Firoze B. Andhyarujina, Senior Advocate, has provided a comprehensive review of the constitutional remedies available under the Income-tax law with special reference to prosecution and recovery proceedings. The author has discussed all the important circulars and instructions issued by the CBDT and also referred to important judgements of the Supreme Court and High Courts on the subject
“Legislature would be guilty of an unconstitutional delegation of its legislative function and power if instead of laying down the policy of law or some other standard or objective criteria for the application of the law, it leaves the matter of selection of the persons or objects for directing the law against them, according to the uncontrolled discretion of the administrative authority.”
State of West Bengal vs. Anwar Ali Sarkar AIR 1952 SC 75.
PRELIMINARY:
Of late there have been demand for increased public scrutiny of accounts , inspite of statutory audit . Enron and other cases abroad , Satyam case in India have highlighted the need and necessity to have controls and system of checks, perhaps even beyond scope of traditional audit. Financial statements and accounts are being increasingly exiguously examined to rule out possibility of wrong-doings, cover up or evasion of taxes. Financial statements and accounts are coming under increasing scrutiny and investigation. A chartered accountant is a financial investigator and prober, is required to be curious tenacious and well-conversant to identify and unearth frauds, misreporting and wrong claims in accounts.
It is also a fact that business transactions have become more complicated and accounting entries more complex than ever before. This may be one of the causes why possibly frauds could not be detected in some cases. Indeed such cases have made the audit work more comprehensive, intrusive and investigative. Ethical managements may at times regard such inquiries as an unwarranted intrusion or a hounding approach : the concern was noted in DLF Ltd. v. ACIT 2014 366 ITR 390 (Del).
Principles
1) Conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authority to pass administrative orders if such conferment is without any guidance, control or checks is violated of Article 14 of the Constitution: Subramanian Swamy v. Director, CBI 20148 SCC 682.
2) Mere possibility that executive authority may abuse its discretion would not be a ground for declaring the legislation unconstitutional.
3) Discrimination based on impermissible and invalid classification and excessive delegation of power can render legislation invalid: Special Courts Bill, In re 1979 1 SCC 380.
4) Grant of approval by higher authority must not be mechanical and principles of natural justice must be followed by giving pre-decisional hearing.
5) In fiscal maters the legislature can amend the law retrospectively, however it cannot take away any vested right conferred on the assessee. In Indian Aluminium Company v. State of Kerala 1996 7 SCC 637 it was held that it is competent for the legislature to enact law with retrospective effect and authorise its agencies to levy and collect tax notwithstanding the declaration by court.
6) AO cannot launch roving and fishing inquiries, as arming a quasi-judicial authority with wide discretion would impair the rights of assessee who can be subject to whims and vagaries; Harakchand R. Banthya v. UOI 1969 2 SCC 166, Krisna Mohan P. Ltd. v. Municipal Corporation of Delhi 2003 7SCC 151, State of Punjab v. Khan Chand 1974 1 SCC 549.
Amendment to Section 142(2a) special audit Constitutional Validity
Constitutional validity of amendment to section 142(2A) of the IT Act was challenged in Sahara India Financial Corporation v. CIT 2017 399 ITR 81 (Delhi). The following points emerge –
A) The decision of Supreme Court in Sahara India v. CIT 2008 300 ITR 403 which was prior to the amendment inserted by Finance Act 2013 is good law and the principles laid down by Supreme Court in 300 ITR 403 should continue to apply even after the amendment.
B) Approval by CIT or Chief CIT must not be mechanical and must show application of mind.
C) A pre-decisional hearing is mandatory and AO satisfaction must be based on objective material and not subjective satisfaction. The powers under the provision cannot be used by AO to merely shift his responsibility of scrutinising the accounts to the special auditor.
D) The term “nature and complexity of accounts” is capable of different interpretation at the hands of different officers and in that sense, equally open – ended .However merely because a particular term is capable of different interpretation it cannot be said to be arbitrary & against the requirement of article 14.
E) The fact that the assessee is already subject to statutory audit and therefore recourse to section 142(2A) is not correct as per the reasoning of Madhya Pradesh High Court in Mohan Trading Company v. UOI 1985 156 ITR 134 MP.
F) The Delhi High Court held that direction of special audit post amendment to section 142(2A) is Constitutionally valid and does not violate Article 14 of the Constitution.
CONSTITUTIONAL REMEDY BY WAY OF WRIT PETITION CAN BE ENTERTAINED WHERE POWER OF COMPOUNDING AN OFFENCE IS PENDING IN APPEAL AGAINST CONVICTION
The issue to be examined is power of compounding an offence under Income-tax law is exercisable even when criminal appeal against conviction is pending. The IT Authorities may not exercise such a power in view of specific guidelines issued for compounding of offence, under such circumstances in case of extreme hardship the Courts exercise the Constitutional remedies to grant appropriate reliefs and rights to the citizens.
In the guidelines in compounding the offences under direct tax laws, Government of India, Ministry of Finance, Department of Revenue dated 16/05/2008 has specified as follows.
“4.4 Cases not to be compounded: Notwithstanding anything contained in the guidelines the following cases should normally not be compounded …
(f) Where conviction order has been passed by a court.
7.2 Notwithstanding anything contained in the guidelines, the Finance Minister may grant approval for compounding of an offence in a suitable and deserving case, after obtaining report from the board on the petition of the applicant”.
In Government of India Department of Revenue v. Mrs. Inbavalli 2018 400 ITR 352 (Mad). The court exercised writ jurisdiction in a petition to hold that the power of compounding is exercisable even when an appeal against conviction is pending. In this case the assessee an old women of 70 years had not filed return of income of her electrical business. Pursuant a survey u/s. 133A she filed returns. A very huge demand of about Rs 1.34 crores was raised for the three years which at the stage of the High Court in tax appeals filed u/s. 260 A was pegged along with interest at Rs 14.85 lakhs which the assessee paid and there was no demands outstanding. In the meantime revenue initiated prosecution proceedings and after trial the Metropolitan Magistrate Court convicted and sentenced the assessee u/s. 276 CC of the IT Act to undergo imprisonment.
The assessee preferred appeals u/s. 374(3) of the Code of Criminal Procedure 1973 before sessions Judge , City Civil Court who suspended the sentence of imprisonment and the said matter was pending . The assessee filed a compounding petition which was not entertained on the ground of parameters laid down in guidelines. It has been held in ITO v. Dr. k. Jagadeesan 202 257 ITR 476 (Mad), Chairman CBDT v. Smt. Umayal Ramanathan 2009 313 ITR 59 (Mad.) and V. G. Paneerdas and Company v. Secretary CBDT 2013 352 ITR 77 Mad department can consider compounding applications even after conviction by Trial Court. It was further held that if an appeal is pending against the order of lower court convicting the asseessee, the proceedings are deemed to be pending and hence compounding application can be considered on merits. It may be noted that department has not filed an SLP against the above decision.
Exercising its writ jurisdiction, the Court concluded that the power of compounding is exercisable even when criminal appeal against conviction is pending. The Court also took into consideration the factors like old age, illness and unfortunate events and fact that it is not a case of any wilful suppression.
The Court laid down “The assessee has been found guilty of not filing returns in time for the reasons articulated hereafter. Given the fact that our prisons are teeming with persons convicted of heinous crimes, the energy, time and money that the revenue seeks to expend in a case like this, could have been brought to better use in other graver cases.”
Writ Jurisdiction cannot be invoked to stall inquiry
Section 133(6) of the IT Act empowers AO to require any person, including banking company to furnish any information or document which would be useful or relevant for any inquiry or proceedings under the act. In S. Savithri v. ITO 2018 400 ITR 513 (Karn.) notice calling for particulars of bank account of assessee was issued. The noticee was deceased and therefore the legal representative took up plea that the notice is bad and it cannot cast obligation on legal representatives to furnish information including bank details.
A writ petition was filed contending that in absence of any separate notice being issued in her name she was not accountable or answerable to furnish information u/s. 133(6), it was further contended as no inquiry or proceedings were pending before the authority such information could not be called for and hence a writ was filed.
The Karnataka HC held that there was nothing on record to show that the fact of death was within the knowledge of the department. The legal representative cannot protest or deny obligation to furnish such information including bank details and vouchers. The Court observed “Afterall the wife of a person cannot plead ignorance about a huge cash inflow in her husband’s bank account.” It concluded that cutting short such inquiry by invoking the extra- ordinary jurisdiction of the court is likely to defeat the very purpose for which statutory provision is enacted.
No Writ Petition when statutory remedy of appeal available
AO had passed a reassessment order after complying the procedure u/s. 147-148 of the IT Act. The assessee filed a writ petition challenging the entire proceedings for reassessment. This was based on the fact that certain entries made in loose papers had no evidentiary value and therefore the assessment was based on inadmissible evidence.
In this connection reference is made to Common Cause vs. Union of India 2017 394 ITR 220 (SC) where the dispute was with regard to registration of FIR against high Constitutional authorities based on entries made on loose paper seized at the time of search and seizure. It was held that entries in loose papers are not sufficient evidence for directing registration for FIR and inquiry under criminal justice system. In Neeraj Mandoli v. ACIT 2017 399 ITR 287 (MP) it was held that the assessee had challenged the order of assessment in writ petition.
When the assessment was already over, there was right to statutory appeal which was available and therefore writ was not appropriate remedy. It was pointed out that the Court cannot go in to various aspects of matters already dealt with in assessment order, for which statutory remedy of appeal was available.
The Supreme Court in CIT v. Chabil Dass Agarwal 2013 357 ITR 357 and CIT v. Vijay N. Chandrani 2013 357 ITR 713 (SC) laid down the principle when statutory forum are created for redressal of grievance, writ petition should not be entertained ignoring such statutory dispensation. Similar view was also taken in Joint CIT v. Kalanithi Maran 2014 366 ITR 453 (Mad).
Thus where assessment is already completed after notice u/s. 148 and proceedings held u/s. 147, the assessment has attained finality and therefore it would not be appropriate for the Court to go into various aspects of the matter by entertaining writ petition.
However where assessment is sought to be reopened u/s. 148 and the objections filed have been overruled by the AO, then in such a case the AO will not proceed in the matter for a period of 4 weeks from the date of receipt of the order rejecting the objections so as to enable the assessee to challenge order in accordance with law.
This principle of law was laid down in Asian Paints v. DCIT 2008 296 ITR 90 (Bom) and Aroni Commercials v. DCIT 2014 362 ITR 403 (Bom). If the AO has passed order in haste then a writ would lie even though on the assessment order an appeal by way of alternate statutory remedy is available u/s. 246 A.
Where reassessment was made solely on the basis of valuation report it was held in Kamala Ojha v. ITO 2017 397 ITR 197(Chhattisgarh) that the reopening based on valuation report is not valid as a valuation report in only a opinion of a valuer. It was held that the report or information of a valuer cannot substitute the words “reason to believe”of the ITO.
An opinion of a third person cannot be “reason to believe” of the ITO and writ of prohibition was issued to the ITO from proceeding to reassessee the income based on valuation report. The Court held that relying upon valuation report without application of mind is per se illegal and without authority of law relying upon ACIT Dhariya Construction Company 2010 328 ITR 515(SC).
Issues
1) Pending assessment and appeal: Assessment proceedings and criminal proceedings are independent, while assessment proceedings are civil in nature by IT authorities, criminal proceedings are before Criminal Court. In P. Jayappan v. ITO 1984 149 ITR 696(SC) it was held that the two types of proceedings can run simultaneously and the one need not wait for the other. However the finding of fact and the conclusion by the Appellate Tribunal is binding on Criminal Courts. Thus, if the Tribunal holds that there is no concealment of income or furnishing of inaccurate particulars then the finding is binding on the Criminal Court.
Normally where petitioner has challenged assessment order in appeal and the same is pending adjudication the petitioner cannot be prosecuted in the criminal complaint filed by the department, reference to observations in CIT v. Bhupen Champak Lal Dalal 201 248 ITR 830 (SC):
"The prosecution in criminal law and proceedings arising under the Act are undoubtedly independent proceedings, and therefore there is no impediment in law for the criminal proceedings to proceed even during the pendency of the proceedings under the Act. However a wholesome rule will have to be adopted in the matters of this nature where courts have taken the view that when the conclusions arrived at by the appellate authorities have a relevance and bearing upon the conclusions to be reached in the case necessarily one authority will have to await the outcome of the other authority.”
2) Penalty Dropped : In KC Builders vs. ACIT 2004 265 ITR 562 (SC) it was held that where penalty is dropped, prosecution of an offence u/s. 276C for wilful evasion of tax cannot be proceeded with. The Bombay High Court held that where penalty is cancelled by Tribunal prosecution proceedings are also quashed: Shashi Chand Jain v. UOI 1995 213 ITR 184 (Bom) where the finding in penalty proceedings was that assessee had a genuine belief that tenancy right was not an asset for the purpose of wealth-tax and that there was no wilful attempt to evade tax or false verification in such a case prosecution was not valid. The challenge in this case was byway of writ certiorari for quashing or setting aside criminal complaint filed against the petitioner and a writ mandamus to withdraw/forbear from taking any steps in pursuance of criminal complaint filed against the petitioner.
It may further be noted that where substantial question of law is admitted by HC in quantum appeal then no penalty for concealment can arise: CIT v. Nayan Builders 368 ITR 722 (Bom), CIT v. Harsha Bilinagady 379 ITR 529 (Karn) thus the implication could be that in such a case prosecution cannot lie: ITO v. Nandalal 341 ITR 646 (Bom). A criminal revision application was filed to quash and set aside the judgment of additional sessions judge on the ground that proceedings on a complaint filed by the ITO u/s. 276 C and 277 of the IT Act on the ground that Tribunal had set aside the penalty u/s. 271(1)(c). The Court held that when penalty has set aside by the Tribunal the finding becomes conclusive and prosecution was not sustainable.
An interesting issue arose before Patna High Court in Vijay Kumar Malik v. CIT 2017 397 ITR 130 (Patna). The assessee was carrying on business of supply of fodder to the Animal Husbandry Department, Bihar.
The fodder scam came into light and FIR was launched and the assessee was taken into custody. Various notices for reopening and assessment under sections 142(1) 147 were issued and AO brought to tax the entire receipt. A complain was lodged u/ss. 276-277 appeal was filed before CIT(A) to set aside the order for de novo assessment. This order was challenged in Tribunal which was dismissed. The assessee filed the appeal before HC and the HC held that no substantial question of law arose. The assessee filed SLP in SC and also move a writ petition that he be exonerated and that SLP was pending in Supreme Court. In this case dismissing the writ petition the Court held that the assessee had not been exonerated by the IT Department in adjudication proceedings. SLP pending does not mean assessee is exonerated relying upon the case of Radheshyam Kejriwal v. State of West Bengal 2011 333 ITR (58) SC where it was held that exoneration of a person on merits, criminal proceedings on the same facts and circumstances cannot be allowed.
3) Court awarding imprisonment whether mandatory : The issue arises that sections 275A to 278A provide for punishment in terms of imprisonment, the phrase “shall be punishable” gives rise to the question whether punishable would imply mandatory imprisonment or should the word “shall” be interpreted to mean discretion to award fine/penalty but not imprisonment. Courts have no power to reduce punishment prescribed by the section and imprisonment is mandatory and cannot be done away with fine.
In a criminal complaint filed by AO the assessee was convicted and sentenced to undergo rigorous imprisonment for period of two years and to pay a fine of Rs 2500/- in another case for another assessment year. The assessee was also convicted and both sentences were ordered to run concurrently. The appeal filed was dismissed by the sessions judge. A revision petition was filed where the Court in Satwant Singh Mehta v. ITO 217 397 ITR 45 (P&H) held that since the assessee was already undergoing sentence and both sentences were to run concurrently, the sentence imposed in the present case was reduced to the sentence already undergone by him and the fine was imposed in default of which sentence to continue. The Court ordered that the assessee be set at liberty if his custody was not required in connection with any other case, subject to payment of fine.
4) Old age 70 Years : CBDT instruction No. 5051 of 1991 dated 07/02/1991 para 4 states “Prosecution need not normally be initiated against a person who has attained the age of 70 years at the time of commission of the offence”. In Pradip Burman S. v. ITO 382 ITR 418 (Delhi) the Court laid down that the person should have reached the age of 70 at the time of commission of the offence. The case of the petitioner was that the complaint filed is liable to be quashed on the ground that at the time of filing of the criminal complaint, the petitioner had attained the age of 70 years and thus no prosecution can be initiated against him. Instruction number 5051 of 1991 dated February 7 1991 mandated that no prosecution could be initiated against a person who is above 70 years, “at the time of commission of offence”. Further the said instructions do not mandate or make it compulsory since the words “need not normally” used in para 4 do not provide an absolute bar on initiation of prosecution. Thus the emphasis is on time of commission of the offence.
5) Charge in complaint under one section can it be shifted to another section
The complaint filed is in respect of each of the offence for which the acused is prosecuted under a specific section At the time of trial, it is felt that the accused is guilty under another section and not under the charge on which the complaint was filed. Thus what is sought to introduce is a charge of a different nature under a different provision and section, in such a case the entire complaint is bad and the prosecution fails since the accused cannot be charged under different section which is different in nature and the offence is specifically different. It may further be noted that while sanctioning prosecution under section 279 the CIT had applied his mind to the provisions of a particular section and offence in respect of which the section contemplates prosecution to change the complaint to a different charge is not permissible. In such a case the complaint is bad and vitiated in law.
6) Section 278Aa& Section 278E: By virtue of amendment by Taxation Laws (Amendment Misc. Provisions) Act 1986 sections where the word “without reasonable cause or excuse” have been omitted and deleted and with the insertion of section 278AA, the onus of proving the existence of reasonable cause is shifted on the accused. Section 278E provides that in every prosecution the court shall presume culpable mental state and it is for the accused to prove contrary beyond reasonable doubt. The entire concept in criminal jurisprudence of “mens rea” has undergone change and burden of proof is shifted to the assessee. This presumption is rebuttable but the burden is cast heavily upon the assessee to prove absence of culpability not by mere preponderance of probability but to prove that the charge against him is unsustainable beyond reasonable doubt. Thus the initial burden lies on the assessee sections 275A to section 280 D of the Act deals with offences and prosecution in chapter XXII.
RECOVERY OF TAX AND STAY
Parameters for granting stay: Often in its anxiety to collect revenue even on disputed tax after summarily rejecting stay applications and that too without giving reasons has become very common. This is coupled with instructions and orders issue to assessee’s bank to stop payment or in many cases the bank balance is taken away by the department even without notice. In order to avoid such practice of rejecting stay and issuance of garnishee orders a writ petition is the only remedy.
In KEC International Limited v. B.R. Balakrishnan 2001 251 ITR 158 (Bom) at pg. 160 the Court laid down parameters which are on the administrative side of the department to be followed while disposing of stay application/petition:
A) The tax authorities should at least set out the facts of the case.
B) When assessed income exceeds returned income, the authority will consider whether assessee has made out a case for unconditional stay where part of the disputed amount is required to be deposited short prima facie reason should be given in the order.
C) The financial status and difficulties should be examined, whether the assessee is financially sound and viable to deposit the amount.
D) Generally coercive measure may not be adopted during the period provided by the statute for appeal, it is an only when assessee is likely to defeat the demand recourse to coercive action can be taken which may be indicated in the order.
A writ petition is required to be filed for stay of recovery and arbitrary collection of tax and against garnishee orders even when there is no such right specified. In ITO v. Mohammed Kunthi 1969 71 ITR 815 (SC), it was pointed out that in cases where enforcement of disputed demand would render appeal nugatory, stay is bound to be granted.
It is pertinent to note that where petition is filed for stay, it is the duty of tax authorities to pass a speaking order even though while acting only in administrative capacity, but the law requires that principles of natural justice should be observed so that there is no arbitrary use of coercive powers. A well-known percept in administrative law is that any statutory order should be a speaking order mere adverting to certain facts would not constitute a speaking order. The Supreme Court has emphasise that a speaking order “must speak for itself“ and should be self-contained intelligible order: AA v. Hindumal Balmukund Investment 2001 251 ITR 660 violation of principle of natural justice would also mean authority not giving copies of documents and also not giving sufficient opportunity to the assessee to act in time .
Writ on Time Limits: Coercive power of attachment and sale of property is resorted by department in this connection, the time limit specified under Rule 68B of Schedule II of the IT Act is required to be followed as it deals with period of limitation. Sale of attached immovable property cannot be postponed beyond 3 years from the date on which the amount of tax, interest, fine, penalty or any other sum had become conclusive. A writ petition was filed in Noorudin v. TRO 2001 251 ITR 357(Mad) where examining the period of limitation the court set aside the sale as the same was not carried out within the prescribed time. Thus even in cases of attachment and sale writ petition can be filed where sanctity of time limits are challenged.
Law on Protective Assessment: Where AO assesses the same income in another assesee’s hands appeal against such protective assessment is permissible: Tarabhen R. Patel v. ITO 1995 215 ITR 323 (Guj).
Lalji Haridhas v. ITO 1961 43 ITR 387 held that a protective assessment is to protect the revenue and the same does not invalidate the other assessment but the levy itself is enforceable only against one assessment and not under both Hemlata Agarwal v. CIT 1967 64 ITR 428 (All).
A protective recovery is not permissible PK Trading v. ITO 1970 78 ITR 427 (Cal).
CIT v. Cochin Company 1976 104 ITR 655 (Ker). Sunilkumar v. CIT 1983 139 ITR 880 (Bom).
Jaganath Bawri v. CIT 1998 234 ITR 464 (Gau).
R. Rajbabu v. TRO (2004) 270 ITR 256 (Mad)(High Court) Writ would be maintainable where same income is sought to be taxed twice.
Board circular to grant stay on deposit of 15% of demand to be followed and can be extended till disposal of appeal
Assessment was made and the assessee paid 38% of outstanding demand, by virtue of which there was grant of stay of demand pending disposal of appeal by CIT(A). Subsequently the stay was sought to be removed on the ground that the assessee had sufficient resources and no hardship would be caused to it by depositing the amount, hence direction to pay balance outstanding demand the failure of which would lead to coercive proceedings.
In Vodafone India v. CIT 2018 400 ITR 516 (Bom) Court held that the circular issued by CBDT to grant stay till disposal of the first appeal on payment of 15 % of disputed amount is binding on the IT authorities, that the IT authorities had completely ignored circular and the asseessee had paid almost 38% of the outstanding demand. The Court further observed that the parameters laid down in KEC International v. Bala Krishnan 251 ITR 158 (Bom) from grant of stay were completely ignored. The Court while relying upon the decision of UTI Mutual Fund v. ITO 2012 245 ITR 71 (Bom) and MMRDA v. deputy DIT in WP no 2348 of 2014 decided on 29th October 2014 held that mere having funds is no financial hardship, would not itself justify deposit to be made where prima facie case is made. Further there was no delay on the part of the assessee which could be attributed for delay in disposal of pending appeal.
UTI Mutual Fund v. ITO ( 2012)345 ITR 71 (Bom.) (HC)
Administrative directions for fulfilling recovery targets for collection of revenue should not be at the expense of foreclosing remedies which are available to the assessee for challenging the correctness of a demand. The sanctity for the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Judicial functions performed by IT authorities require judicial consideration.
Recovery proceedings against member of AOP where appeal is filled by AOP against its assessment which is pending, rejection of stay is not justified without fulfilling the parameters of stay. In a writ petition filed the petitioner had intervened in the appeal for the stay it was held that looking into the various guidelines stay should be granted.
1 No recovery of tax should be made pending
(a) Expiry of the time limit for filing an appeal;
(b) Disposal of a stay application, filed by the assessee and reasonable period thereafter to enable the assessee to move a higher forum. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
2. The stay application, if any, moved by the assessee should be disposed off after hearing the assessee and bearing in mind the guidelines in KEC International;
3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;
4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;
5. In exercising the powers of stay, the ITO should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interest of the revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the AO has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order.
Stay Petition
Discretionary power means according to the rules of reason and justice, not according to personal opinion but according to law. It is not to be arbitrary, vague and fanciful, but legal and regular, to be exercised not capriciously but on judicial grounds and for substantial reasons. If an authority cast with a public duty of exercising discretion takes into account matters which the Court considers to be improper for guidance of the discretion, then in the eyes of law, it is an improper exercise of the discretion.
Instruction No. 96 [F. No. 1/6/69-ITCC], dated 21-8-1969
2. The then Deputy Prime Minister had observed as under : “. . . where the income determined on assessment was substantially higher than the returned income, say, twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeals, provided there were no lapse on the part of the assessee.”
Instruction No. 1914, Dated 2-2-1993
A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances e.g. where the assessment order appears to be unreasonably high pitched or where genuine hardship is likely to be caused to the assessee [Para 2 B(iii)].
• Issue is decided by Appellate Authority in favour of assessee
• Conflicting views of High Courts
• Department has not accepted view of jurisdictional High Court
Stay petition to be disposed off by AO/TRO within 2 weeks and communicate the decisions.
Demand of high pitched assessment can be stayed after Instruction No. 1914.
Maharana Shri Bhagwat Singahiji of Mewar v. ITAT (1997) 223 ITR 192 (Raj)
Soul vs. Dy. CIT( 2008) 173 Taxman 468 (Delhi)
Valvoline Cummins Ltd. v. Dy. CIT (2008) 307 ITR 103 (Delhi)
Maheswari Agro Industries v. UOI (2012)346 ITR 375 (Raj.)
Office Memorandum [F. No.404/72/93-ITCC], dated 29-2-2016 [15% of demand as pre-deposit for stay]
“3. It has been reported that the field authorities often insist on payment of a very high proportion of the disputed demand before granting stay of the balance demand. This often results in hardship for the taxpayers seeking stay of demand.”
Above 15% – addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation.
Below 15% – The assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee,) the assessing officer shall refer the matter to the administrative Pr. CIT/CIT, who after considering all relevant facts shall decide the quantum/proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand.
In a case where stay of demand is granted by AO on payment of 15% of the disputed demand and the assessee is still aggrieved, he may approach the jurisdictional administrative Pr. CIT/CIT for a review of the decision of the assessing officer.
Office Memorandum [F.No.404/72/93-ITCC], DATED 31-7-2017 [15% changed to 20%]
Flipkart India(P) Ltd. v. ACIT [2017] 396 ITR 551 (Kar)(HC)
“It is true that Instruction No.4(B)(b) of the Circular dated 29-2-2016, gives two instances where less than 15 per cent can be asked to be deposited. However, it is equally true that the factors, which were directed to be kept in mind both by the Assessing Officer, and by the higher superior authority, contained in Instruction No. 2B(iii) of Circular No.1914, still continue to exist. For, as noted above, the said part of Circular No.1914 has been left untouched by the Circular dated 29-2-2016. Therefore, while dealing with an application filed by an assessee, both the Assessing Officer, and the Principal Commissioner, are required to see if the assessee’s case would fall under Instruction No. 2B(iii) of Circular No.1914, or not. Both the Assessing Officer, and the Principal Commissioner, are required to examine whether the assessment is "unreasonably high pitched", or whether the demand for depositing 15 per cent of the disputed demand amount "would lead to a genuine hardship being caused to the assessee" or not”.
Mumbai Metropolitan Region Development Authority vs. DDIT (2015) 273 CTR 317 (Bom.)(HC)
(a) The order on stay application must briefly set out the issue and the submission of
the assessee/applicant in support of the stay;
(b) In cases where the assessed income under the impugned order far exceeds returned income so as to make the demand arbitrary or the issue arising for consideration stands concluded by a decision of a higher forum or where the order appealed against is in breach of Natural Justice or the view taken in the order being appealed against is contrary to what has been held in the preceding previous years ( even if issue pending before higher forum) without there being a material change in facts or law, stay should normally be granted;
(c) If not, whether looking to the questions involved in appeal, keeping in view the likelihood of success in appeal what part of the demand the whole (in case issue covered against the applicant by a decision of higher forum) or part of it and must be justified by short reasons in the order disposing of the stay application;.
(d) Lack of financial hardship would not be a sole ground to direct deposit/payment of the demands if the assessee/applicant has a strong arguable case on merits;
(e) In cases where the assessee/applicant relies upon financial difficulties, 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 non recovery later. Thus warranting deposit. This of course, if the case is not otherwise sustainable on merits;
(f) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.
(g) In exercising the powers of stay, the Authority should always bear in mind that as a quasi judicial authority it is vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate hardship to the assessee. Though the assessing officer has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order; the application for stay must be considered from all its facets and the order should be passed, balancing the interest of the assessee with the protection of the Revenue.
A writ petition is required to be filed when stay is refused or when there is undue haste and hardship caused to the assessee without following the parameters of various judicial decisions. In case of attachment of property /bank accounts it is necessary to approach the Court by way of a writ to protect the rights of the citizen.
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