2025 (4) TMI 1225 - HC - Income Tax

Tax Assessment Order Challenged: Procedural Flaws Halt Recovery, Mandate Expedited Appeal Resolution Under Section 148

M/s. Chidrupi Estates and Holding Limited Versus The Deputy Commissioner of Income Tax

M/s. Chidrupi Estates and Holding Limited Versus The Deputy Commissioner of Income Tax - TMI Issues Presented and ConsideredThe core legal questions considered by the Court in this matter are:Whether the Assessment Order dated 07.01.2025 for the Assessment Year 2016-17 is sustainable, given that the notice under Section 148 of the Income Tax Act, 1961 was issued by the jurisdictional Assessing Officer rather than through the mandated Faceless Assessment mechanism as per the amended provisions.Whether the Assessing Authority erred in refusing interim protection from recovery proceedings under Section 220(6) of the Income Tax Act pending disposal of the appeal filed under Section 246A.Whether, in light of the precedents and statutory amendments, the Assessing Officer ought to have stayed recovery proceedings until the appeal was finally adjudicated.Issue-wise Detailed Analysis1. Validity of the Assessment Order and the Notice under Section 148Legal Framework and Precedents: The Income Tax Act, 1961, as amended, mandates issuance of notices under Section 148 through the Faceless Assessment mechanism. The Division Bench of this Court in Kankanala Ravindra Reddy vs. Income Tax Officer (2023) held that notices issued by the jurisdictional Assessing Officer, bypassing the Faceless process, are not sustainable. Additionally, the Supreme Court in Union of India & ors. v. Ashish Agarwal (2022) emphasized adherence to procedural safeguards in assessment proceedings.Court's Interpretation and Reasoning: The Court acknowledged that the notice under Section 148 in the present case was issued by the jurisdictional Assessing Officer and not through the Faceless mechanism, thereby rendering the assessment order vulnerable to challenge. The petitioner's prior success in a similar challenge for the Assessment Year 2014-15 further reinforced this position.Key Evidence and Findings: The petitioner's appeal and writ petition records, along with the cited precedents, were examined. The Court noted the absence of dispute by the Department regarding the mode of issuance of the Section 148 notice.Application of Law to Facts: Applying the legal principles, the Court found that the assessment order for 2016-17 was likely to be set aside on grounds similar to those in the prior case, given the procedural irregularity in issuance of the Section 148 notice.Treatment of Competing Arguments: The Department did not contest the mode of notice issuance, effectively conceding the procedural lapse. The Court thus did not find merit in continuing recovery proceedings based on a potentially unsustainable assessment order.Conclusions: The assessment order was held to be questionable in legality, warranting caution in enforcing recovery pending appeal disposal.2. Interim Protection from Recovery Proceedings under Section 220(6)Legal Framework and Precedents: Section 220(6) empowers the Assessing Officer to grant interim protection against recovery of disputed demands pending appeal. The Supreme Court in Ashish Agarwal underscored the necessity of pragmatic and fair exercise of this discretion. The amended Act and judicial pronouncements advocate for protecting the assessee's rights during pendency of appeals.Court's Interpretation and Reasoning: The Court found that the Assessing Authority failed to grant interim protection despite the petitioner's statutory appeal and application under Section 220(6). This was deemed contrary to the principles of natural justice and the statutory scheme, particularly given the procedural infirmities in assessment.Key Evidence and Findings: The impugned order directing payment of 20% of the disputed demand was scrutinized. The Court noted that the Assessing Officer did not consider the petitioner's submissions or the relevant precedents advocating for interim relief.Application of Law to Facts: Given the pending appeal and the likelihood of the assessment order being set aside, the Court applied the principle of fairness and statutory mandate to stay recovery proceedings.Treatment of Competing Arguments: The Department's insistence on recovery was outweighed by the petitioner's right to protection pending appeal, especially in light of procedural lapses and judicial guidance.Conclusions: The Assessing Officer erred in refusing interim protection, and recovery proceedings should be stayed until final adjudication of the appeal.3. Direction to Stay Recovery Proceedings Pending Appeal DisposalLegal Framework and Precedents: The statutory scheme under the Income Tax Act and judicial precedents empower courts to grant interim relief to prevent irreparable harm to the assessee during pendency of appeals.Court's Interpretation and Reasoning: The Court exercised its writ jurisdiction to direct the Assessing Officer to refrain from pursuing recovery as per the impugned order until the appeal is finally decided. The Court emphasized expeditious disposal of the appeal within six weeks to balance interests of both parties.Key Evidence and Findings: The appeal was filed in 2023 and remained pending. The Court found it appropriate to ensure that recovery is not enforced prematurely, potentially causing undue hardship.Application of Law to Facts: The Court's direction aligns with principles of equity and statutory intent to provide interim relief in appropriate cases.Treatment of Competing Arguments: The Department's interest in recovery was acknowledged but subordinated to the need for fair adjudication and procedural propriety.Conclusions: Recovery proceedings are stayed pending appeal disposal, with a clear timeline imposed for expeditious hearing.Significant Holdings'The Assessing Authority in the course of deciding the petition under Section 220(6) of the Act, ought to have taken a more pragmatic view and should had kept the recovery proceedings in abeyance, pending the appeal before the Appellate Authority.''Considering the fact that the appeal was filed in the year 2023, we expect that the Appellate Authority shall take up the appeal and decide the same at the earliest, preferably, within a period of six (06) weeks from the date of receipt of a copy of this order