2019 (5) TMI 357 - HC - Income Tax

Stay of demand against the recovery - collecting 20% disputed tax pending appeal - order of assessment pending appeal filed by the Petitioner before the CIT (A) - HELD THAT - We are of the opinion that the normal formula contained in CBDT circular of collecting 20% disputed tax pending appeal, cannot be applied in the present case. It emerges from the record that the Petitioner's transactions are subject-matter of proceedings before the SEBI. In an interim order, after bi-parte hearing, the SEBI had noticed several disturbing features in Petitioner's activity of buying and selling derivatives. The SEBI had expressed strong prima-facie opinion that this is a case of contrived loss. In other words, the loss as claimed by the Petitioner for set off, is not genuine. We do not think that the Petitioner can avoid recovery of tax by offering to pay a mere 20% of the disputed amount. At the same time, recovering entire tax pending appeal would also be harsh. The CBDT circular dated 31/07/2017 gives sufficient discretion to the departmental authorities to govern the situation pending appeal. Nevertheless, such discretion cannot be exercised in an unjust manner. Considering the facts and circumstances of the case, on one hand looking to the strong prima-facie case against the Petitioner and on the other hand the fact that the Petitioner's first appeal before the Commissioner is pending, we dispose of the petition with the following directions (i) The Petitioner shall deposit 50% disputed tax with the Department which would include the amounts already deposited / recovered so far. This condition shall be fulfilled latest by 06/06/2019. (ii) For the remaining 50%, the Petitioner shall provide security to the satisfaction of the Assessing Officer. (iii) The Petitioner shall file an undertaking that these conditions will be fulfilled. Such undertaking shall be filed latest by 10/05/2019 in the Registry of this Court. iv) Upon such undertaking being filed and in anticipation of the conditions being fulfilled, there shall be stay against the recovery till the disposal of the appeal by the Commissioner.

Summary

Issues:
Challenge to order refusing stay against tax recovery pending appeal.

Analysis:
The petitioner challenged an order refusing stay against tax recovery pending appeal. The petitioner, an individual, filed a return of income for the Assessment Year 2016-2017, declaring total income and claiming a set-off of loss recoverable from a share-broker. The Assessing Officer rejected the set-off claim, resulting in a tax demand. The petitioner appealed the assessment order and sought a stay on tax recovery, which was initially refused. The High Court directed the Principal Commissioner to decide on the stay application. The Principal Commissioner, in the impugned order, directed the petitioner to deposit the entire tax amount pending appeal, leading to the current petition.

The court analyzed the petitioner's transactions, noting that they were under SEBI proceedings with a prima facie opinion of contrived loss. The SEBI highlighted specific instances of fund movements and observed deliberate losses/profits through reversal trades, indicating non-genuine activities. The court found that the petitioner's offer to pay 20% of the disputed tax was insufficient due to the serious nature of the SEBI findings. However, requiring the full tax amount pending appeal was deemed harsh. The court referred to a CBDT circular providing discretion to authorities in such cases, emphasizing the need for just exercise of discretion.

Considering the circumstances, the court directed the petitioner to deposit 50% of the disputed tax with the Department, including amounts already paid, by a specified date. For the remaining 50%, the petitioner was to provide security to the Assessing Officer's satisfaction. Additionally, the petitioner had to file an undertaking confirming compliance with these conditions. Upon filing the undertaking, a stay against recovery was granted until the appeal's disposal. The petition was disposed of based on these directions.