2016 (11) TMI 440 - AT - Income Tax

Stay of demand - Disallowance made u/s 14A - Held that - AO have himself granted the stay and all conditions and other facts and circumstances of the case remains the same, then the stay must be extended as per principles of natural justice and fair play. Further, if we take into account merits of the case also, we find that the major disallowance is on account of section 14A. It has been contended by the Ld. Counsel that prima facie balance of convenience of the merits of the disallowance lies in favour of the assessee, in view of various judgments of few High Courts available on this issue. Though, the legal position cited by the Ld. Counsel was not disputed by the Ld. DR, but we are not going into the same at this stage. It is noted by us that in case disallowance made u/s 14A is deleted, then taxable income of the assessee gets converted into loss and therefore no demand would be left as payable. Therefore, totality of the facts of the case suggests that as on date prima facie case and balance of convenience lies in favour of the assessee. - stay granted.

Issues:
1. Extension of stay of demand by the Appellate Tribunal.
2. Justification for seeking stay of recovery of demand.
3. Legal position on disallowance under section 14A of the Act.
4. Requirement of approaching higher authorities before seeking stay from the Tribunal.
5. Validity of the order passed by the Assessing Officer.

Extension of stay of demand by the Appellate Tribunal:
The assessee filed a stay petition seeking an extension of the total dispute demand of &8377;1,31,83,65,620 arising from an assessment order for A.Y. 2011-12. The initial stay was granted by the Assessing Officer (AO) for six months or until the disposal of the appeal, subject to payment of 10% of the total demand. The AO refused to extend the stay, directing the assessee to pay the remaining 90% before a specified date. The Tribunal, considering the facts and circumstances, extended the stay, emphasizing the principle of natural justice and fair play.

Justification for seeking stay of recovery of demand:
The assessee argued that the AO should have extended the stay as the circumstances remained the same. The major addition to the demand was due to a disallowance under section 14A of the Act. The assessee contended that the disallowance was not sustainable as investments were made for strategic reasons without borrowed funds. Citing relevant case laws, the assessee asserted that if the disallowance under section 14A was deleted, the assessment would result in a loss, making the demand nil.

Legal position on disallowance under section 14A of the Act:
The Tribunal noted that the major disallowance was under section 14A, and prima facie, the balance of convenience favored the assessee. While the legal position was not disputed, the Tribunal did not delve into it, as deleting the disallowance would result in no payable demand. The Tribunal found that the merits of the case supported granting the stay.

Requirement of approaching higher authorities before seeking stay from the Tribunal:
The Department contended that the assessee should have first approached the Principal Commissioner of Income Tax before seeking stay from the Tribunal. However, the Tribunal observed that seeking stay before lower authorities was not mandatory, especially when circumstances warranted immediate intervention to prevent coercive measures.

Validity of the order passed by the Assessing Officer:
The AO refused to extend the stay without providing reasons, directing the payment of the remaining demand. The Tribunal found the AO's decision unfair, arbitrary, and unjustified. Citing precedents, the Tribunal granted the stay for a specified period, emphasizing that the stay order did not affect the merits of the additions made by the AO in the assessment order.

This detailed analysis covers the issues involved in the legal judgment delivered by the Appellate Tribunal ITAT MUMBAI.

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