2019 (7) TMI 129 - HC - Income Tax

Stay of demand - recovery proceedings - maintainability of writ - respondent granted the petitioner three days time to pay at least 20% of the demand - HELD THAT - Facts reveal that in the impugned order dated 25.10.2018 the third respondent granted the petitioner three days time to pay at least 20% of the demand and produce a copy of the challan to him. Thus, though the instruction provides for review before the PCIT, sufficient time was not granted to the petitioner. Not only that, the AO did not even wait for three days for the petitioner to comply with the directions issued by him and with undue haste, on the very next day that is, on 26.10.2018, recovered ₹ 8,27,80,220/- by way of adjustment from the refund payable to the petitioner while giving effect under section 254 in case of assessment year 2013- 14. Thus, since the Assessing Officer had started making recovery without giving any time till the application for review filed by the petitioner before the PCIT could be heard, the petitioner approached this court by way of this petition. Considering the conduct of the third respondent and the urgency of the matter, no fault can be found in the conduct of the petitioner in invoking the writ jurisdiction of this court. The third respondent, by his very conduct in not waiting for even three days in terms of the order passed by him and making coercive recovery, has created a situation which has compelled the petitioner to discard the remedy of review before the PCIT and approach this court for relief This petition under article 226 of the Constitution of India is maintainable. Exercise of discretion - Insofar as the contention that if the petitioner wants to avail of the benefit of the Instructions issued by the CBDT, it has to avail of the remedy before the PCIT and that the remedy under section 220(6) of the Act being discretionary, no jurisdictional question arises, is concerned, in the opinion of this court, when section 220(6) confers discretion upon AO while considering an application thereunder, it goes without saying that such discretion has to be exercised in a reasonable and proper manner. If the exercise of such discretion is arbitrary or capricious or suffers from the infirmity of non-application of mind, it is always open for the aggrieved person to knock the doors of this court. This contention therefore, does not merit acceptance. Petitioner has made out a strong case for grant of stay against recovery of the disputed amount. Considering the fact that the third respondent has already recovered an amount of ₹ 8,27,80,220/- by adjusting the refund due to the petitioner for assessment year 2013-14, no further recovery is warranted

Issues Involved:
1. Legality of the order dated 25.10.2018 passed by the Deputy Commissioner of Income Tax.
2. Entitlement to stay of further recovery pursuant to the penalty order dated 27.9.2018.
3. Validity of the conditions imposed by the Assessing Officer for payment of 20% of the penalty demand.
4. Applicability of CBDT instructions and guidelines for stay of demand.
5. Maintainability of the writ petition under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Legality of the order dated 25.10.2018:
The petitioner challenged the order dated 25.10.2018 by the Deputy Commissioner of Income Tax under Article 226 of the Constitution. The petitioner argued that the order was passed without considering the merits of the case and the hardship that would be caused by the demand. The court found that the order lacked detailed reasoning and did not qualify as a speaking order, thereby failing to meet the requirements of paragraph C (v) of Instruction No.1914 dated 2.2.1993 issued by the CBDT, which mandates that the Assessing Officer should consider all relevant factors and communicate his decision in a speaking order.

2. Entitlement to stay of further recovery:
The petitioner sought a stay of further recovery pursuant to the penalty order dated 27.9.2018. The court noted that in the quantum appeal, a coordinate bench had already stayed the recovery of tax subject to the petitioner depositing 20% of the outstanding tax demand. Given that the penalty order was based on the same issues as the quantum appeal, the court found that the petitioner had made a strong case for stay against the recovery of the penalty amount.

3. Validity of the conditions imposed by the Assessing Officer:
The Assessing Officer directed the petitioner to pay 20% of the penalty demand based on CBDT instructions. The petitioner argued that the discretion under section 220(6) of the Act allows for unconditional stay, especially in cases where the issues are highly disputed and serious questions of law arise. The court found that the Assessing Officer failed to consider the merits and hardship arguments presented by the petitioner and mechanically imposed the 20% payment condition. The court held that the order was arbitrary and capricious.

4. Applicability of CBDT instructions and guidelines:
The court examined the CBDT instructions, particularly Instruction No.1914 dated 2.2.1993, which provides guidelines for staying demand. The court noted that the instructions allow for stay in cases where the demand in dispute relates to issues decided in the assessee's favor by an appellate authority or court earlier. The court found that the petitioner’s case fell under this category, as the issues involved were covered by decisions of the Supreme Court and the Bombay High Court in the petitioner’s favor.

5. Maintainability of the writ petition:
The respondents argued that the petitioner should have sought review before the Principal Commissioner of Income Tax (PCIT) as per the CBDT instructions. However, the court found that the Assessing Officer's undue haste in recovering the penalty amount by adjusting the refund due to the petitioner without waiting for the review application to be heard justified the petitioner’s decision to approach the court directly. The court held that the petition under Article 226 was maintainable given the circumstances.

Conclusion:
The court quashed and set aside the impugned order dated 25.10.2018 and allowed the petitioner’s application under section 220(6) of the Act, granting stay against further recovery pursuant to the penalty order dated 27.9.2018 until the final disposal of the appeal by the first appellate authority. The court also directed the petitioner to furnish a corporate guarantee for the balance disputed amount.

← Previous Next →