The Deputy Commissioner Of Incometax, Circle-Ii, Gurgaon v. The Itat, Delhi Bench-I, New Delhi And Another

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.8321 of 2013 Date of Order: 11[th] October, 2013 The Deputy Commissioner of IncomeTax, Circle-II, Gurgaon. ...Petitioner Versus The ITAT, Delhi Bench-I, New Delhi and another. ..Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Mr. Rupinder Khosla, Asstt. Solicitor General of India, with Mr. T.K.Joshi, Advocatefor the petitioner Mr. C.S.Aggarwal, Senior Advocate, withMr. Prakash Kumar, Advocate andMr. Ashim Aggarwal, Advocate,for respondent no.2. RAJIVE BHALLA, J. The revenue is before us with a prayer to set aside an interimorder dated 10.04.2013 (Annexure P-2), passed by the Income TaxAppellate Tribunal, directing refund of Rs.208 Crores to the respondent-assessee. A trivial adjournment, an overzealous revenue department,compelled apparently by year ending revenue collection targets, has led tothis unnecessary litigation. The bone of contention between parties iswhether in view of adjournment of the appeal, by the Tribunal on16.01.2013, the conditional stay order, passed by the Tribunal on13.12.2012, stands vacated. The revenue strenuously asserts that the stayorder stands vacated and, therefore, the revenue has appropriated Rs.208 Civil Writ Petition No.8321 of 2013 crores from the account of the assessee, whereas the assessee urges tothe contrary. The Tribunal has ordered the revenue to refund this amount. Counsel for the revenue, in his strenuous attempt to defendappropriation of Rs.208 crores by the revenue and assert the illegal natureof the order of refund, submits that stay order dated 13.12.2012, enjoinedthe assessee not to seek any adjournment and get the appeal finalised on13.01.2013 or on any subsequent date. The fact that counsel for theassessee prayed for and was granted an adjournment, even if on theground that a similar dispute was pending before a Special Bench of theTribunal, the stay order, dated 13.12.2012, stood vacated. The stay orderhaving been vacated by the act of the assessee seeking an adjournment,the revenue was well within its rights to demand and recover the tax due.The Income Tax Appellate Tribunal has no jurisdiction to direct refund ofthe amount legally appropriated by the revenue, by interpreting the stayorder and the order of adjournment, as it does not exercise appellate orrevisional powers. A perusal of the order reveals that the case wasadjourned as counsel for the assessee contended that the appeal involvesan issue, which is pending before a Special Bench, in the case of LGElectronics. The continuance of the stay order being dependent upon theassessee not seeking an adjournment, the adjournment of the appealpursuant to a request made by counsel for the assessee violated thiscondition of the stay order. The revenue was, therefore, well within its rightto call upon the respondent-assessee to pay the tax due. The Income TaxAppellate Tribunal has no jurisdiction to hold that the adjournment wasgranted suo-motto or that the Bench was obliged, on the principle ofjudicial discipline and judicial propriety, to adjourn the case. It is furthersubmitted that the Income Tax Appellate Tribunal has proceeded toassume that it has jurisdiction to pass an order of refund by relying upon Section 151 of the CPC and judgments that are irrelevant. It is alsocontended that as the Income Tax Appellate Tribunal itself has held thataction of the revenue is bonafide, there is no question of ordering refund orholding that the stay order does not stand vacated. It is further contendedthat even if the stay order had not been vacated, the Income Tax AppellateTribunal should have decided the appeal on merits, instead of issuinginterim directions as the issue with respect to AMP charges has beendecided in the case of LG Electronics. It is prayed that as the impugnedorder is legally, factually and jurisdictionally flawed, the writ petition may beallowed and the impugned order may be set aside. Counsel for the assessee submits that action of the revenue inappropriating money from the account of the petitioner is as brazen andillegal as its justification, lacks bonafides. The assessee paid tax, as perthe stay order and furnished a bank guarantee, for the remaining amount,which is valid till date. The fact that an adjournment may have beengranted by the Income Tax Appellate Tribunal, on the ground that a similarmatter is pending adjudication, before a Special Bench, is insufficient tohold that the assessee violated the stay order. It is further submitted that asMAP proceedings are pending and the stay order is in operation, therespondents cannot be allowed to appropriate any amount from theaccount of the assessee. It is further submitted that around 50% of the taxdemanded emanates from an issue relating to advertising, marketing andpromotion expenses, which was referred to a larger Bench of the IncomeTax Appellate Tribunal, in the case of LG Electronics India Limited and,therefore, the assessee's counsel was duty bound to bring this fact to thenotice of the Tribunal. The Income Tax Appellate Tribunal has madespecific mention of this case, while adjourning the case. The mere fact thatit recorded that this fact was brought to its notice by counsel for the assessee, has rightly been held to be irrelevant while holding that the casehad to be adjourned in order to maintain judicial propriety and judicialdiscipline. It is further submitted that the Income Tax Appellate Tribunalhas clearly held that adjournment was not taken by counsel for theassessee but was granted by the Tribunal in view of pendency of a similarmatter before a Larger Bench. It is further submitted that the allegedadjournment is dated 16.01.2013, but the revenue took no action till26.03.2013 and only at the fag end of the financial year, issued a noticeunder Section 226(3) of the Act. The sole object of the notice was to meettargets placed upon revenue officers for collection of tax. A plea raised bythe revenue that it was not aware of the fine print of order dated13.12.2012 upto 22.03.2013, is a blatant misstatement. If the departmentwas not aware of the fine print of the order, it would not have entertainedthe bank guarantee or accepted payment of tax. It is further submitted thatthe show cause notice dated 22.03.2013, does not allege that order dated13.12.2012 has been vacated. The said plea was raised during thepersonal hearing. The assessee was, therefore, not put to statutory noticeof the alleged vacation of the stay order. The notices refer to nonadmission of MAP proceedings, which are, admittedly, pending. It is furthersubmitted that in case the revenue was of the opinion that the said orderhas been vacated, it was obliged to approach the Tribunal seekingclarification of order dated 16.01.2013. The failure of the revenue to adoptthis course indicates malafides and an attempt to achieve targets set bythe department. It is further argued that the Tribunal has not committed anerror while holding that it is empowered to order refund, as Section 256 ofthe Income Tax Act, 1961 (hereinafter referred to as 'the Act') empowers aTribunal to pass an order that may be necessary to achieve the ends ofjustice. The department had no jurisdiction to interpret that adjournment Civil Writ Petition No.8321 of 2013 granted by order dated 16.01.2013 was an automatic vacation of the stayorder and should have approached the Tribunal for clarification. Therevenue instead, issued notice under Section 226(3) of the Act andappropriated a huge amount without authority of law. Even otherwise, asthe Tribunal exercises judicial powers, as held by the Hon'ble SupremeCourt in Income Tax Officerv. M.K.Mohammed Kunhi, 1968(71)ITR,815, the power exercised, would necessarily include a power to undo anyinjustice caused during pendency of an appeal. It is, thus, argued that asthe stay order was not violated, the order is still in force. We have heard counsel for the parties and perused theimpugned order. The DCIT Circle-II, Gurgaon, raised a demand of Rs.210.57Crores under Section 143(3), read with Section 144 C of the Income TaxAct (hereinafter referred to as 'the Act') for the assessment year 2008-09,pursuant to an order passed by the Dispute Resolution Panel. Theassessee filed an appeal before the Income Tax Appellate Tribunal, NewDelhi, accompanied by an application for stay of the demand. Theassessee also filed an application before the Central Board of Direct Taxesunder Mutual Agreement Procedure (MAP). It would be appropriate, at thisstage, to point out that Article 27 of the Convention (Treaty) betweenGovernments of United States of America and India, executed foravoidance of double taxation etc. empowers a person considering thatactions of one or both of States would result in taxation in contravention ofprovisions of the convention, irrespective of the remedies provided bydomestic law of those States, to present his case to the competentauthority of the State of which he is a resident or national. TheConvention/Treaty was followed by a memorandum of understanding (MOU) regarding deferment of assessment and/or suspension of collection (MOU) regarding deferment of assessment and/or suspension of collection Civil Writ Petition No.8321 of 2013 of taxes was issued. The MOU contemplates that Tax Authorities in Indiaand USA shall retain the right to demand security for deferment ofassessment/payment of tax. The security to be furnished in India is anirrevocable bank guarantee. The CBDT has issued instructionNo.10/2007, dated 23.10.2007, providing that on receipt of formal requestfor suspension of collection of outstanding tax in terms of the Treaty/MOU,the Assessing Officer is required to keep the tax in abeyance if the samehas been “admitted” by the Indian Competent Authority. The appeal filed bythe assessee against the order passed by the DCIT-II, Gurgaon, came upfor consideration before the Income Tax Appellate Tribunal. Vide orderdated 13.12.2012, a stay of the demand for a period of 180 days ordisposal of the appeal or of the MAP application, whichever is earlier wasgranted. The conditional order dated 13.12.2012 reads as follows:- “In consideration of the application of the assessee inthe light of rival submissions and material on record, wegrant of stay of recovery, subject to condition thatassessee shall deposit Rs.2.50 crores on or before21.12.2012 and shall furnish bank guarantee for theamount involved for which MAP application has beenfiled, on or before 31.12.2012, for a period of 180 daysor disposal of the appeal/MAP application, whichever isearlier. However, assessee shall not seek anyadjournment and get finalised the appeal fixed forhearing on 13.01.2013 or any subsequent date. In caseassessee seeks adjournment or commits default inmaking payment or furnish bank guarantee within thestipulated time, the accommodation herein granted shallstand automatically cancelled and entire outstanding demand would be recoverable as per law.” The assessee, admittedly, complied with these conditions andit is not denied that MAP proceedings are pending. The appeal came up forhearing on 16.01.2013, and the following order was passed:- “Ld. Counsel for the assessee contends that the appealinvolved AMP issue on which the Special Bench order inthe case of the LG Electronics is awaited. Adjourned to16.04.2013.” A perusal of the order reveals that counsel for the assesseemade a statement that the appeal involves an issue relating to advertising,marketing and promotion, which is pending before a Special Bench in thecase of LG Electronics. The Tribunal, thereafter, adjourned the appeal to16.04.2013. The department claims that, though, it was aware of the stayorder dated 13.12.2012, it was not aware of the fine print of order dated13.12.2012, as the order only became available to the revenue on22.03.2013. The department perused the stay order dated 13.12.2012 andorder dated 16.01.2013 and as it was satisfied that an adjournment hasbeen sought by the assessee, beyond 16.01.2013, the stay order standsautomatically vacated. A notice was issued under Section 221(1) of theAct, on 22.03.2013, calling upon the assessee to discharge liability forassessment year 2008-09. A perusal of the notice reveals that it does not refer to thevacation of the stay order but alleges that it is not clear whether MAPapplication has been admitted. However, it appears from the reply filed bythe respondents, to the show cause notice, that this matter was discussedwith the respondents during meetings in their office, but as noticed above,does not form part of the notice issued to the assessee. It would be Civil Writ Petition No.8321 of 2013 A perusal of the notice reveals that it does not refer to thevacation of the stay order but alleges that it is not clear whether MAPapplication has been admitted. However, it appears from the reply filed bythe respondents, to the show cause notice, that this matter was discussedwith the respondents during meetings in their office, but as noticed above,does not form part of the notice issued to the assessee. It would be Civil Writ Petition No.8321 of 2013 appropriate to point out that replies filed by the assessee on 24.03.2013,do refer to the stay order, pendency of a matter before a Special Bench inthe case of LG Electronics and that the innocuous adjournment granted on16.01.2013, cannot be construed as a vacation of the stay order, or anadjournment at the request of the petitioner. The revenue, however,proceeded to appropriate the amount of tax due from the assessee byserving a notice on Standard Chartered Bank. The assessee filed an application under Section 151 of theCode of Civil Procedure, before the Income Tax Appellate Tribunal, forrefund of the amount recovered by the revenue. The revenue raised a pleathat as the stay order stood vacated, in view of adjournment, dated16.01.2013, the Income Tax Appellate Tribunal has no jurisdiction to orderrefund. After a detailed perusal of the facts, the Income Tax AppellateTribunal framed five questions for adjudication in the following terms:- “a) Has the stay order of the Tribunal been flouted bythe assessee;the assessee; b) Has the stay order of the Tribunal been flouted bythe department;the department; c) If the answer to b) is yes then is the action of thedepartment bonafide or malafide on facts;department bonafide or malafide on facts; d) If the answer to b) is yes then does the Tribunalhave the power to direct a refund;have the power to direct a refund; e) in case the answer to d) is yes, then what are thesafeguards which can be ensured to protect theinterest of the Revenue.”safeguards which can be ensured to protect theinterest of the Revenue.” The Income Tax Appellate Tribunal held that adjournment wasgranted by the Tribunal in confirmity with judicial discipline and judicialpropriety as the appeal could not be decided in view of pendency of Civil Writ Petition No.8321 of 2013 another appeal, relating to Advertising, Marketing and Promotion expensesbefore a Special Bench and, therefore, the appeal had been adjourned,suo moto. The Income Tax Appellate Tribunal also held, on the basis ofcertain judgment and by relying upon Section 151 of the CPC, that it isempowered to pass an order of refund of an amount illegally appropriatedby the revenue and, thus, proceeded to pass an order directing therevenue to refund the amount collected in violation of the stay order dated13.12.2012 on or before 18.04.2013. The Income Tax Appellate Tribunal held that adjournment wasgranted by the Tribunal in confirmity with judicial discipline and judicialpropriety as the appeal could not be decided in view of pendency of Civil Writ Petition No.8321 of 2013 another appeal, relating to Advertising, Marketing and Promotion expensesbefore a Special Bench and, therefore, the appeal had been adjourned,suo moto. The Income Tax Appellate Tribunal also held, on the basis ofcertain judgment and by relying upon Section 151 of the CPC, that it isempowered to pass an order of refund of an amount illegally appropriatedby the revenue and, thus, proceeded to pass an order directing therevenue to refund the amount collected in violation of the stay order dated13.12.2012 on or before 18.04.2013. Before we consider whether the Tribunal is empowered topass such an order, it would be appropriate to examine order dated16.01.2013, which we have already reproduced in a preceeding paragraphof the judgment. A perusal of the order reveals that counsel for theassessee brought it to the notice of the Tribunal that the appeal involves anissue relating to AMP, which is pending before a Special Bench, in the caseof LG electronics. The Tribunal adjourned the case to 16.04.2013. Theopinion recorded by the Tribunal that order dated 16.01.2013 does notrecord a request for an adjournment, at the behest of counsel for theassessee, cannot be faulted. The counsel for the assessee brought to thenotice of the Tribunal that an appeal involving a similar issue is pendingbefore a Special Bench. It was for the Tribunal to hear the appeal oradjourn the appeal. The Tribunal choose, instead, to adjourn the appeal asit could not be decided without decision of the reference. The order dated16.01.2013 must, therefore, be read as the assessee bringing a fact to thenotice of the Tribunal and the latter adjourning the case. The endeavour ofthe revenue to interpret this order as an adjournment claimed by theassessee, in our considered opinion is erroneous as even a prima facieperusal of the order does not indicate any request by counsel for theassessee for an adjournment. This fact apart, it would be appropriate to point out that theshow cause notice issued to the assessee does not refer to vacation of thestay order but refers to admission or not of the MAP application, though, itappears that there was some discussion relating to vacation of the stayorder during a personal hearing, that preceeded issuance of the notice. Ifsuch a discussion had taken place, the officer concerned should have beenhonest enough to issue a show cause notice on the ground that the stayorder stands vacated, a stand that was vehemently urged before theTribunal and is reiterated before us. The vacillating stand of the revenueclearly indicates a confused state of mind, apparently compelled by theneed to achieve targets fixed by superiors of the department. We,therefore, find no reason to differ with the opinion recorded by the Tribunal,that as counsel for the assessee did not pray for an adjournment, the stayorder did not stand vacated. The next plea relates to jurisdiction of the Tribunal to orderrefund of the amount appropriated by the revenue, during pendency of theappeal. The learned Tribunal has held that it is empowered, in view ofnature of its jurisdiction, as well Section 151 CPC to order refund, as thestay order has not been vacated. The power to ensure that its orders arenot violated during pendency of a lis are inherent in any Court or Tribunal.In fact it is the bounden duty of the Tribunal to ensure where its order isviolated that the violation is adequately redressed and money appropriated,is restituted. If such a power is held not to be available to the Tribunal, itsinterim orders would be flouted with impunity. If, the revenue was of theopinion that the stay order has been violated by the assessee or has beenvacated, it should have approached the Tribunal for clarification by way ofan appropriate application but instead proceeded in a ham-handedmanner, to appropriate this amount. The order passed by the Tribunal, in Civil Writ Petition No.8321 of 2013 our considered opinion, does not suffer from any error of jurisdiction or oflaw and must, therefore, be affirmed. In view of what has been stated hereinabove, the writ petitionis dismissed but refund of the amount shall await decision of the appeal,which shall be decided by the Tribunal, within one month from receipt of acertified copy of this order. (RAJIVE BHALLA) JUDGE 11[th] October, 2013nt (DR. BHARAT BHUSHAN PARSOON) JUDGE