2019 (2) TMI 119 - HC - Income Tax

Revision u/s 263 - Held that - Section 263 enables enhancement of the demand when invoking such revisional powers. Even then, as correctly pointed out by the learned Counsel for the assessee, there is a specific direction insofar as an opportunity being afforded to the assessee before the disallowance is carried out. There is also a requirement for a demand to be raised after such disallowance is carried out by the AO. There could be no condition imposed for the period in which the appeal against Section 263 order is pending before the Tribunal. We, hence, delete the direction insofar as the condition imposed for not proceeding with the recovery, especially since the stage of recovery has not yet reached. However, we make it clear that if there is a demand made as a result of the consequential order, then the Revenue would be enabled to take out appropriate proceedings, subject however to any challenge made to that consequential order. We are of the opinion that by virtue of Section 263 order alone, there could be no recovery effected

Issues:
1. Condition imposed for payment of 20% of the total demand under Section 263 of the Income Tax Act, 1961.
2. Validity of the condition imposed by the Principal Commissioner for payment before the completion of the assessment process.
3. Applicability of the Office Memorandum in the impugned order.
4. Premature approach for stay of demand by the appellant.
5. Interpretation of Section 263 regarding enhancement of demand and opportunity for the assessee.

Analysis:
1. The appeal challenged a condition imposed for payment of 20% of the total demand under Section 263 of the Income Tax Act, 1961. The Commissioner of Income Tax passed an order directing the disallowance of a specific amount, leading to the appellant seeking a stay of the demand. The appellant contended that the condition was premature as the disallowance process required a hearing and subsequent demand, which had not yet occurred. The court agreed, emphasizing the need for proper procedure and opportunity for the assessee before any disallowance and demand could be made.

2. The appellant had approached the Principal Commissioner for a stay of demand based on an Office Memorandum, which the appellant argued only applied to first appeals. The court noted that the premature approach for stay, without an actual demand in place, was not in line with the procedural requirements of Section 263. The court highlighted the necessity of a demand being raised after the disallowance process by the Assessing Officer, indicating that the condition imposed by the Principal Commissioner was not justified at that stage.

3. Regarding the applicability of the Office Memorandum in the impugned order, the court found that the memorandum did not support the condition imposed for payment before the completion of the assessment process. The court emphasized the importance of following the correct procedure outlined in Section 263, which includes granting the assessee an opportunity and raising a demand post disallowance by the Assessing Officer.

4. The court addressed the issue of premature action by the appellant in seeking a stay of demand when no demand had been officially raised. While Section 263 allows for enhancement of demand, the court stressed the significance of providing an opportunity to the assessee before disallowance and subsequent demand. The court concluded that the condition for payment before completion of the assessment process was not sustainable under Section 263.

5. In interpreting Section 263, the court clarified that the order alone does not authorize recovery, emphasizing the need for a demand to be raised following the disallowance process. The court ruled that recovery could not be enforced solely based on a Section 263 order, allowing the Revenue to take appropriate action only if a demand resulted from a consequential order, subject to any challenges against it. The court allowed the Writ Appeal, deleting the condition imposed for not proceeding with recovery, as the stage of recovery had not been reached.

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