2021 (2) TMI 380 - HC - Income Tax

Stay of demand - on the basis of coded language diary entries and retracted uncorroborated statement of an alleged beneficiaries, additions made by the assessing officer - whether the two impugned orders dated 22.01.2020 and 09.03.2020 are liable to be interfered with by granting complete stay of demand till disposal of the appeal or liable to be upheld ? - HELD THAT - Additions have been made primarily on the basis of the statement made by Shri. Nilesh Bharani and also on the basis of certain entries in the telephone diary - materials on record that though summons was issued to Shri. Nilesh Bharani for cross-examination by the petitioner, Shri. Nilesh Bharani did not appear on the date fixed and therefore he could not be cross-examined. Thus, we are prima-facie of the view that reliance placed on such uncorroborated and untested statement of Shri. Nilesh Bharani while making the additions to the income of the petitioner is highly questionable, that too, when for the previous assessment year i.e., the assessment year 2011-12 he had retracted the statement. In such circumstances, it cannot be said that petitioner does not have a good prima-facie case on merit. That apart, petitioner has pleaded financial hardship to meet the demand even to the extent of 20%. We direct that till disposal of the appeal by the CIT (Appeals), the demand raised pursuant to the assessment order dated 21.12.2019 for the assessment year 2012-13 shall be kept in abeyance. CIT (Appeals) shall make an endeavour to dispose of the appeal within a period of four months from the date of receipt of an authenticated copy of this order. We make it clear that observations made in this order are only for considering the prayer for stay and the same should not in any manner be construed as final observations or findings on merit.

Issues:
1. Petitioner seeks quashing of the order allowing the stay of demand application.
2. Assessment order reopened under section 147 of the Income Tax Act.
3. Appeal filed before the Commissioner of Income Tax.
4. Stay application filed under section 220(6) of the Act.
5. Rejection of further stay application by respondent No.2.
6. Prima facie case analysis based on CBDT instructions and notifications.
7. Consideration of financial hardship and balance of convenience.
8. Comparison with a similar case of Mayur Kanjibhai Shah.
9. Legal arguments regarding the mechanical approach of respondents.
10. Applicability of statutory forum for redressal of grievances.
11. Interpretation of Supreme Court and High Court judgments in similar cases.
12. Prima facie case analysis based on statement of Shri. Nilesh Bharani.
13. Financial hardship plea by the petitioner.

Analysis:
1. The petitioner sought to quash the order allowing the stay of demand application, challenging the orders dated 22.01.2020 and 09.03.2020 passed by the Income Tax Officer and Principal Commissioner of Income Tax-3, respectively. The petitioner, an assessee under the Income Tax Act, had filed an e-return of income for the assessment year 2012-13, which was later reopened by the assessing officer under section 147 of the Act, resulting in a significant increase in the assessed income.

2. The petitioner had filed an appeal before the Commissioner of Income Tax (Appeals) against the assessment order, and during the pendency of the appeal, filed a stay application under section 220(6) of the Act. The initial stay application was partially granted by respondent No.1, requiring the petitioner to pay 20% of the outstanding demand, which was reiterated by respondent No.2 in a subsequent order.

3. The petitioner contended that the additions to the income were primarily based on the statement of Shri. Nilesh Bharani and certain entries in the telephone diary. However, Shri. Nilesh Bharani did not appear for cross-examination, raising doubts about the reliability of his uncorroborated statement. The petitioner argued financial hardship and a good prima facie case in the appeal, questioning the mechanical approach of the respondents in granting only conditional stay.

4. The Court, after considering the relevant materials, found similarities with a previous case and held that the petitioner's case stood on a better footing. The Court emphasized the need to consider the prima facie case, balance of convenience, and financial hardship of the petitioner. The judgment highlighted the importance of not taking a mechanical approach and directed that the demand be kept in abeyance till the disposal of the appeal by the Commissioner of Income Tax (Appeals).

5. The Court compared the present case with the previous case of Mayur Kanjibhai Shah, where the additions were also based on the statement of Shri. Nilesh Bharani. The Court found that the reliance on such uncorroborated statements without cross-examination raised significant doubts about the additions made to the income of the petitioner. The judgment emphasized the need to consider financial hardship and directed the demand to be kept in abeyance till the appeal's disposal.

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