2019 (5) TMI 306 - HC - Income Tax

Stay of demand - high pitch assessment - commission rate of 8% in the cheque discounting activity - non consideration of petitioner grievance - Pr. CIT insists that the petitioner must deposit 20% of the disputed tax demand pending appeal - HELD THAT - Order passed by the Commissioner is rather cryptic and devoid of reasons. In the present case, when the petitioner pointed out that in a high pitched assessment order, the A.O. has adopted the commission rate of 8% in the cheque discounting activity, which simply does not prevail, the Principal Commissioner, in our opinion, ought to have examined such grievances of the assessee before deciding whether the present case is a fit one where the requirement of deposit of 20% of the disputed tax pending appeal can be reduced. Petition is disposed of with the impugned order of Commissioner dated 29th March 2019 is quashed and set aside. The Commissioner is requested to pass a fresh order bearing in mind the observations made herein and taking into consideration the case of the petitioner. This must be done preferably before 31st May 2019. Attachment on bank account of the petitioner shall be lifted forthwith. There shall be no recovery against the petitioner for a period of two weeks, pursuant to the order passed by the Commissioner after the same is communicated to the assessee/ petitioner.

Issues: Challenge to tax demand order, Stay of demand pending appeal, Reasoning behind tax assessment, Lack of reasons in impugned order, Relief sought against attachment of bank accounts

In this case, the petitioner, a cooperative society, challenged an order by the Principal Commissioner of Income Tax insisting on depositing 20% of the disputed tax demand pending appeal. The Assessing Officer had raised concerns about the petitioner's business activities, specifically in cheque discounting, and applied a high commission rate of 8% to calculate the income. The petitioner contended that the actual commission rate did not exceed 0.15% and that the assessment was high-pitched. The Principal Commissioner rejected the stay of demand application, leading to the attachment of the petitioner's bank accounts and recovery of a significant amount. The High Court found the Commissioner's order lacking in reasoning and directed a fresh order considering the petitioner's grievances, with the bank account attachment lifted immediately. The tax amount already recovered would not be refunded yet, and no further recovery would take place for two weeks after the new order is communicated to the petitioner.

The primary issue in this case was the challenge to the tax demand order by the Principal Commissioner, where the petitioner, a cooperative society, objected to the requirement of depositing 20% of the disputed tax amount pending appeal. The Assessing Officer's assessment of the petitioner's business activities, particularly in cheque discounting, was questioned by the petitioner, highlighting discrepancies in the commission rate applied. The petitioner argued that the assessment was high-pitched, and the Principal Commissioner's refusal to grant a stay of demand led to the attachment of the petitioner's bank accounts and substantial recovery by the department.

The reasoning behind the tax assessment was crucial in this case, as the Assessing Officer applied a high commission rate of 8% to the cheque discounting activity of the petitioner, which the petitioner claimed was significantly higher than the actual rate of around 0.15%. The petitioner emphasized that this high commission rate was the sole basis for the addition in the assessment order, indicating a fundamental flaw in the assessment process. The High Court acknowledged the petitioner's concerns regarding the assessment's validity and the need for a thorough review of the commission rate applied before demanding the deposit of the disputed tax amount.

The lack of reasons in the impugned order by the Principal Commissioner was a significant point of contention, as the High Court found the order to be cryptic and devoid of proper justification. The court emphasized the importance of providing clear and reasoned decisions, especially in cases involving financial implications for the taxpayers. The absence of detailed reasoning in the Commissioner's order contributed to the court's decision to quash the order and request a fresh decision with proper consideration of the petitioner's arguments.

The relief sought against the attachment of the petitioner's bank accounts was granted by the High Court, directing the immediate lifting of the attachment. Additionally, the court specified that the tax amount already recovered would not be refunded at that moment but could be adjusted against any final order passed by the Principal Commissioner, subject to further challenge by the petitioner. Moreover, the court ordered a two-week period with no further recovery against the petitioner after the new order is communicated, providing temporary relief to the petitioner during the ongoing legal proceedings.

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