2019 (5) TMI 435 - HC - Income Tax

Stay of demand - conditional stay - Recovery of outstanding tax demands - payment of 20% of the disputed demand to assure stay - HELD THAT - As decided in MRS. KANNAMMAL VERSUS INCOME TAX OFFICER WARD 1 (1) TIRUPUR 2019 (3) TMI 1 - MADRAS HIGH COURT The existence of a prima facie case for which some illustrations have been provided in the Circulars themselves, the financial stringency faced by an assessee and the balance of convenience in the matter constitute the trinity , so to say, and are indispensable in consideration of a stay petition by the authority. The Board has, while stating generally that the assessee shall be called upon to remit 20% of the disputed demand, granted ample discretion to the authority to either increase or decrease the quantum demanded based on the three vital factors to be taken into consideration. The petitioner will appear before the respondent Assessing Officer on 02.04.2019 along with copy of his stay application as well as all materials in support of the request for stay and the application shall be disposed of within two weeks from 02.04.2019, i.e on or before 16.04.2019. It is brought to our attention that, subsequent to the passing of the impugned order, notices under Section 226(3) of the Income Tax Act, 1961 have been issued to Karur Vysya Bank, Valasaravakkam Branch, Axis Bank, Virugambakkam Branch, City Union Bank, Mandaveli Branch, HDFC Bank, Saligramam Branch, Indian Bank, Ayanavaram and Perambur Branches, all dated 06.03.2019 attaching the accounts of the petitioner therein. The attachments will continue, subject to the orders passed by the 2nd respondent in the stay application and the Banks shall not appropriate any balance until orders are passed in the stay application. Status quo, as on date to be maintained in regard to further recovery, till 16.04.2019 or date of order to be passed in the stay application, whichever is earlier.

Summary

Issues Involved:
1. Legality of the order passed by the 1st respondent/Assessing Officer rejecting the petitioner’s application for stay.
2. Adherence to principles and guidelines by the Assessing Officer while disposing of the stay application.
3. Impact of subsequent notices under Section 226(3) of the Income Tax Act, 1961.

Issue-wise Analysis:

1. Legality of the Order Passed by the 1st Respondent/Assessing Officer:
The petitioner challenged the order dated 28.02.2019 by the 1st respondent/Assessing Officer, which rejected the petitioner’s application for stay of recovery of disputed demands for Assessment Years 2016-17 and 2017-18. The Assessing Officer’s order required the petitioner to pay 20% of the disputed demand in compliance with CBDT’s Office Memorandum dated 31.07.2017, failing which coercive action would be taken. The Court noted that the Assessing Officer failed to consider the existence of a prima facie case, financial stringency, and balance of convenience, which are crucial factors in deciding stay applications.

2. Adherence to Principles and Guidelines by the Assessing Officer:
The Court emphasized that the Assessing Officer is expected to evaluate the existence of a prima facie case, financial stringency, and balance of convenience before deciding on the stay application. The Court referenced its previous judgment in the case of Kannammal v. Income Tax Officer, which reiterated the necessity of considering these factors. The Court also highlighted various CBDT Circulars and Instructions, including Instruction No. 1914 and subsequent modifications, which provide guidelines for granting stay of demand. These guidelines stress the need for a speaking order and discretion in demanding a percentage of the disputed amount based on the specific circumstances of each case.

3. Impact of Subsequent Notices Under Section 226(3) of the Income Tax Act, 1961:
The Court acknowledged that after the impugned order, notices under Section 226(3) of the Income Tax Act, 1961, were issued to various banks attaching the petitioner’s accounts. The Court directed that these attachments would continue but the banks should not appropriate any balance until the stay application is disposed of by the 2nd respondent. The Court ordered the petitioner to appear before the Assessing Officer on 02.04.2019 with all supporting materials for the stay application, which should be disposed of by 16.04.2019. Status quo regarding further recovery was to be maintained until the disposal of the stay application.

Conclusion:
The Court set aside the impugned order due to the absence of reasoning and directed the Assessing Officer to reconsider the stay application, taking into account the principles of prima facie case, financial stringency, and balance of convenience. The writ petitions were disposed of with no costs, and the connected Miscellaneous Petitions were closed.