DIT vs. Maharashtra Housing & Area Development Authority (Bombay High Court)

S. 220: AO’s action of coercive recovery is illegal and shocks the conscience. The Tribunal cannot remain a silent spectator to such illegal action

The assessee received the order of the CIT(A) on 16.11.2013. It filed an appeal before the Tribunal on 18.11.2013 which was the next working day. The assessee also filed an application before the Tribunal requesting stay of demand. The said application was fixed for hearing on 22.11.2013. However, the AO, without awaiting the outcome of the stay application, attached the assessee’s bank account u/s 226(3) on 18.11.2013 and withdrew Rs. 159.84 crore. The assessee argued before the Tribunal that the coercive action of the AO was wrong because (i) the AO had taken coercive action before the expiry of time of filing the appeal against the order of the CIT(A), (ii) the action was taken even prior to the disposal of the stay application by the Tribunal and (iii) no prior notice was given to the assessee before taking the recovery action u/s 226(3). The Tribunal accepted the submissions of the assessee and held that the action of the AO in recovering the outstanding without affording the assessee minimum reasonable time to take remedial steps is a misuse of powers and a gross violation of the directions laid down by the Courts as well as the basic rule of law and principles of natural justice. It directed the Revenue to refund the entire amount of Rs. 159.84 crore to the assessee within 10 days from the receipt of this order. The department filed a Writ Petition to challenge the said order of the Tribunal. HELD by the High Court dismissing the Petition:

(i) The action of the AO is in defiance of the directions laid down in UTI Mutual Funds 345 ITR 71 (Bom) that no recovery of tax should be made before the expiry of the time limit for filing an appeal before the higher forum has expired. The Court also has directed that when the bank account has been attached the revenue would not withdraw the amount unless it has furnished a reasonable prior notice to the assessee to enable the assessee to seek recourse to a remedy in law. The action of the AO in not only attaching the bank account but withdrawing the money from the bank was before the expiry of the time limit for filing appeal was only with a view to foreclose the option of the assessee of obtaining a stay from the Tribunal. The assessee received the order of the CIT(A) only on 16.11.2013 and had 60 days time to prefer an appeal there from. However, the AO attached the bank account of the assessee on 18.11.2013 itself i.e. within two days of communication of the order of the CIT(A). Further, not only the bank account was attached but the amounts were forcibly withdrawn on that date itself from the bank so as to completely foreclose the remedy available to the assessee under the Act;

(ii) The above action of the AO was against the elementary principles of rule of law. The State is expected to act fairly. The undue haste on the part of the AO in recovering a sum of Rs.159.84 crores was not only contrary to the binding decisions of this Court but also shocking to the judicial conscience. The entire action appears to have been directed to make the Tribunal and the assessee helpless so that no relief can be granted in favour of the assessee. Leaving aside the case laws in favour of the assessee, on first principles itself, no appellate authority and much less the Tribunal can be a silent spectator to the arbitrary and illegal actions on the part of the Assessing Officer so as to frustrate the legal process provided under the Act;

(iii) The grant of refund was in the exercise of Tribunal’s inherent powers to ensure that the assessee is not left high and dry only on account of illegal and high-handed actions on the part of the AO;

(iv) The revenue would do well to remember that we live in State which is governed by Rule of law. It is primary obligation of the officers of the State that it follows the law laid down by the Courts in letter and spirit before taking any coercive action.