Wtax/1307/2022 Of Alm Industries Ltd v. Deputy Commissioner Of Income Tax And 3 Others

Court No. - 10 Case :- WRIT TAX No. - 1307 of 2022 Petitioner :- ALM Industries Ltd. Respondent :- Deputy Commissioner of Income Tax & 3 OthersCounsel for Petitioner :- Suyash Agarwal,Sr. AdvocateCounsel for Respondent :- Gaurav Mahajan,A.S.G.I.,Anant Kumar Tiwari Hon'ble Rohit Ranjan Agarwal,J. 1.Heard Sri Rakesh Ranjan Agarwal, learned Senior Advocate,assisted by Sri Suyash Agarwal, learned counsel for the petitionerand Sri Manu Ghildyal, learned counsel for the Income TaxDepartment. 2.This writ petition under Article 226 of the Constitution ofIndia has been filed by the petitioner–Assessee challenging the orderdated 14.09.2022 passed by Principal Commissioner of Income Tax,Dehradun requiring pre-deposit of 20% of outstanding tax paymentof Rs.197,41,95,820/- for the assessment year 2016-17 and orderdated 30.8.2022 passed by Deputy Commissioner of Income Tax,Circle-3(1)(1), Muzaffarnagar on the stay application of theAssessee–Petitioner filed against the demand dated 28.04.2022. 3.The facts, in nutshell, are that the petitioner–Assessee is aCompany being engaged in the business of processing and export offrozen boneless buffalo meat to various countries. The disputerelates to assessment year 2016-17. A return of income tax was filedon 14.10.2016 declaring total income of Rs.6,53,84,790/-. The saidreturn was processed and accepted under Section 143(1) of theIncome Tax Act, 1961 (hereinafter called as “Act of 1961”). On30.03.2021 a notice under Section 148 of Act of 1961 forreassessment was issued to which reply was filed by the petitioner.During pendency of the proceedings, the assessment proceedingswere transferred to the National Faceless Assessment Centre(hereinafter called as “NFAC”). On 08.02.2022, a notice underSection 142(1) of the Act of 1961 was issued by NFAC and details of purchases and records, maintained by the petitioner as per Rule6DD of the Income Tax Rules, 1962 (hereinafter called as “Rules of1962”), were sought to which reply was furnished on 09.03.2022 bythe petitioner. Another notice was issued on 26.03.2022 asking forseveral details relating to cash purchases and disallowance underSection 40A(3) of the Act of 1961 read with Rule 6DD of Rules of1962. The same was replied and a draft assessment was madeproposing disallowance of Rs.331,27,16,435/- under Section 40A(3)of the Act of 1961 and a notice was issued on 27.03.2022 which wasto be replied by 28.03.2022. 4.On 29.03.2022, assessment order was passed under Section147 read with Section 144B of the Act of 1961 assessing total incomeof Assessee at Rs.337,81,01,225/- after repeating addition/disallowance. A demand of Rs.197,41,95,820/- was raised against thepetitioner as the total income tax. A statutory appeal under Section246A of the Act of 1961 read with Rule 45 of the Rules of 1962 wasfiled on 25.04.2022. On 28.04.2022, the petitioner filed a stayapplication before the Deputy Commissioner of Income Tax, Circle-3(1)(1), Muzaffarnagar. The said application for stay of demand wasrejected on the ground that the Assessee Company has not madepayment of 20% of the disputed demand as per the CBDT instructionNo.1914 of 1996, which was amended vide office memorandumdated 29.02.2016 and further partial modification vide officeinstruction dated 31.07.2017. 5.Thereafter, the petitioner filed application before respondentNo.2 i.e. Principal Commissioner of Income Tax, Dehradun on05.09.2022 and the same was rejected on 14.09.2022 on the groundthat liquidity position of the Assessee was strong enough to makepayment of impugned tax demand at the rate of 20% of theoutstanding demand. Hence the present writ petition. 6.Sri Rakesh Ranjan Agarwal, Senior Advocate, appearing forthe petitioner submitted that the Assessee had filed appeal before 5.Thereafter, the petitioner filed application before respondentNo.2 i.e. Principal Commissioner of Income Tax, Dehradun on05.09.2022 and the same was rejected on 14.09.2022 on the groundthat liquidity position of the Assessee was strong enough to makepayment of impugned tax demand at the rate of 20% of theoutstanding demand. Hence the present writ petition. 6.Sri Rakesh Ranjan Agarwal, Senior Advocate, appearing forthe petitioner submitted that the Assessee had filed appeal before Commissioner of Income Tax (Appeals) on 25.04.2022 i.e. within aperiod of 30 days from the date of assessment. An application as perprovision of Section 220(6) of the Act of 1961 was also filed withintime, as such the Assessee cannot be treated to be “Assessee-in-default”. According to him, under the Act of 1961, there is norequirement for filing stay application. He next contended thatcardinal principles for consideration of stay of demand is that beforewarranting for enforcement of payment/recovery of such highpitched demand, the authorities should see that, whether there isstrong prima facie case of the Assessee; that the balance ofconvenience lies in favour of the Assessee; and, financial position ofthe Assessee. 7.According to senior advocate, the Deputy Commissioner ofIncome Tax while considering the stay application had only reliedupon the instructions of CBDT of 2016, which was partially amendedin 2017 and without recording any finding, had directed for depositof 20% of the disputed demand. Similarly, the PrincipalCommissioner of Income Tax had only seen one side of the case andrelying upon the total Receivables Trade receipt bills and cash inhand, found that the financial position of the petitioner was strongenough to make payment of 20% of the impugned tax demand.According to him, the Principal Commissioner of Income Tax hadnot seen the liabilities of the Company, which is quite huge to thetune of Rs.117 crores and the Principal Commissioner of Income Taxwhile deciding the stay application should have also considered theliability portion in its order. Reliance has been placed upon Rule6DD(e) of the Rules of 1962, which provides that where the paymentis made for the purchase of the produce of animal husbandry(including livestock, meat, hides and skins) or dairy or poultryfarming, payment exceeding ten thousand rupees may be made to aperson in a day, otherwise than by an account payee cheque drawnon a bank or account payee bank draft or use of electronic clearing system through a bank account, no disallowance under Section40A(3) of the Act of 1961 shall be made. 8.He has relied upon decision of Apex Court in PrincipalCommissioner of Income-Tax vs. GEE Square Exports(2019) 260 Taxman 175 (SC) as well as decisions of differentHigh Courts in Writ Tax No. 294 of 2010 (M/s JeetConstruction Company vs. Assistant Commissioner ofIncome Tax and others) decided on 24.02.2020, KECInternational Ltd. vs. B.R.Balakrishnan (2001) 119 Taxman974 (Bombay); Flipkart India (P.) Ltd. vs. AssistantCommissioner of Income-tax, Circle 3(1)(1), Bengaluru(2017) 248 Taxman 555 (Karnataka); Tata TeleservicesLimited vs. Commissioner of Income Tax, InternationalTaxation-3 & Another in Writ Petiton (C) No.4660 of 2022decided on 23.03.2022by the Delhi High Court and decision of HighCourt of Bombay at Goa in Tungabhadra Minerals PrivateLimited through Jayant Gaunker vs. Deputy Commissioner of Income Tax and 3 others decided on 30[th] September, 2022. of Income Tax and 3 others decided on 30[th] September, 2022. 9.Sri Manu Ghildyal, learned counsel appearing for Income-TaxDepartment submitted that Section 220 (6) of the Act of 1961provides that it is the discretion of the Assessing Officer that acondition be imposed in a particular set of case treating the Assesseeas ‘not being in default’ in respect of amount not disputed in appeal.According to him, mere filing of statutory appeal within time wouldnot mean that Assessee is ‘not in default’, but only upon theconditions imposed by the Assessing Officer having been compliedby the Assessee, it is only then that the Assessee is treated as to be“Assessee not in default”. 10.According to him, initially the return declaring an income ofRs.6,53,84,790/- was filed by the petitioner. Subsequently, thedeductions were disallowed under Section 40A(3) of the Act of 1961on the ground that the Assessee failed to furnish the required information and an assessment was made and tax demand ofRs.197,41,95,820/- was raised against the petitioner. The PrincipalCommissioner of Income Tax had considered the balance sheet ofthe petitioner and after going through the audit report and thebalance sheet of the latest assessment year 2022-23, the applicationfor stay of recovery was rejected on the ground that liquidity positionof the petitioner was strong enough to pay the impugned tax demandi.e. 20% of the outstanding demand. 11.According to the Department counsel, nowhere in the stayapplication it has been pressed by the Assessee that its financialposition was critical and was not in the position to deposit 20% ofthe outstanding demand, as directed by the authority. 12.I have heard the respective counsel and perused the materialon record. 13.It is a case where the appeal filed by the Assessee–petitioner isunder consideration before Deputy Commissioner of Income Tax(Appeals). The dispute is as to the deposit of 20% of the disputeddemand raised subsequent to the reassessment made by the Income- Tax Authorities. 14.Section 220(6) of the Act of 1961 reads as under : “(6)Where an assessee has presented an appeal under section246 or section 246A the Assessing Officer may, in his discretionand subject to such conditions as he may think fit to impose in thecircumstances of the case, treat the assessee as not being in defaultin respect of the amount in dispute in the appeal, even though thetime for payment has expired, as long as such appeal remainsundisposed of.” 15.From the reading of the aforesaid provision it is clear that oncean appeal has been filed under Section 246 or 246A of Act of 1961, itis the discretion of the ‘Assessing Officer’ and subject to thecondition as he may think fit to impose in the circumstances of thecase, treat the Assessee as not being in default in respect of theamount in dispute in the appeal. 16.The argument of the petitioner’s counsel to the extent that thepresentation of the appeal within statutory period should be treatedas “Assessee as not being in default” cannot be accepted because it isclarified to the extent that discretion has been given to the AssessingOfficer who has to impose a condition in each of such cases treatingthe Assessee as not being in default in respect of the amount indispute in the appeal. 17.Thus, it is clear that mere pendency of an appeal will not giveany benefit to an Assessee, but only upon the satisfaction havingbeen recorded by the Assessing Officer and the condition beingimposed by him in each of such cases that an Assessee shall betreated to be not in default in respect of the outstanding demand oftax, which is matter of dispute in appeal. 18.However, the word ‘discretion’, which occurs in the aforesaidprovision of law, does not give a blanket power to the AssessingOfficer. He has to exercise his discretion within the four corners oflaw and while passing an order imposing a condition, he has tojustify his action. 17.Thus, it is clear that mere pendency of an appeal will not giveany benefit to an Assessee, but only upon the satisfaction havingbeen recorded by the Assessing Officer and the condition beingimposed by him in each of such cases that an Assessee shall betreated to be not in default in respect of the outstanding demand oftax, which is matter of dispute in appeal. 18.However, the word ‘discretion’, which occurs in the aforesaidprovision of law, does not give a blanket power to the AssessingOfficer. He has to exercise his discretion within the four corners oflaw and while passing an order imposing a condition, he has tojustify his action. 19.In the instant case, the Deputy Commissioner of Income Taxwhile passing the order dated 30.08.2022 had solely relied upon thecircular of 2016, which was partially modified in the year 2017 anddirected for deposit of 20% of the disputed amount of tax andrejected the stay application while the Principal Commissioner ofIncome Tax proceeded to consider the audit report and balance sheetpartially and considering the assets while ignoring the liability parthad rejected the stay application holding the financial position of thepetitioner to be strong enough and directed for depositing 20% ofthe disputed amount of tax. 20.This Court finds that while considering the stay application,neither the Deputy Commissioner of Income Tax nor PrincipalCommissioner of Income Tax had considered three basic principles i.e. prima facie case, balance of convenience and irreparable loss, asheld by Delhi High Court in Tata Teleservices Limited (supra). 21.In the result, the writ petition is partly allowed. The ordersimpugned dated 30.08.2022 and 14.09.2022 are hereby set asideand the matter is remitted back to the Deputy Commissioner ofIncome Tax, Circle 3(1)(1), Muzaffarnagar for consideration of stayapplication of the petitioner afresh. 22.It is made clear that respondent No.1 i.e. DeputyCommissioner of Income Tax, Circle 3(1)(1), Muzaffarnagar shallpass appropriate order on the stay application within two weeksfrom today after affording personal opportunity of hearing to thepetitioner. Order Date :- 20.10.2022Kushal