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 were dispatched same day (26th July 2017), making demand for non-payment legally untenable. Income Tax Department assured no penalty proceedings would be initiated for alleged failure to pay demand. Court granted ad interim order restraining coercive steps against petitioner until further hearing, considering balance of convenience and potential hardship from immediate payment requirement.

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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 Order
The 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 Petition
The 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 Proceedings
The 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 Relief
The 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.

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