2013 (11) TMI 1485 - AT - Income Tax

Stay against Demand - coercive recovery proceedings where stay application is pending - Held that - The assessee has filed the appeal before the Tribunal - The A.O has recovered the entire outstanding tax from bank account of the assessee by taking a coercive action u/s 226(3) of the Income Tax Act without waiting for the outcome of the Stay Application filed by the assessee before this Tribunal - Following UTI Mutual Fund Vs ITO 2012 (3) TMI 333 - BOMBAY HIGH COURT - The A.O has taken a coercive action by ignoring the basic rule of law and the directions and guidelines issued by the Hon ble Bombay High Court - The Income Tax Officer being a quasi judicial authority should observed the parameters which are laid down in this context - The action of recovery from the bank account of the assessee is a gross violation of the directions as well as the basic rule of law and principle of natural justice - The Revenue should refund the entire amount to the assessee within 10 days from the dated of receipt of this order - The assessee has already filed a writ petition in the High Court and the matter of stay of demand is subjudice before the Hon ble High Court therefore the judicial propriety and discipline demand that this Tribunal should not venture into the subject matter which is subjudice before the Hon ble High Court - Partly allowed in favour of assessee.

Summary

Issues Involved:
1. Legality of the coercive action taken by the Assessing Officer (A.O) under Section 226(3) of the Income Tax Act.
2. Compliance with judicial precedents and guidelines for tax recovery.
3. Entitlement to stay of recovery of the demand.

Detailed Analysis:

1. Legality of the Coercive Action by the A.O:
The assessee sought a stay against a tax demand of Rs. 159,84,03,717 arising from the assessment year 2010-11. The A.O recovered the entire outstanding tax from the assessee's bank account using coercive action under Section 226(3) of the Income Tax Act, without waiting for the outcome of the Stay Application filed by the assessee. The Ld. Senior Counsel argued that this action was in derogation and contravention of various decisions of the Hon'ble Jurisdiction High Court, which laid down basic principles for such actions. Specifically, the A.O took coercive action before the expiry of the time for filing an appeal against the CIT(A)'s order, prior to the disposal of the Stay Application, and without giving prior notice to the assessee.

2. Compliance with Judicial Precedents and Guidelines:
The Ld. Senior Counsel referred to several judicial precedents to support the argument that the A.O's actions were improper and against established guidelines. Key cases cited included:
- Mahindra & Mahindra Ltd. Vs Union of India: The High Court held it improper for authorities to encash bank guarantees before the statutory period for filing an appeal expired.
- UTI Mutual Fund Vs ITO: Reiterated guidelines for tax recovery, emphasizing that no recovery should be made pending the expiry of the appeal filing period or the disposal of a stay application.
- RPG Enterprises Ltd. Vs DCIT: The Tribunal directed the Revenue Authorities to refund amounts recovered without waiting for the outcome of the Stay Application.

The Ld. Senior Counsel argued that the A.O's actions violated these principles, particularly the requirement to provide notice before taking recovery action under Section 226(3).

3. Entitlement to Stay of Recovery:
The Tribunal noted that the assessee had informed the A.O about the intention to file a second appeal and requested no recovery action before the appeal period expired. Despite this, the A.O recovered the tax amount before the assessee could take remedial steps. The Tribunal found that the A.O's actions were a gross violation of the rule of law and principles of natural justice, emphasizing that the Income Tax Officer should act as a quasi-judicial authority, balancing revenue protection with mitigating hardship to the assessee.

The Tribunal directed the Revenue to refund the entire amount of Rs. 159,84,03,720/- to the assessee within 10 days. However, regarding the stay of recovery, the Tribunal noted that since the assessee had filed a writ petition in the High Court, the matter was subjudice, and therefore, the Tribunal should not intervene. The appeal was listed for an out-of-turn hearing on 4.2.2014.

Conclusion:
The Stay Application of the assessee was partly allowed. The Tribunal ordered the refund of the amount recovered by the A.O but refrained from granting a stay on the recovery of the demand due to the pending writ petition in the High Court. The order was pronounced on 25th November 2013.