2015 (12) TMI 1289 - HC - Income Tax

Recovery proceedings - assessee prayed for refund of the amount already recovered by the department by attaching the petitioner s bank account - deduction under section 80IB(10) disallowed - Held that - For whatever reason if the Assessing Officer was of the opinion that such deduction was not allowable, such findings could have been recorded. However, in the present case, we prima facie find that after rejecting the assessee s revised valuation of the closing stock, the Assessing Officer simultaneously proceeded to reject the claim for deduction under section 80IB(10) of the Act interalia on the ground that only to avoid minimum alternative tax liability for the later years, such claim is being advanced. In isolation, perhaps this assessment of the Assessing Officer of the situation may have been justified but when the Assessing Officer rejected the very valuation of the closing stock, we wonder whether it was even open for her to process the assessee s claim for deduction under section 80IB(10) of the Act. Prima facie, these aspects are incongruent. We make it however, clear that these are purely prima facie observations and certainly not meant to disturb or dislodge the order of assessment or in any manner influence the appellate proceedings. Nevertheless, we cannot escape the conclusion that the petitioner has made out a strong prima facie case against the order of assessment in which as noted, the sole addition is on the basis of rejection of petitioner s claim for deduction under section 80IB(10) of the Act. Pending appeal before the Commissioner(Appeals) therefore, there shall be stay against further recovery of the tax demand arising out of such order of assessment. However, amount of ₹ 20.05 lacs (rounded off) already recovered by the department would not be returned at this stage, and would be adjusted eventually upon the Commissioner (Appeals) deciding the appeal of the petitioner.

Issues Involved:
1. Validity of the recovery notice dated 30.3.2015.
2. Legitimacy of the valuation of the closing stock.
3. Entitlement to deduction under section 80IB(10) of the Income Tax Act, 1961.
4. Justification for the conditional stay order by the Assessing Officer.
5. Right to stay of recovery pending appeal.

Issue-wise Detailed Analysis:

1. Validity of the recovery notice dated 30.3.2015:
The petitioner challenged the recovery notice and sought a refund of the amount already recovered by attaching the petitioner's bank account. The court examined the procedural aspects and the timing of the recovery actions taken by the Assessing Officer, especially considering the pending appeal and the stay request by the petitioner.

2. Legitimacy of the valuation of the closing stock:
The petitioner initially valued the closing stock at Rs. 10.91 crores in the return filed on 21.9.2012, which was later revised to Rs. 30.30 crores on 30.9.2013. The Assessing Officer questioned the method of valuation, stating that the petitioner applied wrong methods, leading to an incorrect computation. The court noted that the Assessing Officer rejected the revised valuation but did not provide a clear rationale for accepting the original valuation or the revised one, creating a prima facie incongruence.

3. Entitlement to deduction under section 80IB(10) of the Income Tax Act, 1961:
The petitioner claimed a deduction under section 80IB(10) in the revised return, which was not claimed in the original return. The Assessing Officer rejected this claim on the grounds that 58% of the units were not booked or sold and that the deduction was claimed to avoid minimum alternative tax liability for subsequent years. The court found that the Assessing Officer's rejection of the deduction, while simultaneously rejecting the revised valuation of the closing stock, was prima facie erroneous.

4. Justification for the conditional stay order by the Assessing Officer:
The petitioner requested a stay against the recovery of the outstanding tax demand pending the appeal. The Assessing Officer granted a conditional stay, requiring the petitioner to deposit 50% of the outstanding demand. The court observed that the Assessing Officer's order lacked detailed reasoning and was somewhat mechanical, especially in light of the strong prima facie case presented by the petitioner.

5. Right to stay of recovery pending appeal:
The court emphasized that the question of stay of recovery pending appeal must depend on the facts of each case. Given the strong prima facie case against the assessment order, the court granted a stay against further recovery of the tax demand pending the appeal before the Commissioner (Appeals). However, the amount of Rs. 20.05 lacs already recovered would not be returned at this stage but adjusted upon the appeal's decision.

Conclusion:
The petition was disposed of with a stay on further recovery of the tax demand pending the appeal, but the amount already recovered would not be refunded immediately. The court's observations were prima facie and not intended to influence the appellate proceedings.

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