2017 (6) TMI 606 - HC - Income Tax

Recovery proceedings u/s 221 - assessee in default - withdrawing a sizeable sum from such bank account unilaterally - validity of recovery proceeding where notice was not served - Filing of appeal before CIT(A) without seeking stay - Held that - the respondent affected recovery from the bank account of the petitioner without following due process. It is true that, the petitioner ought to applied to the Assessing Officer or to the Appellate Authority for keeping the additional tax demand in abeyance, which the petitioner did not do. Nevertheless, this would not enable the authorities to ignore the legal requirements before affecting the recovery. Under the circumstances, the recovery of ₹ 19,22,770/- made by the respondent is declared to be illegal. The respondent has not setup a case that the petitioner is a chronic defaulter, a person who may ultimately not be able to pay the dues if the appeal is dismissed or that there are other assessment or appeals pending, in which sizeable tax demands are held up. - Revenue directed to retain 15% and refund 85% of the amount with 8% interest. - Decided partly in favor of assessee.

Summary

Issues:
1. Recovery of tax arrears from the petitioner's bank account without due process.
2. Allegation of arbitrary and unreasonable behavior by the authorities.
3. Legal requirements for recovery procedures and the petitioner's obligation to seek stay pending appeal.

Analysis:

Issue 1: Recovery of Tax Arrears
The petitioner, a registered company, filed a return for the assessment year 2014-15, which was scrutinized by the Assessing Officer. An additional tax demand of &8377; 19,22,770/- was raised, and a Demand Notice under Section 156 of the Income Tax Act, 1961 was issued. The petitioner failed to pay within the stipulated time, leading to recovery proceedings. However, the notice for the petitioner to show cause was dispatched after the deadline for response. The respondent proceeded to attach the petitioner's bank account and recover the sum without giving a reasonable opportunity for explanation.

Issue 2: Allegation of Arbitrary Behavior
The petitioner contended that the recovery was hasty and unilateral, as an appeal was pending before the Appellate Commissioner. The petitioner argued that the recovery should have been stayed as per the CBDT Circular dated 29.02.2016, which suggests staying recovery pending appeal upon depositing 15% of the disputed amount. The authorities were criticized for acting arbitrarily and unreasonably by not following proper procedures and disregarding the petitioner's right to appeal.

Issue 3: Legal Requirements and Obligations
While the petitioner failed to deposit the additional tax or apply for a stay pending appeal, it was emphasized that the authorities must adhere to legal requirements before effecting recovery. The court noted that the late dispatch of the notice and subsequent recovery without ensuring due process were unjust. The judgment declared the recovery of &8377; 19,22,770/- as illegal and ordered the respondent to refund 85% of the amount, retaining 15% pending the appeal outcome. The petitioner was granted the benefit of stay pending appeal on depositing 15% of the disputed tax dues.

In conclusion, the court found the recovery by the respondent to be illegal due to procedural lapses and lack of adherence to legal requirements. The judgment emphasized the importance of following due process and providing a fair opportunity for the petitioner to respond before taking drastic actions like bank account attachment.