T.s.ajoy v. The Principal Commissioner Of Income Tax, Salem

DATED: 12.03.2020 CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTH Writ Petition No.6466 of 2020 and WMP. No.7646 of 2020 T.S.Ajoy ...Petitioner Vs. 1. The Principal Commissioner of Income Tax, Salem. 2. The Commissioner of Income Tax (Appeals) Salem. 3. The Income Tax Officer, Ward I, Krishnagiri. ... Respondents PRAYER: PETITION filed under Article 226 of the Constitutionof India praying for the issuance of Writ of CertiorarifiedMandamus, to call for the records of the first respondent inhis proceedings in C.No.9510(90)/19-20/Stay/PCIT/SLM, quashthe order dated 17.02.2020 issued therein and further grant anabsolute stay pending disposal of the appeal on the files ofthe Commissioner of Income Tax (Appeals), Salem. For Petitioner : Mr.P.V.SudakarFor Respondents: Mr.A.P.Srinivas Senior Standing Counsel Mr.A.P.Srinivas, learned Senior Standing Counsel acceptsnotice for the respondents and is ready to proceed with thematter. 2. Heard Mr.P.V.Sudakar, learned counsel for thepetitioner and Mr.A.P.Srinivas, learned Senior StandingCounsel for the respondents. By consent of both sides, theWrit Petition is disposed finally at the stage of admission.3. The challenge is to a stay order passed by thePrincipal Commissioner of Income Tax, Salem/R1 dated17.02.2020 in the following terms: 'The assessee has made payment of 5% of demandand requested to stay the balance. As per CBDTcircular no.F.No.404/72/93-ITCC dt.31/07/2017, whenthe case is in first appeal, subject to payment of 20%of the demand, balance can be stayed. In this caseonly 5% of the demand is paid. The assessee is https://hcservices.ecourts.gov.in/hcservices/ directed to pay the balance 15% of the demand in 10equal monthly installments starting from 15[th] March.Failing to pay any installments, the stay facilitystands vacated without further notice automatically. The installment granted is as per the CBDTInstructions No.1914 subjected to the followingconditions 1. Department reserves the right to reviewthe order passed after expiry of reasonableperiod, or if the assessee has not cooperated inthe early disposal of appeal, or where asubsequent pronouncement by a higher appellateauthority or court alters the above situations. 2. Department reserves a right to adjustrefunds arising, if any against the demand. 3. If the assessee fails to pay the taxarrears as per the installments granted ordefault in payment of arrears on or before thesaid period mentioned above, the order of grantof installment stands to be cancelled/revoked andthe assessee will be treated as assessee indefault. The recovery proceedings will beinitiated as per the provisions of Income TaxAct, 1961 without any further intimation. Subject to above condition, the balance demand isstayed till the disposal of first appeal.'. 4. The grievance expressed by the petitioner is that noopportunity of hearing has been granted prior to passing ofthe impugned order and the same is cryptic that has not takeninto account the prima facie case or the submission offinancial stringency that has been made in the detailed stayapplication filed. 5. I have had an occasion to consider the similar issuein the case of Mrs.Kannammal V. Income Tax Officer(W.P.No.3849 of 2019 dated 13.02.2019) and have held asfollows: '7. The parameters to be taken into account inconsidering the grant of stay of disputed demand arewell settled – the existence of . ‘Financialstringency’ would include within its ambit thequestion of 'irreparable injury' and ‘undue hardship’as well. It is only upon an application of the threefactors as aforesaid that the assessing officer canexercise discretion for the grant or rejection, whollyor in part, of a request for stay of disputed demand. 5. I have had an occasion to consider the similar issuein the case of Mrs.Kannammal V. Income Tax Officer(W.P.No.3849 of 2019 dated 13.02.2019) and have held asfollows: '7. The parameters to be taken into account inconsidering the grant of stay of disputed demand arewell settled – the existence of . ‘Financialstringency’ would include within its ambit thequestion of 'irreparable injury' and ‘undue hardship’as well. It is only upon an application of the threefactors as aforesaid that the assessing officer canexercise discretion for the grant or rejection, whollyor in part, of a request for stay of disputed demand. 8. In addition, periodic Instructions/Circulars inregard to the manner of adjudication of stay petitionsare issued by the Central Board of Direct Taxes (CBDT)for the guidance of the Departmental authorities. Theone oft-quoted by the assessee is Office MemorandumF.No.1/6/69/-ITCC, dated 21.08.1969 that states ashttps://hcservices.ecourts.gov.in/hcservices/follows: '1. One of the points that came up forconsideration in the 8th Meeting of the InformalConsultative Committee was that income-tax assessments were often arbitrarily pitched athigher figures and that the collection ofdisputed demand as a result thereof was also notstayed in spite of the specific provision in thematter in s. 220(6) of the IT Act, 1961. 2. The then Deputy Prime Minister had observed asunder : ".........Where the income determined onassessment was substantially higher than thereturned income, say twice the latter amount ormore, the collection of the tax in dispute shouldbe held in abeyance till the decision on theappeal provided there were no lapses on the partof the assessees." 3. The Board desire that the above observationsmay be brought to the notice of all the Income-tax Officers working under you and the powers ofstay of recovery in such cases up to the stage offirst appeal may be exercised by the InspectingAssistant 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 show https://hcservices.ecourts.gov.in/hcservices/ cause 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 ofthe filing of petition by the tax- payer. Theassessee must be intimated of the decisionwithout delay. https://hcservices.ecourts.gov.in/hcservices/ cause 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 ofthe 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 undertakingfrom 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 subsequent https://hcservices.ecourts.gov.in/hcservices/ pronouncement 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. https://hcservices.ecourts.gov.in/hcservices/ pronouncement 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. 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 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 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 thefact that Assessing Officers insisted on payment ofsignificant portions of the disputed demand prior togrant 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 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 discussedin pars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view that thenature of addition resulting in the disputeddemand is such that payment of a lump sum amounthigher than 15% is warranted (e.g. in a casewhere addition on the same issue has beenconfirmed by appellate authorities in earlieryears or the decision of the Supreme Court /orjurisdictional High Court is in favour of Revenueor addition is based on credible evidencecollected in a search or survey operation, etc.)or, '....... (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 discussedin pars (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view that thenature of addition resulting in the disputeddemand is such that payment of a lump sum amounthigher than 15% is warranted (e.g. in a casewhere addition on the same issue has beenconfirmed by appellate authorities in earlieryears or the decision of the Supreme Court /orjurisdictional High Court is in favour of Revenueor addition is based on credible evidencecollected in a search or survey operation, etc.)or, (b) the assessing officer is of the view that thenature of addition resulting in the disputeddemand is such that payment of a lump sum amountlower than 15% is warranted (e.g. in a case whereaddition on the same issue has been deleted byappellate authorities in earlier years or thedecision of the Supreme Court or jurisdictionalHigh Court is in favour of the assessee, etc.),the assessing officer shall refer the matter tothe administrative Pr. CIT/ CIT, who afterconsidering all relevant facts shall decide thequantum/ proportion of demand to be paid by theassessee as lump sum payment for granting a stayof the balance demand.' 11. Instruction 1914 was further modified by OfficeMemorandum bearing number F.No.404/72/93 – ITCC dated31.07 2017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated31.07.2017Subject: Partial modification of Instruction No.1914 dated 21.3.1996 to provide for guidelinesfor stay of demand at the first appeal stage.Reference: Board’s O.M. of even number dated29.2.2016Instruction No. 1914 dated 21.3.1996 containshttps://hcservices.ecourts.gov.in/hcservices/guidelines issued by the Board regardingprocedure to be followed for recovery ofoutstanding demand, including procedure for grantof stay of demand. Vide O.M. N0.404/72/93-ITCC dated 29.2.2016revised guidelines were issued in partialmodification of instruction No 1914, wherein,inter alia, vide para 4(A) it had been laid downthat 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 demandunless the case falls in the category discussedin para (B) thereunder. Similar references to thestandard rate of 15% have also been made insucceeding paragraphs therein. 2. The matter has been reviewed by the Board inthe light of feedback received from fieldauthorities. In view of the Board’s efforts tocontain over pitched assessments through severalmeasures resulting in fairer and more reasonableassessment orders, the standard rate of 15% ofthe disputed demand is found to be on the lowerside. Accordingly. it has been decided that thestandard rate prescribed in O.M. dated 29.2.2016be revised to 20% of the disputed demand, wherethe demand is contested before CIT(A). Thus allreferences to 15% of the disputed demand in theaforesaid O.M dated 29.2.2016 hereby standmodified to 20% of the disputed demand. Otherguidelines contained in the O.M. dated 29.2.2016shall 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 theassessing authorities in the matter of grant of stayand cannot substitute or override the basic tenets tobe followed in the consideration and disposal of staypetitions. The existence of a prima facie case forwhich some illustrations have been provided in theCirculars themselves, the financial stringency facedby an assessee and the balance of convenience in thematter constitute the ‘trinity’, so to say, and areindispensable in consideration of a stay petition bythe authority. The Board has, while stating generallythat the assessee shall be called upon to remit 20% ofthe disputed demand, granted ample discretion to theauthority to either increase or decrease the quantumdemanded based on the three vital factors to be takeninto consideration. 13. In the present case, the assessing officer hasmerely rejected the petition by way of a non-speakingorder reading as follows: 'Kindly refer to the above. This is to informhttps://hcservices.ecourts.gov.in/hcservices/you that mere filing of appeal against the saidorder is not a ground for stay of the demand.Hence your request for stay of demand is rejectedand you are requested to pay the demand immediately. Notice u/s.221(1) of the Income TaxAct, 1961 is enclosed herewith.' 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 Supreme Courtin the case of Commissioner of Income tax vs MahindraMills, ((2008) 296 ITR 85 (Mad)) in the context ofgrant of depreciation, the Circular of the CentralBoard of Revenue (No. 14 (SL- 35) of 1955 dated April11, 1955) requires the officers of the department ‘toassist a taxpayer in every reasonable way,particularly in the matter of claiming and securingreliefs. .... Although, therefore, the responsibilityfor claiming refunds and reliefs rests with theassessees on whom it is imposed by law, officersshould draw their attention to any refunds or reliefsto which they appear to be clearly entitled but whichthey have omitted to claim for some reason orother......’. Thus, notwithstanding that the assesseemay not have specifically invoked the three parametersfor the grant of stay, it is incumbent upon theassessing officer to examine the existence of a primafacie case as well as call upon the assessee todemonstrate financial stringency, if any and arrive atthe balance of convenience in the matter. ' 6. Mr.Srinivas states that the Princpial Commissioner ofIncome Tax is an administrative authority and therefore hasexercised the power rightly in granting the instalment scheme. 7. Be that as it may, it is incumbent upon the authoirtywho has jurisdiction to consider the application for stay inproper perspective. Be it an Administrative or AppellateAuthority, it is necessary that while considering the stayapplication, the tri-fold aspects of prima facie case,financial stringency and balance of convenience are takeninto account, both to protect the interests of the Departmentas well as to take into account the submissions of theassessee in proper perspective. 6. Mr.Srinivas states that the Princpial Commissioner ofIncome Tax is an administrative authority and therefore hasexercised the power rightly in granting the instalment scheme. 7. Be that as it may, it is incumbent upon the authoirtywho has jurisdiction to consider the application for stay inproper perspective. Be it an Administrative or AppellateAuthority, it is necessary that while considering the stayapplication, the tri-fold aspects of prima facie case,financial stringency and balance of convenience are takeninto account, both to protect the interests of the Departmentas well as to take into account the submissions of theassessee in proper perspective. 8. I am of the considered view that has not been done inthe present case. Hence, the impugned order is set aside.The petitioner will appear before the Principal Commissionerof Income Tax/R1 on Tuesday, the 24[th] of March, 2020 at 10.30a.m. without expecting any further notice in this regard alongwith relevant materials in support of his submission. Aftertaking into account the submissions made by the petitioner, ahttps://hcservices.ecourts.gov.in/hcservices/speaking order shall be passed within a period of four (4)weeks from 24.03.2020, i..e, on or before 21.04.2020. Tillsuch time, no recovery proceedings shall be initiated. Sd/- Assistant Registrar(CS) //True Copy// Sub Assistant RegistrarslTo1. The Principal Commissioner of Income Tax, Salem.2. The Commissioner of Income Tax (Appeals) Salem.3. The Income Tax Officer, Ward I, Krishnagiri.+1cc to Mr.P.V.Sudhakar , Advocate SR.No. 22103+1cc to Mr.A.P.Srinivas , Advocate SR.No. 22856Writ Petition No.6466 of 2020and WMP. No.7646 of 2020A.SK(20/03/2020)