2016 (5) TMI 927 - HC - Income Tax

Court Criticizes Tax Recovery Officer's Actions, Rules Against Default Assessment

M.D. INFRA DEVELOPERS Versus DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2 AND 3

M.D. INFRA DEVELOPERS Versus DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2 AND 3 - [2016] 385 ITR 82 Issues Involved:1. Legality of the Tax Recovery Officer's actions during the pendency of stay applications.2. Justification for treating the petitioner as an assessee in default.3. Compliance with CBDT Instructions and procedural fairness.4. Validity of the Principal Commissioner of Income Tax's order requiring partial payment and bank guarantee.Issue-wise Detailed Analysis:1. Legality of the Tax Recovery Officer's Actions:The petitioner, a partnership firm, filed a petition under Article 226 of the Constitution of India, challenging the actions of the Tax Recovery Officer and the Principal Commissioner of Income Tax. The petitioner argued that during the pendency of stay applications under Section 220(6) of the Income Tax Act, the Tax Recovery Officer could not declare the petitioner as a defaulter and initiate coercive recovery actions. The court noted that the stay applications were filed on 04.05.2015, and the Tax Recovery Officer issued a demand notice on 21.05.2015, attaching the petitioner's bank account and 114 flats without deciding the stay applications. The court held that the Assessing Officer should have disposed of the stay applications within two weeks as per CBDT Instruction No.1914 and informed the petitioner of the decision. The failure to do so and the subsequent coercive actions were deemed unjustified.2. Justification for Treating the Petitioner as an Assessee in Default:The respondents argued that the petitioner was deemed to have been served with the assessment orders on 31.03.2015 and was required to pay the demand within thirty days. The petitioner’s stay applications were filed after the expiry of this period. The court observed that Section 220(6) of the Act does not prescribe any period of limitation for filing stay applications, unlike Section 220(3). Thus, the Assessing Officer's refusal to entertain the stay applications on the ground of delayed filing was not in consonance with the provisions of Section 220(6). The court held that the Assessing Officer should have exercised discretion to treat the petitioner as not being in default, considering the appeal was pending.3. Compliance with CBDT Instructions and Procedural Fairness:The court highlighted that CBDT Instruction No.1914 mandates the disposal of stay petitions within two weeks and requires a speaking order considering all relevant factors. The Principal Commissioner of Income Tax’s order dated 06.11.2015, directing the petitioner to pay 50% of the demand and furnish a bank guarantee for the remaining amount, was found to be a non-speaking order lacking consideration of the petitioner’s grounds for stay. The court noted that such orders appeared to be standard, cyclostyle orders without application of mind, and thus, did not meet the requirements of the Instruction.4. Validity of the Principal Commissioner of Income Tax's Order:The Principal Commissioner’s order required the petitioner to pay 50% of the outstanding demand in installments and furnish a bank guarantee for the remaining amount. The court found that the order did not address the petitioner’s financial difficulties or the high-pitched nature of the assessments. The court held that directing an assessee to deposit the entire amount as a condition for stay is incongruous, as it defeats the purpose of granting a stay. The court quashed the Principal Commissioner’s order and the recovery notices issued by the Tax Recovery Officer.Conclusion:The court allowed the petition, quashing the impugned order and recovery notices. It directed the Commissioner of Income Tax (Appeals) to conclude the appeal proceedings within three months and stayed the demand under the recovery notices, subject to the petitioner depositing Rs. 2,25,00,000 in three equal installments. The court also ordered the respondents to lift all attachments on the petitioner’s properties and bank account upon the petitioner filing an undertaking to comply with the payment schedule and cooperate in the early disposal of the appeal.