2011 (3) TMI 688 - AT - Income Tax

Application for stay - Demand - Penalty - The outstanding demand was recovered by the Assessing Officer by coercive measures and that too when the stay applications filed by the assessee before the Tribunal were pending in the sense that they were not even fixed for hearing - AO had a justifiable basis to believe that the assessee was not entitled to get a stay of outstanding demand beyond the period 365 days and with this bona fide belief, he proceeded to recover the outstanding demand which was pending for more than three years - The mode of recovery adopted by the Assessing Officer, therefore, cannot be regarded as a coercive measure taken by him to recover the outstanding demand from the assessee in undue haste and that too with an intention to thwart the stay proceedings before the Tribunal - Decided against the assessee

Issues Involved:
1. Power of Tribunal to extend stay beyond 365 days post-2008 amendment.
2. Merits of the stay application filed by the assessee.
3. Whether the Special Bench has the authority to dispose of the stay applications.
4. Whether the amount recovered by the Assessing Officer should be refunded to the assessee.

Issue-wise Detailed Analysis:

1. Power of Tribunal to Extend Stay Beyond 365 Days Post-2008 Amendment:
The primary issue was whether the Tribunal could extend the stay beyond 365 days after the amendment made by the Finance Act 2008, which substituted the third proviso to Section 254(2A) effective from 01.10.2008. The Tribunal examined the case of Ronak Industries Ltd., where the Hon'ble Bombay High Court upheld the Tribunal's decision to extend the stay beyond 365 days, even after the 2008 amendment. The Tribunal concluded that the decision of the Hon'ble Bombay High Court in Ronak Industries Ltd. was binding and held that the Tribunal has the power to extend the stay beyond 365 days if the delay in disposing of the appeal is not attributable to the assessee.

2. Merits of the Stay Application Filed by the Assessee:
The assessee argued that the penalties imposed under Section 271(1)(c) were debatable and that there was a prima facie case. The penalties were related to two issues: one decided against the assessee by the Special Bench of I.T.A.T in quantum proceedings (with a dissenting opinion) and the other concerning whether the expenditure was of capital or revenue nature. The Tribunal acknowledged the prima facie case but noted that the entire outstanding demand had already been recovered by the Assessing Officer through adjustment of refunds due to the assessee for other years.

3. Authority of the Special Bench to Dispose of the Stay Applications:
The Tribunal addressed the preliminary objection raised by the learned Departmental Representative regarding the Special Bench's authority to dispose of the stay applications. The Tribunal referred to the order of the Hon'ble President, I.T.A.T., which constituted the Special Bench with the authority to hear and dispose of the stay applications and the corresponding appeals. The Tribunal overruled the objection and proceeded to dispose of the stay applications on merits.

4. Refund of Amount Recovered by the Assessing Officer:
The assessee requested the Tribunal to direct the refund of the amount recovered by the Assessing Officer during the pendency of the stay applications. The Tribunal considered various judicial pronouncements and noted that the facts of the present case were different from those where coercive measures were taken by the Assessing Officer. The Tribunal found that the recovery was made by adjusting the refunds due to the assessee and was not a coercive measure. Therefore, the Tribunal declined to direct the refund of the amount recovered by the Assessing Officer.

Conclusion:
The Tribunal concluded that it has the power to extend the stay beyond 365 days if the delay is not attributable to the assessee, following the decision of the Hon'ble Bombay High Court in Ronak Industries Ltd. However, since the entire outstanding demand had already been recovered by the Assessing Officer, the stay applications filed by the assessee were dismissed as infructuous. The Tribunal also declined to direct the refund of the amount recovered by the Assessing Officer.

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