2013 (2) TMI 608 - HC - Income Tax

Period of limitation for rectification u/s 154(7) - stay of the demand raised by the petitioner - Held that - The entire demand of Rs.92,54,79,604/- in respect of the assessment year 2004-05 is time barred because the notice itself under section 154 was issued after four years from the end of the financial year in which the assessment had been originally framed. In the year 2005-06 the demand had been initially quantified at Rs.225.86 crores which has been reduced by a sum of Rs.30 crores because the petitioners have paid the said sum in March 2012. The balance is, therefore, Rs.195,86,36,433/-. The original demand of Rs.225.86 crores comprised of two components i.e. Rs.114 crores towards the alleged principal tax liability and Rs.110 crores towards the purported interest liability. Rs.110 crores interest liability can be broken up into three components first being an amount of Rs.75 crores raised as per the demand notice under section 156 dated 16.03.2012 for a period prior to the date of notice, thus this demand is ex facie bad inasmuch as section 220(2) contemplates charging of interest for nonpayment of a demand raised under section 156 and that, too, after 30 days thereof. In the present case the demand itself was raised on 16.03.2012 therefore there cannot be any interest charged for a period prior to it. Interest demanded of Rs.15 crores u/s 234B - As decided in Abdul Wahid and Company case 2010 (6) TMI 85 - MADRAS HIGH COURT when the liability for payment of additional tax itself was created for the first time, based on the subsequent amendment, in the year 2005, with retrospective effect from 01.04.1998, it would be incongruent to expect the assessee to have satisfied the requirement of payment of advance tax as prescribed under Section 234 (B) of the Income Tax Act interest u/s 234B can not be imposed Sum of Rs.30 crores has been demanded on the basis of disallowance of the annual licence fee amount on the issue of whether the same was capital or revenue in nature. The Tribunal, in the case of the assessee itself decided in favour of the assessee. The petitioner sought to set off this sum of Rs.54 crores against a payment of Rs.87 crores for the assessment year 2008-09 which cannot be accepted inasmuch as focus is on the two assessment years 2004-05 and 2005-06 and this was not the issue when the impugned order dated 03.01.2013 was passed. Consequently, there is an outstanding alleged demand of Rs.54 crores on account of tax and Rs.20 crores on account of interest which is, prima facie, recoverale from the petitioner - a demand of Rs.74 crores would possibly be sustainable at the present stage the petitioner should deposit 75% of this figure of Rs.74 crores which would roughly come to Rs.55.5 crores round off to Rs.56 crores.

Summary

Issues:
1. Challenge against the order of the Additional Commissioner of Income-tax regarding outstanding demand for assessment years 2004-05 and 2005-06.
2. Time-barred demand for assessment year 2004-05.
3. Stay application by the petitioner for the demand.
4. Breakdown of demands for assessment year 2005-06.
5. Components of interest liability and principal tax demand for assessment year 2005-06.
6. Legal arguments and precedents regarding interest liability under sections 220(2) and 234B.
7. Set-off of demands against previous payments and pending appeals.
8. Decision on the stay of the demand and deposit amounts.
9. Timeline for decision on pending appeals.

Analysis:

1. The writ petition challenges the order of the Additional Commissioner of Income-tax concerning the outstanding demand for the assessment years 2004-05 and 2005-06. The total demand is Rs.288,41,16,037, with Rs.92,54,79,604 for 2004-05 and Rs.195,86,36,433 for 2005-06. Despite the petitioner's stay application, relief was granted only for installment payments.

2. The petitioner argues that the demand for the assessment year 2004-05 is time-barred, as the notice under section 154 was issued beyond the four-year limitation period. The respondent contends that pending appeals prevent the demand from being considered time-barred. The court expresses a prima facie view that the demand for 2004-05 is time-barred due to the late issuance of the notice.

3. For the assessment year 2005-06, the demand was initially Rs.225.86 crores, reduced by Rs.30 crores already paid. The interest liability of Rs.110 crores is challenged by the petitioner, citing section 220(2) and a Madras High Court judgment. The court agrees prima facie with the petitioner's argument on interest liability components.

4. The principal tax demand of Rs.114 crores for 2005-06, reduced to Rs.84 crores, includes a disputed amount of Rs.30 crores related to annual license fee. The court notes a pending appeal on this issue and sets aside the demand for the fee. The remaining tax demand of Rs.54 crores is subject to a set-off proposal by the petitioner.

5. The court directs the petitioner to deposit Rs.56 crores, considering the sustainable demand of Rs.74 crores. The stay of the demand is contingent on this deposit, pending the disposal of appeals. The court emphasizes that its observations are prima facie and that the appellate authorities will decide on the merits of the case.

6. The court orders the appellate authority to decide on all pending appeals within three months. The writ petition is disposed of, with a comprehensive decision on the stay of the demand and deposit requirements to proceed with the appeals process effectively.