2017 (8) TMI 1729 - HC - Income Tax

Delhi HC grants interim relief against tax demand after finding appeal effect order and show cause notice issued same day making payment demand legally untenable

Delhi HC granted interim relief to assessee challenging appeal effect order demanding immediate tax payment. Court found prima facie case noting SCN and ... Appeal effect order - calling upon the Assessee to deposit “immediately now” a sum being the tax payable with reference to one of the issues that arose from the return filed by the Assessee - probability be required to deposit the entire demanded amount thus causing undue hardship and severe prejudice to the Petitioner particularly since the impugned order is on the face of it untenable in law. HELD THAT:- Court notices that the SCN and the impugned ‘appeal effect order’ both dated 26th July 2017 were despatched on the same day under despatch Nos. 264 and 265. The demand for AY 2009-10 was in fact quantified only by the ‘appeal effect order’ passed on that very day i.e., 26th July 2017. That sum could not therefore be said to have not been paid as of that date when clearly the appeal effect order was being despatched together with the SCN. When asked about this, Mr Jain, on instructions, states that the Income Tax Department will not give effect to the said SCN dated 26th July 2017 insofar as it proposes to initiate penalty proceedings against the Petitioner for alleged failure to pay the demand raised by the impugned ‘appeal effect order’ pertaining to AY 2009-10. The said statement is taken on record. As clarified that there may be other questions that may arise after pleadings are complete in the matter. The Court is satisfied, at the present stage, that there is a prima facie case in favour of the Petitioner for passing an ad interim order to the effect that no coercive steps should be taken against the Petitioner until further orders. The balance of convenience in passing such an interim order is in the circumstances also in favour of the Petitioner. Given the amount demanded from the Petitioner by the impugned ‘appeal effect order’, and the requirement that it should be paid ‘immediately now’ the Petitioner would be subjected to hardship and prejudice if such an interim order is not passed. For the aforementioned reasons, it is directed that till the next date of hearing no coercive steps shall be taken against the Petitioner. List on 21st August, 2017 at 2:15 p.m. Issues Involved: The issues involved in this judgment include the maintainability of a writ petition against an appeal effect order, the nature of an appeal effect order under the Income Tax Act, the validity of issuing an appeal effect order before the time period for filing an appeal expires, and the justification of raising a demand on only one issue out of several.Judgment Details:Issue 1: Nature of Appeal Effect OrderThe writ petition challenged an order by the Deputy Commissioner of Income Tax, calling for immediate payment of a substantial sum based on an issue from the Assessee's return for Assessment Year 2009-10. The Petitioner argued that the order was untenable as it was passed without waiting for the outcome of the appeal, which is likely to be filed. The Petitioner contended that there should be only one assessment order under Section 143(3) of the Income Tax Act for the relevant year.Issue 2: Maintainability of Writ PetitionThe Petitioner directly approached the Court against the impugned order, raising concerns about the undue hardship that would result from being required to deposit the entire demanded amount if an appeal were filed before the Commissioner of Income Tax (Appeals). The Petitioner argued that the impugned order was illegal and unsustainable in law, justifying the invocation of the Court's writ jurisdiction.Issue 3: Coercive Action and Penalty ProceedingsThe Petitioner highlighted the coercive action taken by the Income Tax Department, issuing a show cause notice and raising demands for unpaid taxes. The Petitioner argued that both the order raising the demand and the notice for penalty proceedings were illegal and unsustainable, leading to the necessity of seeking relief through the writ jurisdiction of the Court.Issue 4: Interim ReliefThe Court, after considering the arguments presented, found a prima facie case in favor of the Petitioner and granted an ad interim order preventing coercive steps against the Petitioner until further orders. The Court noted the potential hardship and prejudice the Petitioner would face if the interim order was not granted, emphasizing the balance of convenience in favor of the Petitioner.Conclusion:The Court directed that no coercive steps should be taken against the Petitioner until the next date of hearing, acknowledging the significant amount demanded and the potential hardship the Petitioner would face. The Court scheduled the next hearing for August 21, 2017, to further consider the matter.