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TMI Blog2021 (4) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... rarily, and the fact that the conduct of the assessee, in not seeking any adjournment at all and thus making every effort for expeditious disposal of appeal, has not been wanting at all. While, on one hand, revenue authorities must safeguard and protect their legitimate interests, revenue authorities must take a pragmatic stand with compassion and with larger interest of the nation in mind. The assessee applicant is a well-established business houses, with firm roots, in India, the delay in disposal of appeal is on account of the delay in appointment of, and availability of, counsel by the income tax department, and the assessee has not been evasive or wanting in compliance or in conduct- at least so far as the appellate proceedings before this Tribunal are concerned. The demand in question is on account of genuine differences about tax implications of a wholly internal business restructuring transaction. Considering all these factors, while we have declined an unconditional stay on collection/ recovery of disputed demands, we also consider it fit and proper to permit the assessee to furnish a reasonable security of the value of ₹ 760 crores or more, in lieu of making p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any coercive recovery proceedings, so that the assessee can pursue appropriate legal remedies against the stand of the Assessing Officer, if so advised. b) The assessee will fully cooperate in expeditious disposal of appeal before this Tribunal, and will not seek any adjournment of hearing; and c) This stay will be in operation till 180 days from the date of this order, till the order on the related appeal is pronounced or till further orders- whichever is earlier. - SA No 48/Mum/2021 In ITA No. 1935/Mum/20 - - - Dated:- 12-4-2021 - Pramod Kumar (Vice President) And Ravish Sood (Judicial Member)] J D Mistry, Sr Advocate, along-with Madhur Agarwal and Jayesh Ganatra for the applicant Akhileshwar Shrma, Sr Standing Counsel, and Rakesh Garg, CIT (DR) for the respondent ORDER Per Pramod Kumar , VP : 1. By way of this stay application, the assessee applicant has sought a stay on collection/ recovery of tax and interest demands aggregating to ₹ 3,786.34 crores in respect of the dividend distribution tax, and interest thereon, under section 115O/115Q r.w.s. 2(22)(a) of the Income Tax Act, 1961, on, what is termed as, a deemed dividend distribution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res were also transferred to ABCL. The Assessing Officer probed this composite scheme of the arrangement, collected the information under section 133(6), and, for the detailed reasons set out in the assessment order, concluded that the demerger was not in accordance with the provisions of Section 2(19AA) of the Income Tax Act, 1961, that it was merely a transfer of combination of certain assets and liabilities having a net book value of ₹ 1,721.61 crores which did not constitute business activity. The Assessing Officer was further of the view that as a consideration for this combination of assets and liabilities, with a book value of ₹ 1,721.61 crores, the ABCL had issued 92,02,66,915 shares to the shareholders of the assessee company under the guise of consideration for demerger. The Assessing Officer further computed fair market value of these shares at ₹ 261.20 per share, and the consideration for the transfer of the said combination of assets and liabilities, with a book value of ₹ 1,721.61 crores, thus worked out to ₹ 24037,37,18,918. The Assessing Officer was further of the view that what has been paid to the shareholders of the assessee company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not inclined to get into it, nor is there any occasion for our interference. The Assessing Officer, thereafter, appeared in person on 18th December 2020, and also filed a letter which stated as follows: 2. During the course of hearing on 11 -12-2020 in stay application No. 226/Mum/2020 (arising out of ITA No. 1935/Mum/2020), the Hon'ble ITAT, G-Bench, Mumbai directed the department to further clarify its stand as to whether it considers the stay of demand in operation or not, considering various orders of the Hon'ble High Court in assessee's WP no. 3367 of 2019 with details of recovery measures undertaken till date. 3. In this regard, department's stand, as approved by Pr. CIT- Central 1, Mumbai, is as follows: (i) In continuation with department's earlier submission dtd. 9-12-2020, it is further clarified that there is no absolute clarity on the question regarding whether stay of demand given by Hon'ble High Court in WP 3367 is operational or not. If we look at the substance of writ petition 3367 and stay granted by Hon'ble Bombay High Court in original order dtd: 1-10-2019 in WP No 1405 of 2019, it is evident that writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2019 declining stay under section 220(6), the interim stay on collection of the impugned demands is still in operation. Suffice to note that, on the peculiar facts of this case, the cause of action for our interference has not yet arisen, as, it is, to borrow the words of the Assessing Officer, a conscious decision of the revenue authorities not to recover these outstanding demands for the time being, even though, the Assessing Officer contradicts himself when he holds the belief, as he puts in so many words in the letter which has been reproduced earlier in this order, that the interim stay granted by Hon'ble High Court does not hold the field now. Yet, the Assessing Officer does not wish to recover the demands in the hope that as a law-abiding corporate citizen, the assessee will volunteer to cooperate with the income tax department and the Assessing Officer chooses to wait till suitable clarification is obtained from the Hon'ble High Court to the effect that the stay granted in a writ petition challenging the validity of order declining stay under section 220(6), which is now admittedly infructuous in the light of the appeal having been disposed of by the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuous, in the light of the position, as stated, that the learned CIT (DR) had given an assurance to the Tribunal that since adjournment was sought by the respondent, no coercive action will be taken to recover the disputed demands. The Assessing Officer has now proceeded with issuance of garnishee notices, under section 226(3), on bankers of the assessee, for recovering the disputed demands. On 3rd March 2021, however, the assessee filed this stay application seeking, inter alia, a stay on the garnishee proceedings initiated by the Assessing Officer. Vide our interim order dated 3 rd March, 2021, ad- interim stay was granted on the operations of the stay order, and the said ad-interim, extend from time to time, order continues to remain in force till the disposal of this stay application. 7. In support of his contention that the assessee has a strong prima facie case, learned counsel submits a complex web of arguments. We will briefly set out only a few points raised by the learned counsel. He submits that the law does not envisage a demand under section 115 O and 115 Q being raised in the absence of an assessment order. The only procedure enabling raising such demands is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epart from the explicit provisions of the scheme Learned counsel has then taken pains to demonstrate to us, at this stage itself and what he perceives as, glaring fallacies and mistakes in the course adopted by the authorities below. It is then contended that, as is the position admitted by the CBDT itself, the provisions of Section 2(22)(a) donot come into play in the cases of amalgamations. It is also contended that there are two judgments from Hon ble jurisdictional High Court which show that the assessee has a strong prima facie case, and that was the reason Their Lordships were pleased to grant stay on collection or recovery of the disputed demands during pendency of related appellate proceedings in question. It is submitted that the demand raised on the assessee is so huge, at around ₹ 4,000 crores, that it is virtually impossible to pay this kind of tax demand without closing down the business. It is submitted that the assessee has around 20,000 direct employees at various locations all over the country and the payment of impugned demand will render them jobless. When asked whether the assessee is willing to pay any amount, even for part payment of the disputed demands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities in respect thereof, before any stay can be granted. He argues at length about the legal validity of this amendment and submits that, with this amendment, the powers of the Tribunal, in granting an unconditional stay, without pre-payment requirements, are clearly curtailed. He also submits that the security has to be in the nature of a security which can be quickly realised such as a bank guarantee. It is then further pointed out that the learned CIT(A) has given substantial relief, inasmuch as the demand originally at ₹ 5,872.13 crores now stands reduced to ₹ 3,786.34 crores, and it cannot thus be said that the CIT(A) has not judiciously examined the matter. It is then pointed out that the assessee is a well-off company with consolidated net worth of over ₹ 56,000 crores, and is in a financially sound position. Learned senior standing counsel particularly and repeatedly submits that there is absolutely no ambiguity about the legislative intent, behind amendment in Section 254(2A), and the Income Tax Appellate Tribunal must honour the same. It is submitted that the Income Tax Appellate Tribunal is a creature of the Income Tax Act, 1961, and it cannot, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will give an undertaking not to dispose of its plant at Veraval or not to dispose of its shares in Hindalco Industries Limited and Aditya Birla Fashions Limited, and not to insist on issuance of pending refund orders. 8. While we must refrain from making any observations on merits of the case, it would prima facie appear that it is indeed neither a frivolous demand in principle, nor is it a frivolous appeal. Just as illustrations, we may highlight a few points which comes to our mind which need to be examined in detail before taking a call one way or the other. To form a prima facie view that it is an ex facie legally unsustainable demand inasmuch no asset of the applicant assessee have been released to its shareholders, one will have to overlook the possibilities of significant consequences flowing fact that while undertaking has been transferred from the demerged company to the resulting new company, the consideration for this undertaking has flown from the resulting new company to the shareholders of the assessee applicant. When a company transfers an undertaking to another company, and obviously both companies being juridical persons, the consideration for the said undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shareholders, pre and post demerger, will also have to be examined. There are large number of other issues raised by the assessee, and unless these points are met, the impugned demands cannot be confirmed. The issues raised by the assessee cannot be said to be frivolous either. Taking all these factors into account, we are of the considered view that it is not a fit case of unconditional stay on collection or recovery of the entire impugned demands of tax and interest aggregating to ₹ 3,786.34 crores. We are of the considered view that it is a fit case in which the assessee must pay or provide reasonable security for at least 20% of the disputed demand, and this amount, which comes to ₹ 757.26 crores, is rounded off to ₹ 760 crores. However, we must also take into account the fact that the amount of ₹ 760 crores is so substantial an amount, more so in these pandemic days, that such a huge cash outgo would cripple functioning of that business and bring it to a halt at least temporarily, and the fact that the conduct of the assessee, in not seeking any adjournment at all and thus making every effort for expeditious disposal of appeal, has not been wanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der question about the impact of amendment in the scheme of Section 254(2A) which is said to restrict powers of the Tribunal in granting the stay, unless the assessee makes a pre-deposit of 20% of the impugned demands or provides security in respect thereof. We have noted that by way of the Finance Act 2020, there is an amendment in in the proposed proviso to Sub-section (2A) of section 254 Act after the words from the date of such order the words subject to the condition that the assessee deposits not less than twenty per cent of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnishes security of equal amount in respect thereof are inserted. In effect thus it provides that the Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order subject to the condition that the assessee deposits not less than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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