by the assesseeas lump sum payment for granting a stay of the balancedemand.' 11. Instruction 1914 was further modified by Of-fice Memorandum bearing number F.No.404/72/93 – ITCCdated 31.07 2017 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 found to 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 extractedabove are in the nature of guidelines issued to assistthe assessing authorities in the matter of grant ofstay and cannot substitute or override the basictenets to be followed in the consideration and dispos-al of stay petitions. The existence of a prima faciecase for which some illustrations have been providedin the Circulars themselves, the financial stringencyfaced by an assessee and the balance of convenience inthe matter constitute the ‘trinity’, so to say, andare indispensable in consideration of a stay petitionby the authority. The Board has, while stating gener-ally that the assessee shall be called upon to remit20% of the disputed demand, granted ample discretionto the authority to either increase or decrease thequantum demanded based on the three vital factors tobe taken into consideration.' 7. In the light of observations in the case of Kannammal asextracted above and seeing as the impugned order in the presentcase is also bereft of reasoning, I am constrained to set asidethe same. 7. In the light of observations in the case of Kannammal asextracted above and seeing as the impugned order in the presentcase is also bereft of reasoning, I am constrained to set asidethe same. 8.The petitioner will appear before the respondent AssessingOfficer on 02.04.2019 along with copy of his stay application aswell as all materials in support of the request for stay and theapplication shall be disposed of within two weeks from02.04.2019, i.e on or before 16.04.2019. It is brought to myattention that, subsequent to the passing of the impugned order,notices under Section 226(3) of the Income Tax Act, 1961 havebeen issued to Karur Vysya Bank, Valasaravakkam Branch, AxisBank, Virugambakkam Branch, City Union Bank, Mandaveli Branch,HDFC Bank, Saligramam Branch, Indian Bank, Ayanavaram andPerambur Branches, all dated 06.03.2019 attaching the accountsof the petitioner therein. The attachments will continue,subject to the orders passed by the 2[nd] respondent in the stay application and the Banks shall not appropriate any balanceuntil orders are passed in the stay application. Status quo, ason date to be maintained in regard to further recovery, till16.04.2019 or date of order to be passed in the stayapplication, whichever is earlier. 9.The writ petitions are disposed of on the above terms. Nocosts. Consequently, connected Miscellaneous Petitions areclosed. Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarTo1.The Assistant Commissioner of Income Tax, Central Circle-1(1), Investigation Wing, Room No.320, New No.46, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 2.The Commissioner of Income Tax (Appeals) – 18, 121, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. +1cc to Mr.A.P.Srinivas, Advocate sr.no.29978+1cc to Mr.S.Veeraraghavan, Advocate sr.no.29972 W.P. Nos.7534 & 7552 of 2019andW.M.P. Nos.8193, 8198, 8202,8205 & 8207 of 2019pa(co)nr 29/03/2019 https://hcservices.ecourts.gov.in/hcservices/