2013 (9) TMI 16 - HC - Income Tax

Notice of demand u/s 156 along with notice u/s 274 read with Section 271 - Amount recovered from bank - Period of statutory period for deposit of demand reduced from 30 days to 7 days - Held that - the very object of obtaining permission of the superior officer is to ensure that the powers are not exercised arbitrarily and there is a safeguard of higher officer applying its mind independently to the issue in question when such belief is communicated by the Assessing Officer. The curtailment of the statutory period of 30 days would surely cause inconvenience to the assessee which also restricts the period of challenge of assessee before exercise of such powers by the Assessing Officer, the previous approval of the Joint Commissioner has been made mandatory by law - reasons recorded by the Assessing Officer cannot be held to be with due application of mind, much less reasonably sufficient for the curtailment of the full period so as to constitute the ground detrimental to the Revenue . By no stretch of imagination, it can be said that non-meeting of the budgetary deficit could be a reason for holding reasonable belief that permitting the full period of 30 days for payment of tax would be detrimental to the cause of the Revenue. It is not such a situation where interest of Revenue is likely to be affected on account of any act of assessee - the past performance all through out of the petitioner-assessee was not such which would give rise to any apprehension in the mind of the Revenue so as not to allow the entire period. On the contrary, the very letter of the Assessing Officer is self-evident that the rich cash flow enjoyed by the assessee would help him meeting the target of budget deficit and thus it can be concluded that the belief had neither any relevant or valid reasons and it also does not have any direct nexus to the conclusion of reduction of period. Both the authorities have acted without truly grasping the essence of use of this provision. Resultantly, the action of invocation of the discretionary powers under Section 220(1) of the Act shall have to fail. Recovery u/s 226 - Other modes of recovery - Held that - While issuing notice to the bank under Section 226(3) of the Act for making payment, a notice has also to be given to the assessee which in this case is on the very day when the notice was issued to the bank. No opportunity had been given to the assessee for meeting with such a notice issued to the Bank. The sizeable amount of Rs. 1,39,00,000/- (rounded off) has been withdrawn and deposited in the account of Revenue on the very same day. Notice was an illusory and empty formality. This arbitrary exercise of withdrawal of amount from bank also requires interference. Moreover, when the very action of the Assessing Officer is held to be contrary to the provisions of the law, petitioner s not resorting to Note (3) of the demand notice under Section 156 of the Act or his having resorted to an alternative remedy, is no bar to the Court exercising writ jurisdiction - Revenue cannot be permitted to sustain the action of the Assessing Officer of reduction of period of 30 days - Decided in favour of assessee.

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Reduction of statutory period for payment from 30 days to 7 days.
3. Recovery of the demanded amount from the petitioner's bank account.
4. Legality of the notice issued under Section 156 and Section 226 of the Income Tax Act.

Detailed Analysis:

1. Denial of Exemption under Section 11 of the Income Tax Act:
The petitioner, a registered trust under Section 12A of the Income Tax Act, 1961, engaged in environmental research and activities for the benefit of livestock, was denied exemption under Section 11 for the assessment year 2010-11. The denial was based on the assertion that the trust's activities did not qualify as charitable under Section 2(15) of the Act.

2. Reduction of Statutory Period for Payment from 30 Days to 7 Days:
The petitioner received a notice of demand dated March 13, 2013, under Section 156 of the Act, requiring payment within seven days instead of the statutory 30 days. The petitioner challenged this reduction, arguing that the Assessing Officer (AO) must have a reason to believe that allowing the full 30 days would be detrimental to revenue, and such reduction requires prior approval from the Joint Commissioner. The AO's reasons for the reduction, primarily the budget deficit and the petitioner's rich cash flow, were deemed irrational and not in accordance with the statutory requirements. The approval from the Joint Commissioner was also obtained subsequent to issuing the notice, which violated the procedural requirement of obtaining prior approval.

3. Recovery of the Demanded Amount from the Petitioner's Bank Account:
Before the petitioner's appeal could be heard, the respondent recovered Rs. 1,39,70,275 from the petitioner's bank account on March 28, 2013, under Section 226(3) of the Act. The court found that the notice to the bank and the petitioner were issued simultaneously, depriving the petitioner of any opportunity to respond, which was an arbitrary exercise of power.

4. Legality of the Notice Issued under Section 156 and Section 226 of the Income Tax Act:
The court examined the legality of the notices issued. Section 220(1) of the Act allows the AO to reduce the payment period with the previous approval of the Joint Commissioner if it is believed that the full period would be detrimental to revenue. The court found that the AO's belief was not based on valid reasons and lacked a rational connection to the conclusion. The reasons provided, such as meeting budgetary targets and the petitioner's rich cash flow, were not sufficient to justify the reduction. The court also noted that the approval from the Joint Commissioner was obtained after the issuance of the notice, which was procedurally incorrect.

Conclusion:
The court quashed the impugned notice dated March 13, 2013, and directed the Revenue to refund the amount of Rs. 1,39,70,275 to the petitioner within two weeks. The court emphasized that the AO's actions were arbitrary and not in compliance with the statutory provisions, thus warranting judicial intervention. The court also highlighted that the petitioner's past compliance and financial stability did not justify the reduction of the statutory period or the arbitrary recovery of funds.

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