2014 (2) TMI 271 - HC - Income Tax

Stay of demand - Relief / refund where the amount recovered when stay application is pending - Held that - Relying upon the decision in UTI Mutual Funds vs. ITO 2012 (3) TMI 333 - BOMBAY HIGH COURT - No recovery of tax should be made before expiry of the time limit for filing an appeal before the higher forum has expired - When the bank account has been attached the revenue would not withdraw the amount unless it has furnished a reasonable prior notice to the assessee to enable the assessee to seek recourse to a remedy in law - The action of the petitioner revenue in not only attaching the bank account but withdrawing the money from the bank was before the expiry of the time limit for filing appeal was not justfied. The undue haste on the part of the Assessing Officer in recovering a sum of Rs.159.84 crores was not only contrary to the binding decisions of this Court but also shocking to the judicial conscience. No appellate authority and much less the Tribunal can be a silent spectator to the arbitrary and illegal actions on the part of the Assessing Officer so as to frustrate the legal process provided under the Act. In terms of the proviso to Section 254(2A) of the Act, the Tribunal is empowered to grant stay against any demand, pending disposal of appeal before it - The order passed by the Tribunal directing the revenue to refund the amount of Rs.159.84 crores to respondent No.2 was upheld - Decided against petitioner.

Issues Involved:
1. Jurisdiction of the Income Tax Appellate Tribunal (ITAT) to direct a refund.
2. Compliance with guidelines for tax recovery and stay of demand.
3. Legality of the Assessing Officer's actions in attaching and withdrawing funds.
4. Tribunal's inherent powers and the impact of pending writ petitions.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income Tax Appellate Tribunal (ITAT) to Direct a Refund:
The revenue challenged the ITAT's order directing the refund of Rs.159.84 crores, arguing that the Tribunal lacked jurisdiction to grant such a direction since the matter was subjudice before the High Court. The Tribunal had initially stated it could not exercise jurisdiction regarding the stay of recovery due to the pending writ petition. However, the High Court clarified that the Tribunal's direction for a refund was within its inherent powers to correct an unjust and arbitrary exercise of power by the Assessing Officer, ensuring the assessee was not left without remedy due to illegal actions by the revenue.

2. Compliance with Guidelines for Tax Recovery and Stay of Demand:
The High Court referenced its decision in UTI Mutual Fund vs. ITO, which laid down guidelines for tax recovery, emphasizing that no recovery should be made before the expiry of the time limit for filing an appeal or disposing of a stay application. The Court found that the Assessing Officer's actions violated these guidelines by attaching and withdrawing the funds from the assessee's bank account without prior notice and before the expiry of the appeal period, demonstrating undue haste and a lack of fairness.

3. Legality of the Assessing Officer's Actions in Attaching and Withdrawing Funds:
The High Court noted that the Assessing Officer attached the bank account and withdrew Rs.159.84 crores on the very day the assessee filed an appeal and stay application with the Tribunal, which was scheduled for hearing four days later. This action was deemed contrary to the principles of rule of law and the binding guidelines established by the Court in UTI Mutual Fund. The Court highlighted the undue haste and malafide intent behind the revenue's actions, aimed at preempting the Tribunal from granting any stay.

4. Tribunal's Inherent Powers and the Impact of Pending Writ Petitions:
The High Court dismissed the revenue's argument that the Tribunal could not order a refund due to the pending writ petition. The Court clarified that the writ petition was primarily for seeking a stay of the Assessing Officer's and Commissioner of Income Tax's orders, which were rendered moot once the Tribunal was seized of the stay application. The Tribunal's direction to refund the amount was an exercise of its inherent powers to restore the status quo ante, ensuring the assessee was not prejudiced by the revenue's illegal actions.

Conclusion:
The High Court upheld the Tribunal's order directing the revenue to refund the amount of Rs.159.84 crores to the assessee, emphasizing the importance of adhering to the rule of law and the guidelines for tax recovery. The Court dismissed the revenue's petition, reiterating the Tribunal's authority to correct arbitrary and illegal actions by the revenue, and left it open for the Tribunal to pass further orders as deemed fit after hearing the parties.

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