2000 (7) TMI 919 - AT - Income Tax

Tribunal halts improper tax recovery, stresses Commissioner's power to grant stay, emphasizes fair hearings.

The Tribunal found the Assessing Officer's coercive action for recovery improper and contrary to legal precedents. It directed the refund of the recovered ... Power of the Tribunal to grant stay of recovery - power of the Tribunal to direct refund of tax recovered without authority of law - preclusion on coercive recovery during period allowed for filing appeal and pendency of stay application - Assessing Officer's misuse of recovery powers and pre-dating of orders - administrative power of the Commissioner of Income-tax to grant stay - requirement of a speaking order and opportunity of hearing by the Commissioner when exercising stay powers - ancillary and implied powers necessary to make statutory jurisdiction effectivePreclusion on coercive recovery during period allowed for filing appeal and pendency of stay application - Assessing Officer's misuse of recovery powers - Assessing Officer's validity in attaching bank account and recovering disputed sum before expiry of the time allowed for payment and while stay application/appeal rights subsisted - HELD THAT: - Following the rationale that authorities must not render appellate remedies nugatory, the Tribunal held that the Assessing Officer was precluded from resorting to coercive recovery until the expiry of the statutory period for filing an appeal against the first appellate authority's order and during the pendency of any stay application. In the facts of the case the assessee had filed an appeal to the Tribunal within the prescribed time and had applied for stay before the Commissioner; the Assessing Officer nevertheless issued a notice under section 226(3) and recovered the sum from the bank before the three days granted for payment had expired and despite being informed of the pendency of the stay application. The Assessing Officer also pre-dated the demand documents, demonstrating misuse of process. These acts were held improper, unwarranted and bad in law because they defeated the purpose of the appellate remedy and the staying mechanism available to the assessee.Assessing Officer's coercive recovery was unjustified and bad in law; the recovery of the disputed sum was held to be improper.Power of the Tribunal to grant stay of recovery - power of the Tribunal to direct refund of tax recovered without authority of law - ancillary and implied powers necessary to make statutory jurisdiction effective - Whether the Tribunal has power to direct refund of tax recovered illegally and to make effective its stay jurisdiction - HELD THAT: - The Tribunal applied the principle that section 254 confers powers of the widest amplitude and carries with it implied powers necessary to make the grant effective. Where recovery has been effected in a manner that misuses statutory process and would, if uncorrected, render the appellate remedy meaningless, the Tribunal in appropriate and exceptional cases may not only grant a stay but also direct refund of tax recovered by the Revenue without authority of law. The Tribunal held that this is an extraordinary power to be exercised sparingly; on the facts, because the Assessing Officer had misused his powers, the Tribunal was justified in directing refund of the amount recovered and staying further recovery subject to conditions.Tribunal empowered to direct refund of illegally recovered tax in appropriate cases; exercise of that power was warranted here.Administrative power of the Commissioner of Income-tax to grant stay - power of the Tribunal to insist on approach to administrative authority before granting stay - Scope and effect of the Commissioner's administrative power to grant stay and the Tribunal's practice of asking assessees to first approach administrative authorities - HELD THAT: - The Tribunal observed that, although there is no express statutory provision empowering the Commissioner to grant a stay equivalent to section 220(6), prevailing departmental practice and the Commissioner's administrative control over the Tax Recovery Officer permit the Commissioner to grant stay or extend time for payment pending appeal before the Tribunal. The Tribunal further explained that its practice of insisting that assessees first approach the Commissioner serves dual purposes: it affords the Department an opportunity to evaluate and protect revenue interests and results in a speaking administrative record which assists the Tribunal. Nevertheless, the Tribunal retains unfettered power to grant stay even if the Commissioner has not been approached.Commissioner has administrative power to grant stay and Tribunal may properly require, as practice, that administrative remedies be explored first, though the Tribunal's power to grant stay is independent.Requirement of a speaking order and opportunity of hearing by the Commissioner when exercising stay powers - natural justice in administrative exercise of discretion - Whether the Commissioner must give an opportunity of being heard and pass a speaking order when deciding stay applications - HELD THAT: - Relying on established authorities and principles of reasoned administrative action, the Tribunal held that when the Commissioner exercises administrative discretion in respect of stay applications affecting recovery, he is required to record reasons in a speaking order and afford the assessee an opportunity of being heard. An order passed without affording a hearing and without reasons is unreasonable and bad in law. In the present case the Commissioner rejected the stay application without giving the assessee a hearing or a speaking order, which rendered that administrative action untenable.Commissioner must give hearing and pass a speaking order when deciding stay applications; failure to do so is legally impermissible.Final Conclusion: Application allowed: the Tribunal stayed recovery of the disputed sum pending appeal and directed refund of the amount recovered by the Assessing Officer as having been improperly recovered, subject to conditions (security to revenue and no adjournment). The Tribunal also fixed the appeal for hearing and affirmed that both the Tribunal and the Commissioner have roles in stay applications, with the Commissioner required to pass speaking orders after hearing. Issues Involved:1. Coercive action by the Assessing Officer u/s 226(3).2. Tribunal's power to direct refund of tax recovered.3. Commissioner of Income-tax's power to grant stay of disputed demand.4. Requirement for the Commissioner to provide a hearing and a speaking order.Issue-wise Comprehensive Details:1. Coercive Action by the Assessing Officer u/s 226(3):The Tribunal found that the Assessing Officer resorted to coercive action under section 226(3) for the recovery of Rs. 19,43,000 from the Standard Chartered Bank even before the expiry of the three days' time allowed by him. This action was deemed 'highly improper and contrary to various decisions of the Tribunal and High Courts.' The Tribunal emphasized that coercive action for the recovery of disputed demand should not be taken when an application for stay of recovery is pending before any authority, referencing the Bombay High Court's decision in Mahindra and Mahindra Ltd. v. Union of India [1992] 59 ELT 505.2. Tribunal's Power to Direct Refund of Tax Recovered:The Tribunal held that it has the power to direct the refund of tax recovered without following the process of law. This was supported by the Supreme Court's decision in ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815, which established that the Tribunal has the power to grant stay of recovery and all other powers to make the power effective. The Tribunal directed the Assessing Officer to refund the sum of Rs. 19,43,000 to the assessee within fifteen days, considering the Assessing Officer's action as 'highly improper, unwarranted and bad in law.'3. Commissioner of Income-tax's Power to Grant Stay of Disputed Demand:The Tribunal recognized that the Commissioner of Income-tax, in his administrative capacity, has the power to grant stay of the disputed demand when the appeal is pending in the Tribunal. This practice is beneficial to the interests of the Revenue as it allows the Department to gather necessary data and protect its interests. The Tribunal insisted that the assessee should approach the Commissioner for stay of recovery before the Tribunal considers the application for stay.4. Requirement for the Commissioner to Provide a Hearing and a Speaking Order:The Tribunal held that the Commissioner of Income-tax is required to pass a speaking order and give reasons for the exercise of his discretion in the matter of stay application. This is supported by the decisions of various High Courts, including the Kerala High Court in Mohammed Abdul Sattar Sait v. CBDT [1979] 120 ITR 653 and the Delhi High Court in Bharat Nidhi Ltd. v. Union of India [1973] 92 ITR 1. Additionally, the Tribunal held that an order passed by the Commissioner without giving an opportunity of being heard is unreasonable and bad in law.Conclusion:The Tribunal allowed the assessee's application, stayed the recovery of Rs. 19,43,000 till the disposal of the appeal, and directed the Registry to fix the appeal for hearing on October 11, 2000. The Tribunal emphasized its duty to protect taxpayers from undue harassment and ensure that public trust and confidence in the rule of law are maintained.