2022 (11) TMI 1220 - HC - Income Tax

Stay of demand - petitioner had averred a categorical case of financial hardship - AO rejected the petitioner's application of a stay on the demand, without assigning any reasons - Principal Commissioner praying for stay of the demand, reiterating the specific grounds in that regard contending that the Assessing Officer has not applied his mind to the aspect of financial stringency and therefore the demand needs to be stayed - HELD THAT - On perusal of the orders by which the stay of the demand has been rejected by the Assessing Officer as also by the Principal Commissioner of Income tax, we may observe that in the petitioner's application the petitioner had averred a categorical case of financial hardship. AO rejected the petitioner's application of a stay on the demand, without assigning any reasons. The petitioner accordingly approached the Principal Commissioner praying for stay of the demand, reiterating the specific grounds in that regard contending that the Assessing Officer has not applied his mind to the aspect of financial stringency and therefore the demand needs to be stayed. The fate of the petitioner before the Principal Commissioner was not different. Although other issues on merits are considered by the Principal Commissioner, we find that there are no reasons in the context of financial hardship, in both the orders passed by the Principal Commissioner being orders dated 11.08.2021 and order dated 29.12.2021. The case of the petitioner on financial stringency is not at at all considered in the perspective it ought to have been considered by the Principal Commissioner, after applying his mind to the specific plea as taken by the petitioners in that regard. Such plea was required to be decided by considering the facts and figures from the materials as placed on record, so as to determine by giving reasons as to whether the plea was at all genuine and acceptable. As clearly seen from the decision cited by Mr. Pardiwala in the case of Mumbai Metropolitan Region Development Authority v/s. Deputy Director of Income -tax (Exemption- 1) 2014 (12) TMI 15 - BOMBAY HIGH COURT that this Court considering the earlier decisions on such issue as noted by us, has held that the aspect of financial hardship is one of the grounds which is required to be considered by the authority concerned and the authority concerned should briefly indicate whether the assessee is financially sound and viable to deposit the amount or the apprehension of the revenue of nonrecovery later is correct warranting deposit. We find that at this stage such test is not applied in passing of the impugned orders by the Principal Commissioner who has simplicitor referred to the Assessing Officer's report in rejecting stay on deposit of the tax. Principal Commissioner of Income Tax is directed to hear the petitioner(s) on the stay application on the specific plea of the petitioner in regard to financial stringency and after granting an opportunity of a hearing to the petitioner(s), pass an appropriate order on such issue. Let such exercise be undertaken as expeditiously as possible and in any case within 2 months from today.

Issues Involved:
1. Refusal of stay on tax demand notices.
2. Consideration of financial hardship in stay applications.
3. Legality and validity of the assessment order and demand notices.
4. Maintainability of the petitions.

Detailed Analysis:

1. Refusal of stay on tax demand notices:
The petitioners challenged the orders dated 20.06.2021 passed by the Assessing Officer for the Assessment Year 2008-2009 and the consequent demand notices. The primary concern was the refusal to stay the demand notices. The petitioners argued that the Assessing Officer and the Principal Commissioner of Income Tax did not consider their plea for financial stringency while rejecting the stay applications.

2. Consideration of financial hardship in stay applications:
The petitioners contended that their stay application dated 30.07.2021 highlighted financial stringency, which was not considered by the Assessing Officer, who rejected the application without assigning reasons. The Principal Commissioner, in his order dated 17.11.2021, directed the petitioners to remit 10% of the taxes due but did not address the financial hardship claim adequately. The Principal Commissioner's subsequent order dated 29.12.2021 also did not consider the financial distress plea, merely quoting the Assessing Officer's report.

3. Legality and validity of the assessment order and demand notices:
The petitioners sought a writ of Certiorari to quash the assessment order dated 20.06.2021 and the subsequent demand notices. They argued that the assessment order was based on a search and seizure action under Section 132 of the Income Tax Act, 1961, which led to an addition of income amounting to Rs. 264.59 crores for the Assessment Year 2008-09 and a tax demand of Rs. 239.54 crores. The petitioners had already filed an appeal before the Commissioner of Income Tax (Appeals), which was pending adjudication.

4. Maintainability of the petitions:
The Revenue's counsel objected to the maintainability of the petitions, arguing that the demands were justified and the petitioners should comply with the demand of 10% of the total tax payable. The court, however, did not delve into the maintainability issue, focusing instead on the limited issue of stay of demand.

Judgment:
The court observed that the Principal Commissioner did not adequately consider the petitioners' financial hardship plea. Citing the Mumbai Metropolitan Region Development Authority v/s. Deputy Director of Income-tax (Exemption-1) case, the court emphasized that the authority must consider whether the assessee is financially sound and viable to deposit the amount or if the revenue's apprehension of non-recovery is correct.

The court directed the Principal Commissioner to reconsider the stay application, specifically addressing the financial stringency plea and providing reasons for the decision. The Principal Commissioner was instructed to complete this exercise within two months. Until a fresh decision is made, the impugned demands shall not be acted upon.

The court clarified that it did not consider the merits of the case or the maintainability of the petitions, leaving all contentions of the parties open for the pending proceedings. The petitions were disposed of with no costs awarded.

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