Shri Coimbatore Jewellers India Private Limited v. Deputy Commissioner Of Income Tax Circle 1(1), Salem

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.02.2020 Writ Petition No.4085 & 4088 of 2020WMP.No.4831, 4832, 4839 & 4840 of 2020 Shri Coimbatore Jewellers India Private Limited,Represented by it Managing Director Mr.K.R.Premnath ...Petitioner in both WPs --Vs-- 1.Deputy Commissioner of Income Tax Circle 1(1), Salem 3, Gandhi Road, Salem 6360072.Principal Commissioner of Income Tax-Salem, 3, Gandhi Road, Salem 636007...Respondents in both WPs COMMON PRAYER: PETITION filed under Article 226 of theConstitution of India praying for the issuance of Writ ofCertiorarified Mandamus, calling for the records on the fileof the First respondent relating to the application made bythe petitioner for stay of demand under Section 220(6) of theAct and quash the order of the first respondent in PANAAECC3342C in DIN & Letter Nos.ITBA/COM/F/17/2019-20/1024547109(1) & ITBA/COM/F/17/2019-20/1024546497(1) bothdated 31.01.2020 for the Assessment Year 2012-13 & 2017-18respectively and direct the First respondent to not to treatthe petitioner as an assesses in default pending disposal ofthe appeal filed by the petitioner before the Commissioner ofIncome Tax (Appeals) Salem. The petitioner has assailed orders dated 31.01.2020,disposing a stay application filed by the petitioner inrespect of a disputed demand arising from orders of assessmentpassed in terms of the Income Tax Act, 1961 ('Act') in respectof assessment years (AY) 2012-13 & 2017-18. 2. A perusal of the orders reveal that there has been noapplication of mind by the Assessing Officer in consideringthe trifold aspects of (i) prima facie case (ii) financialhttps://hcservices.ecourts.gov.in/hcservices/ stringency and (iii) balance of convenience, prior to disposalof the application. Since the impugned orders relating to A.Y.2012-13 and 2017-18 are identical, orders passed in respect ofAY 2012-13 is extracted below as a sample: The assessment for the A.Y.2012-13 wascompleted on 20.12.2019 and demand ofRs.8,80,40,610/- was raised vide demand noticedated 20.12.2019. The Assessee vide letter dated29.01.2020 stated that he/she has filed appealbefore CIT(A), Salem and requested to keep thedemand in abeyance till the disposal of appeal. Further, it is seen from the record thatassessee has not paid 20% of disputed demand asper CBDT circular 1914 & modified notificationdated: 31.07.201. Therefore, the stay petitionfiled by the assessee is Rejected. Assessee isrequested to pay 20% of disputed demand on orbefore 05.02.2020 as per the CBDT circular 1914 &modified notification dated:31.07.2017, failingwhich, recovery proceedings will be initiated asper the provisions of the Income Tax Act, 1961 bytreating you as assessee in default in r.w.s. 220(1) of Income Tax Act, 1961. In case of payment of tax on or before05.02.2020, it is requested that the tax paid copyof challan may also be forwarded to this officefor record and necessary action. 3. I have had an occasion to deal with a similar set offacts in W.P.No3849 of 2019, wherein I have held as follows: 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 itsambit the question of 'irreparable injury' and‘undue hardship’ as well. It is only upon anapplication of the three factors as aforesaid thatthe assessing officer can exercise discretion forthe grant or rejection, wholly or in part, of arequest for stay of disputed demand. 8. In addition, periodic Instructions/Circularsin regard to the manner of adjudication of staypetitions are issued by the Central Board of DirectTaxes (CBDT) for the guidance of the Departmentalauthorities. The one oft-quoted by the assessee isOfficeMemorandumF.No.1/6/69/-ITCC,dated21.08.1969 that states as follows: 8. In addition, periodic Instructions/Circularsin regard to the manner of adjudication of staypetitions are issued by the Central Board of DirectTaxes (CBDT) for the guidance of the Departmentalauthorities. The one oft-quoted by the assessee isOfficeMemorandumF.No.1/6/69/-ITCC,dated21.08.1969 that states as follows: '1. One of the points that came upfor consideration in the 8thMeetingoftheInformalConsultative Committee was that https://hcservices.ecourts.gov.in/hcservices/ income-tax assessments were oftenarbitrarily pitched at higherfigures and that the collection ofdisputed demand as a result thereofwas also not stayed in spite of thespecific provision in the matter ins. 220(6) of the IT Act, 1961. 2. The then Deputy Prime Ministerhad observed as under : ".........Wheretheincomedetermined on assessment wassubstantially higher than thereturned income, say twice thelatter amount or more, thecollection of the tax in disputeshould be held in abeyance till thedecision on the appeal providedthere were no lapses on the part ofthe assessees." 3. The Board desire that the aboveobservations may be brought to thenotice of all the Income-taxOfficers working under you and thepowers of stay of recovery in suchcases up to the stage of firstappeal may be exercised by theInspectingAssistantCommissioner/CommissionerofIncome-tax. 9. Thereafter, Instruction No.1914 wasissued by the CBDT on 21.03.1996 and statesas follows: 1. Recovery of outstanding tax demands [Instruction No. 1914 F. No.404/72/93 ITCC dated 2-12-1993 fromCBDT] The Board has felt the needfor a comprehensive instruction onthe subject of recovery of taxdemand in order to streamlinerecoveryprocedures.Thisinstruction is accordingly beingissued in supersession of allearlier instructions on the subjectandreiteratestheexistingCirculars on the subject. 2. The Board is of the view that,as a matter of principle, everydemand should be recovered as soon https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ as it becomes due. Demand may bekept in abeyance for valid reasonsonly in accordance with theguidelines given below : A. Responsibility: i. It shall be the responsibilityof the Assessing Officer and theTRO to collect every demand thathas been raised, except thefollowing: (a) Demand which has notfallen due;(b) Demand which hasbeen stayed by a Court or ITAT orSettlement Commission;(c) Demand for which a proper proposalfor write-off has been submitted;(d) Demand stayed in accordancewith paras B & C below. ii. Where demand in respect ofwhich a recovery certificate hasbeen issued or a statement has beendrawn, the primary responsibilityfor the collection of tax shallrest with the TRO. iii. It would be the responsibilityof the supervisory authorities toensure that the Assessing Officersand the TROs take all such measuresas are necessary to collect thedemand. It must be understood thatmere issue of a show cause noticewith no followup is not to beregarded as adequate effort torecover taxes. B. Stay Petitions: i. Stay petitions filed with theAssessing Officers must be disposedof within two weeks of the filingof petition by the tax- payer. Theassessee must be intimated of thedecision without delay. ii. Where stay petitions are madeto the authorities higher than theAssessing Officer (DC/CIT/CC), itis the responsibility of the higherauthorities to dispose of thepetitions without any delay, and inany event within two weeks of thereceipt of the petition. Such a https://hcservices.ecourts.gov.in/hcservices/ decision should be communicated tothe assessee and the AssessingOfficer immediately. B. Stay Petitions: i. Stay petitions filed with theAssessing Officers must be disposedof within two weeks of the filingof petition by the tax- payer. Theassessee must be intimated of thedecision without delay. ii. Where stay petitions are madeto the authorities higher than theAssessing Officer (DC/CIT/CC), itis the responsibility of the higherauthorities to dispose of thepetitions without any delay, and inany event within two weeks of thereceipt of the petition. Such a https://hcservices.ecourts.gov.in/hcservices/ decision should be communicated tothe assessee and the AssessingOfficer immediately. iii. The decision in the matter ofstay of demand should normally betaken by Assessing Officer/TRO andhis immediate superior. A highersuperior authority should interferewith the decision of the AO/TROonly in exceptional circumstances;e.g., where the assessment orderappears to be unreasonably high-pitched or where genuine hardshipis likely to be caused to theassessee. The higher authoritiesshould discourage the assessee fromfilingreview petitions before themas a matter of routine or in afrivolous manner to gain time forwithholding payment of taxes. C. Guidelines for staying demand: i. A demand will be stayed only ifthere are valid reasons for doingso. Mere filing an appeal againstthe assessment order will not be asufficient reason to stay therecovery of demand. A fewillustrative situations where staycould be granted are: It is clarified that in thesesituations also, stay may begranted only in respect of theamountattributabletosuchdisputed points. Further where itis subsequently found that theassessee has not co-operated in theearly disposal of appeal or where asubsequent pronouncement by ahigher appellate authority or courtalters the above situation, thestay order may be reviewed andmodified. The above illustrationsare, of course, not exhaustive. ii. In granting stay, the AssessingOfficer may impose such conditionsas he may think fit. Thus he may —a. require the assessee to offersuitable security to safeguard theinterest of revenue; b. require theassessee to pay towards the https://hcservices.ecourts.gov.in/hcservices/ disputed taxes a reasonable amountin lump sum or in instalments; c.require an undertaking from theassessee that he will co-operate inthe early disposal of appealfailing which the stay order willbe cancelled. d. reserve the rightto review the order passed afterexpiry of a reasonable period, sayup to 6 months, or if the assesseehas not co-operated in the earlydisposal of appeal, or where asubsequent pronouncement by ahigher appellate authority or courtalters the above situations; e.reserve a right to adjust refundsarising, if any, against thedemand. iii. Payment by instalments may beliberally allowed so as to collectthe entire demand within areasonable period not exceeding 18months. iv. Since the phrase “stay ofdemand” does not occur in section220(6) of the Income-tax Act, theAssessing Officer should always usein any order passed under section220(6) [or under section 220(3) orsection 220(7)], the expressionthat occurs in the section viz.,that he agrees to treat theassessee as not being default inrespect of the amount specified,subject to such conditions as hedeems fit to impose. v. While considering an applicationunder section 220(6), the AssessingOfficer shouldconsiderallrelevant factors having a bearingonthedemandraisedandcommunicate his decision in theform of a speaking order. D. Miscellaneous: i. Even where recovery of demandhas been stayed, the AssessingOfficer will continue to review thesituation to ensure that theconditions imposed are fulfilled by the assessee failing which the stayorder would need to be withdrawn. v. While considering an applicationunder section 220(6), the AssessingOfficer shouldconsiderallrelevant factors having a bearingonthedemandraisedandcommunicate his decision in theform of a speaking order. D. Miscellaneous: i. Even where recovery of demandhas been stayed, the AssessingOfficer will continue to review thesituation to ensure that theconditions imposed are fulfilled by the assessee failing which the stayorder would need to be withdrawn. ii. Where the assessee seeks stayof demand from the Tribunal, itshould be strongly opposed. If theassessee presses his application,the CIT should direct thedepartmental representative torequest that the appeal be postedwithin a month so that Tribunal’sorder on the appeal can be knownwithin two months.iii. Appealeffects will have to be givenwithin 2 weeks from the receipt ofthe appellate order. Similarly,rectification application should bedecided within 2 weeks of thereceipt t hereof. Instances wherethere is undue delay in givingeffect to appellate orders, or indecidingrectificationapplications, should be dealt withvery strictly by the CCITs/CITs. 3. The Board desires thatappropriate action is taken in thematter of recovery in accordancewith the above procedure. TheAssessing Officer or the TRO, asthe case may be, and his immediatesuperior officer shall be heldresponsible for ensuring compliancewith these instructions. 4. This procedure would applymutatis mutandis to demands createdunder other Direct Taxes enactmentsalso.' 10. Instruction 1914 was partially modified byOffice Memorandum dated 29.02.2016 taking intoaccount the fact that Assessing Officers insisted onpayment of significant portions of the disputeddemand prior to grant of stay resulting in extremehardship for tax payers. Thus, in order tostreamline the grant of stay and standardize theprocedure, modified guidelines were issued which areas follows: '....... (A) In a case where the outstandingdemand is disputed before CIT (A), thehttps://hcservices.ecourts.gov.in/hcservices/assessing officer shall grant stay of demand till disposal of first appeal onpayment of 15% of the disputed demand,unless the case falls in the categorydiscussed in pars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the viewthat the nature of addition resulting inthe disputed demand is such that paymentof a lump sum amount higher than 15% iswarranted (e.g. in a case where additionon the same issue has been confirmed byappellate authorities in earlier yearsor the decision of the Supreme Court /orjurisdictional High Court is in favourof Revenue or addition is based oncredible evidence collected in a searchor survey operation, etc.) or, (b) the assessing officer is of the viewthat the nature of addition resulting inthe disputed demand is such that paymentof a lump sum amount lower than 15% iswarranted (e.g. in a case where additionon the same issue has been deleted byappellate authorities in earlier yearsor the decision of the Supreme Court orjurisdictional High Court is in favourof the assessee, etc.), the assessingofficer shall refer the matter to theadministrative Pr. CIT/ CIT, who afterconsidering all relevant facts shalldecide the quantum/ proportion of demandto be paid by the assessee as lump sumpayment for granting a stay of thebalance demand.' 11. Instruction 1914 was furthermodified by Office Memorandum bearingnumber F.No.404/72/93 – ITCC dated 31.072017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCCdated 31.07.2017 Subject: Partialmodification of Instruction No. 1914dated 21.3.1996 to provide forguidelines for stay of demand at thefirst appeal stage. Reference: Board’s O.M. of even numberdated 29.2.2016 Instruction No. 1914dated 21.3.1996 contains guidelinesissued by the Board regarding procedureto be followed for recovery of https://hcservices.ecourts.gov.in/hcservices/ 11. Instruction 1914 was furthermodified by Office Memorandum bearingnumber F.No.404/72/93 – ITCC dated 31.072017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCCdated 31.07.2017 Subject: Partialmodification of Instruction No. 1914dated 21.3.1996 to provide forguidelines for stay of demand at thefirst appeal stage. Reference: Board’s O.M. of even numberdated 29.2.2016 Instruction No. 1914dated 21.3.1996 contains guidelinesissued by the Board regarding procedureto be followed for recovery of https://hcservices.ecourts.gov.in/hcservices/ outstanding demand, including procedurefor grant of stay of demand. Vide O.M. N0.404/72/93-ITCC dated29.2.2016 revised guidelines were issuedin partial modification of instructionNo 1914, wherein, inter alia, vide para4(A) it had been laid down that in acase where the outstanding demand isdisputed before CIT(A), the AssessingOfficer shall grant stay of demand tilldisposal of first appeal on payment of15% of the disputed demand unless thecase falls in the category discussed inpara (B) thereunder. Similar referencesto the standard rate of 15% have alsobeen made in succeeding paragraphstherein. 2. The matter has been reviewed by theBoard in the light of feedback receivedfrom field authorities. In view of theBoard’s efforts to contain over pitchedassessments through several measuresresulting in fairer and more reasonableassessment orders, the standard rate of15% of the disputed demand is found tobe on the lower side. Accordingly. ithas been decided that the standard rateprescribed in O.M. dated 29.2.2016 berevised to 20% of the disputed demand,where the demand is contested before CIT(A). Thus all references to 15% of thedisputed demand in the aforesaid O.Mdated 29.2.2016 hereby stand modified to20% of the disputed demand. Otherguidelines contained in the O.M. dated29.2.2016 shall remain unchanged. These modifications may be immediatelybrought to the notice of all officersworking in your jurisdiction for propercompliance.' 12. The Circulars and Instructions as extractedabove are in the nature of guidelines issued toassist the assessing authorities in the matter ofgrant of stay and cannot substitute or override thebasic tenets to be followed in the consideration anddisposal of stay petitions. The existence of a primafacie case for which some illustrations have beenprovided in the Circulars themselves, the financialstringency faced by an assessee and the balance ofconvenience in the matter constitute the ‘trinity’,so to say, and are indispensable in consideration of https://hcservices.ecourts.gov.in/hcservices/ a stay petition by the authority. The Board has,while stating generally that the assessee shall becalled upon to remit 20% of the disputed demand,granted ample discretion to the authority to eitherincrease or decrease the quantum demanded based onthe three vital factors to be taken intoconsideration. 13. In the present case, the assessing officerhas merely rejected the petition by way of a non-speaking order reading as follows: 'Kindly refer to the above. This is toinform you that mere filing of appealagainst the said order is not a groundfor stay of the demand. Hence yourrequest for stay of demand is rejectedand you are requested to pay the demandimmediately. Notice u/s.221(1) of theIncome Tax Act, 1961 is enclosedherewith.' a stay petition by the authority. The Board has,while stating generally that the assessee shall becalled upon to remit 20% of the disputed demand,granted ample discretion to the authority to eitherincrease or decrease the quantum demanded based onthe three vital factors to be taken intoconsideration. 13. In the present case, the assessing officerhas merely rejected the petition by way of a non-speaking order reading as follows: 'Kindly refer to the above. This is toinform you that mere filing of appealagainst the said order is not a groundfor stay of the demand. Hence yourrequest for stay of demand is rejectedand you are requested to pay the demandimmediately. Notice u/s.221(1) of theIncome 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 tohave taken note of the conditions precedent for thegrant of stay as well as the Circulars issued by theCBDT and passed a speaking order. Of course thepetition seeking stay filed by the petitioner isitself cryptic. However, as noted by the SupremeCourt in the case of Commissioner of Income tax vsMahindra Mills, ((2008) 296 ITR 85 (Mad)) in thecontext of grant of depreciation, the Circular ofthe Central Board of Revenue (No. 14 (SL- 35) of1955 dated April 11, 1955) requires the officers ofthe department ‘to assist a taxpayer in everyreasonable way, particularly in the matter ofclaiming and securing reliefs. .... Although,therefore, the responsibility for claiming refundsand reliefs rests with the assessees on whom it isimposed by law, officers should draw their attentionto any refunds 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 havespecifically invoked the three parameters for thegrant of stay, it is incumbent upon the assessingofficer to examine the existence of a prima faciecase as well as call upon the assessee todemonstrate financial stringency, if any and arriveat the balance of convenience in the matter. 15. I thus set aside impugned order dated25.01.2019. The Assessing Officer is directed tohttps://hcservices.ecourts.gov.in/hcservices/pass orders de novo on the stay application filed by the petitioner in the light of the discussion asaforesaid, after hearing the petitioner, within aperiod of four weeks from date of receipt of a copyof this Order. I have, for the aforesaid reason,consciously and deliberately refrained fromreferring to or making any observation on the meritsof the assessment. 4. In the light of the discussion and my conclusion inthe above case that are equally applicable to the presentmatter as well, the impugned orders are set aside. Thepetitioner will appear before the Assessing Officer on Monday,the 2nd of March at 10:30 a.m., without expecting any furthernotice in this regard. The stay applications shall be disposedwithin two weeks thereafter i.e., on or before 16.03.2020.Status quo of recovery be maintained till 16.03.2020. 5. These writ petitions are disposed in the above terms.Consequently, connected miscellaneous petitions are closed. Nocosts. ska To Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar 1.The Deputy Commissioner of Income Tax Circle 1(1), Salem 3, Gandhi Road, Salem 636007 2.The Principal Commissioner of Income Tax-Salem,3,Gandhi Road, Salem 636007 +2ccs to Mr.K.M.Balaji , Advocate SR.No. 1425,14426+1cc to Mr.A.P.Srinivas , Advocate SR.No. 14840+2ccs to Mr.Thanjai P.N.Chezhian , Advocate SR.No. 14550,14511+2ccs to Mr.N.V.Balaji , Advocate SR.No. 14565,14566,Writ Petition No.4085 & 4088 of 2020WMP.No.4831, 4832, 4839 & 4840 of 2020A.SK(26/02/2020)