2018 (7) TMI 1853 - HC - Income Tax

Stay of demand - payment of 20% of the demand made under Section 68 - Co-operative Banks claiming impecunious circumstances and the possibility of imminent close-down if such huge amounts are directed to be paid - Held that - As noticing the fact that the assessee are Institutions in the Co-operative sector and taking note of its members who are from the general public as also from the marginalised sections we are of the opinion that an opportunity could be afforded to the assessee to produce the details of deposits. To avoid any recalcitrant attitude by the assesses we directed the learned Counsel to file an affidavit of undertaking which has been done by the respective Secretaries in the three appeals before us. The affidavit categorically undertakes to produce the details of the deposits before the First Appellate Authority. The assessees would also produce any further details required by the First Appellate Authority or AO on a report being called for by the First Appellate Authority. The same shall be done within the time stipulated by the First Appellate Authority or the Assessing Officer on directions of the First Appellate Authority. In any event we do not think that a blanket stay can be granted. Failure of the assessee to produce the details at the first stage we are of the opinion that the assessees will have to make a deposit of 1% of the tax addition made under Section 68 of the Act within a period of one month from the date of receipt of a certified copy of this judgment.

Summary

Issues involved:
Interpretation of Section 68 of the Income Tax Act, 1961; Conditional orders in first appeals under the Act; Imposition of payment conditions on Co-operative Banks; Failure to produce deposit details; Request for blanket stay on payment; Verification of depositors' genuineness; Affording opportunity to produce deposit details; Undertaking to produce details; Imposition of deposit requirement; Disposal of Writ Appeals and Writ Petition.

Analysis:
The judgment by the Kerala High Court, delivered by Justice Vinod Chandran, dealt with two Co-operative Banks appealing against a judgment modifying an interim order in a first appeal under the Income Tax Act, 1961. The Co-operative Banks were aggrieved by the reduction of the payment percentage required under Section 68 of the Act. The Banks claimed financial difficulties and the risk of closure if directed to pay substantial amounts. Assessments were conducted after issuing notices under Section 143 or Section 142 of the Act, where the Banks failed to provide details of depositors, leading the Income Tax Officer to treat the deposits as unexplained cash credits under Section 68.

During the proceedings, the Banks' counsel argued for a blanket stay on payment, promising to furnish the required details before the First Appellate Authority. The Standing Counsel opposed this, alleging potential money laundering through the Banks and emphasizing the need for compliance with the demands. The Court considered the nature of the Co-operative Banks, their members from the general public and marginalized sections, and decided to grant an opportunity for the Banks to produce the deposit details.

To ensure compliance, the Court directed the Banks to submit an affidavit undertaking to provide the necessary information to the First Appellate Authority. The Banks were also required to deposit 1% of the tax addition made under Section 68 within a month from receiving the judgment. The judgment disposed of the Writ Appeals without commenting on merits and allowed the Writ Petition, with each party bearing their respective costs. The First Appellate Authority was instructed to consider the appeal without being influenced by the Single Judge's observations.

In conclusion, the judgment balanced the interests of the Co-operative Banks, the Income Tax Department's concerns regarding money laundering, and the need for compliance with tax regulations under Section 68 of the Income Tax Act, 1961.