2014 (8) TMI 485 - HC - Income Tax

Recovery steps initiated - Quantum appeal and stay application pending Held that - There is also no extenuating circumstance stated which would effectively defeat the recovery, if delay is caused and the recovery is kept in abeyance till the Appellate Authority considers the stay application Relying upon KEC International Ltd. v. B.R.Balakrishnan 2001 (3) TMI 32 - BOMBAY High Court some broad parameters were laid down for regulating the consideration of stay applications, whether it be in a statutory appeal or u/s 220(6). No expedient reason why immediate recovery should be resorted to - assessee is a running institution and there is no threat of it deliberately thwarting recovery and thus causing prejudice - garnishee proceedings were initiated and notice was issued to the assessee u/s 226(3)(iii) of the Act and a major portion of the demand has now been recovered from the assessee - the recovery steps initiated is definitely capricious - the assessee had remedies which they did not avail of and no violation of statutory compliance is discernible - taking into account the fact that appeal is pending before the FAA - a major portion of the demand has now been satisfied, there shall be no further recovery steps initiated till the appeal is disposed of Decided in favour of Assessee.

Summary

Issues:
1. Recovery steps initiated while appeal and stay application pending.
2. Disposal of stay application without reasons.
3. Invocation of extraordinary power under Article 226.
4. Guidelines for considering stay applications and recovery steps.
5. Power under Section 226 of the Income Tax Act.

Analysis:
1. The petitioner challenged recovery steps initiated during the pendency of their appeal and stay application for the assessment year 2012-13. Despite filing relevant appeals and applications, a major portion of the demanded amounts was withdrawn from the petitioner's bank account by the Income Tax authorities under Section 226 of the Income Tax Act, 1961.

2. The High Court noted that stay application before the Appellate Authority was not disposed of, and the order rejecting the application did not provide any reasons or consideration of the petitioner's circumstances. Citing a Bombay High Court decision, the Court emphasized the need for authorities to consider various factors before resorting to coercive measures during the appeal period.

3. The Court highlighted the frequent use of Article 226 by assessees facing recovery actions during the appeal period. It noted a trend of stay applications being mechanically disposed of without proper consideration. The Court stressed the importance of balancing the interests of the assessee and the Revenue when invoking extraordinary powers.

4. Detailed guidelines were laid down by the Court based on previous judgments, emphasizing the need for authorities to act judiciously when considering stay applications and recovery steps. The guidelines included factors such as financial difficulties of the assessee, time limits for filing appeals, and the necessity of providing prior notice before attaching bank accounts.

5. The Court reiterated the importance of exercising the power under Section 226 of the Income Tax Act cautiously and not arbitrarily. It emphasized the quasi-judicial nature of the Income Tax Officer's role in mitigating hardships to the assessee while protecting the interests of the Revenue. The Court directed the lifting of the garnishee order and prohibited further recovery steps until the appeal was disposed of.

In conclusion, the High Court disposed of the writ petition, allowing the petitioner to operate their account and directing parties to bear their costs. The judgment underscored the need for authorities to follow established guidelines and act judiciously when initiating recovery steps during pending appeals and stay applications.