2019 (8) TMI 56 - HC - Income Tax

Stay of recovery - Tribunal directed the department to recover its dues from its debtors - HELD THAT - The cardinal principle that should have been borne in mind by the Tribunal while granting an interim order is that the assessee should have made out a prima facie case; the balance of convenience should have been in his favour; and if stay is not granted in favour of the assessee, he will be put to irreparable hardship. Unfortunately, the Tribunal did not address any of these grounds, which are mandatorily required to be addressed, while granting an interim order. That apart, the Tribunal did not take note of its earlier orders wherein, the Tribunal has specifically recorded that the assessee has not shown any financial difficulty, nor the assessee has made out a prima facie case. Tribunal could not have directed recovery of tax from Mr.Darmendra Bafna, who was not a party to the proceedings before the Tribunal. If for any reason, the Tribunal was of the view that the debt has to be recovered from a third party, it should have issued a notice to the third party, heard the third party and then taken a decision. Thus, the procedure adopted by the Tribunal is wholly unknown to law and is clearly illegal. To say the least, the order is utterly perverse.Tribunal in the impugned order took a different stand and directed recovery of the disputed tax from a third party who was not heard in the matter. Though the present appeal has become infructuous, as the main appeal itself has been disposed of by the Tribunal, we thought fit to make the above observation so that the Tribunal in future, does not resort to passing such arbitrary and illegal orders. Can Tribunal issue direction which goes beyond the time limit prescribed under the first proviso in Section 254(2A) - As rightly contended by Mr.T.R.Senthil Kumar, this direction issued by the Tribunal goes beyond the time limit prescribed under the first proviso in Section 254(2A). This will also make the impugned order as illegal. As we have observed that the appeal has become infructuous, but nevertheless, the impugned order can never be treated as a precedent, nor such procedure can be resorted to by the Tribunal in any other matter.

Summary

Issues:
1. Stay of recovery exceeding 180 days under Section 254(2A) of the Income-tax Act.
2. Recovery of dues from a third party under litigation.
3. Review of own decision by the Appellate Tribunal.
4. Authority of the ITAT to lift bank attachment under Section 254(2A).

Issue 1: Stay of recovery exceeding 180 days under Section 254(2A): The Revenue appealed against the ITAT's order granting stay of recovery exceeding 180 days, questioning the legality under Section 254(2A). The Tribunal granted stay of recovery from the debtor until the debt due to the assessee was fully recovered, which the Revenue argued violated the time limit. The High Court noted the violation of the time limit and deemed the impugned order illegal, emphasizing that such a procedure should not be a precedent.

Issue 2: Recovery of dues from a third party under litigation: The Appellate Tribunal directed the Revenue to recover dues from a third party involved in a civil suit against the assessee. The High Court criticized this decision, stating that the Tribunal should have heard the third party before making such a directive. The Court found the procedure adopted by the Tribunal as illegal and unknown to law, emphasizing the importance of following due process.

Issue 3: Review of own decision by the Appellate Tribunal: The Revenue questioned the ITAT's authority to review its own decision, highlighting the dismissal of the assessee's earlier stay petitions. The High Court observed that the Tribunal's impugned order amounted to a review of its own decision without proper justification. The Court emphasized that the Tribunal should have considered the financial difficulty of the assessee and the balance of convenience before granting a stay, which was not addressed in this case.

Issue 4: Authority of the ITAT to lift bank attachment under Section 254(2A): The Revenue contested the ITAT's directive to lift the bank attachment, arguing that the Tribunal only had the power to grant stay under Section 254(2A). The High Court noted the incorrect address provided by the assessee for the debtor, leading to misleading information. The Court criticized the Tribunal's decision to lift the bank attachment and recover dues from a third party without following proper legal procedures.

In conclusion, the High Court found the Tribunal's impugned order to be illegal, arbitrary, and beyond the prescribed time limit under Section 254(2A). The Court emphasized the importance of following due process, considering financial difficulties, and not making arbitrary decisions that could lead to irreparable harm. The appeal was closed, and the substantial questions of law were left open without any costs imposed.