2025 (10) TMI 311 - HC - Income Tax

Ad-interim stay bars respondents from enforcing notices; AO cannot treat notice under s.148A(b) or pass s.148A(d) order

HC granted ad-interim relief, holding the impugned notices and the assessment order dated 31 March 2022 stayed and restraining the respondents and their ... Order passed granting ad-interim relief/stay against reopening of assessment - HELD THAT:- By virtue of the ad-interim order not only were the impugned notices stayed by this court, but even the assessment order dated 31st March 2022 was stayed. Respondents, their successors in office, subordinates, servants and agents were restrained by an order and injunction from taking any further steps. Once this is the case, at least, prima facie, we are of the view that the AO could not have embarked upon the journey of treating the notice issued under Section 148 as a Show Cause Notice u/s 148A(b) of the IT Act or pass the order u/s 148A(d). Thankfully, no assessment order has been yet been passed by the AO after passing the order u/s 148 A(d). We are therefore of the view that the Petitioner is certainly entitled to ad-interim relief. Whether the Income Tax Department ought to refund or, at the very least, deposit in this court the sum which was adjusted by the Income Tax Department on the basis of the demand raised on the Petitioner pursuant to the impugned assessment order dated 31st March 2022? - We are at least prima facie of the view that this recovery could not have been made from the Petitioner. It is because of the foregoing reasons, that we are of the view that the Revenue ought to deposit the sum of Rs. 1,63,45,488/- in this court and which would then abide by further orders passed in this Writ Petition. As far as the argument regarding the fact that the aforesaid amount is not reflected in the ITBA system, as visible to the Assessing Officer, we find no force in the aforesaid argument. Mr. Mistry has in fact produced the challans generated by the Income Tax Department itself, when the refund for subsequent years has been adjusted towards the alleged outstanding demand. Once this is the case, merely because the AO is unable to find the aforesaid adjustment in the ITBA system will not carry the case of the Revenue any further. ISSUES PRESENTED AND CONSIDERED 1. Whether, notwithstanding an ad-interim stay restraining the Revenue from 'taking any further steps', the Assessing Officer could treat a notice issued under Section 148 as a show-cause notice under Section 148A(b) and proceed under Section 148A(d) when the notice was issued prior to but served on the taxpayer on or after 1 April 2021 (the date of the new regime). 2. Whether recovery/adjustment of refunds of subsequent years against a stayed assessment order is permissible where (a) the assessment order's operation was stayed by an ad-interim order and (b) the Revenue contends that the assessment order 'no longer survives' because it proposes to proceed under the new Section 148A regime. 3. Whether prima facie relief in the form of an extension of the existing ad-interim injunction and an order for deposit of adjusted amounts in court is warranted where documentary evidence (challans) demonstrates adjustment despite absence of reflection in the ITBA summary available to the Assessing Officer. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of proceeding under Section 148A(b)/(d) despite an ad-interim stay Legal framework: The court considered the statutory scheme governing reopening of assessments, specifically Section 148 notices and the newly introduced Section 148A(b)/(d) procedure effective from 1 April 2021 which prescribes show-cause/objection procedures prior to issuing a reopening assessment order. Precedent treatment: The Assessing Officer relied on the Supreme Court judgment holding that the new regime applies to notices served on or after 1 April 2021. The Court noted this reliance but proceeded to examine the effect of the existing ad-interim injunction. Interpretation and reasoning: The Court emphasized that where a court has granted an ad-interim order restraining the Revenue from 'taking any further steps', such an injunction prima facie precludes the Assessing Officer from embarking upon actions (including treating a Section 148 notice as a Section 148A(b) show-cause notice and passing orders under Section 148A(d)) that constitute 'further steps.' The chronological distinction between issuance and service of the notice (issued pre-1 April but served on or after 1 April) was acknowledged but the court expressed serious doubt that the Assessing Officer could proceed while a stay continued. The injunction's scope - staying the impugned notices and the assessment order and restraining steps by respondents and their agents - was decisive in restraining further procedural action. Ratio vs. Obiter: Ratio - An extant court injunction restraining further steps takes precedence and prima facie bars the Assessing Officer from proceeding under Section 148A notwithstanding arguments about applicability of the new regime tied to date of service. Obiter - Observations on the applicability of the new regime to notices issued before but served after 1 April 2021 (the Court did not finally decide the substantive applicability issue in the present order). Conclusion: The Court concluded prima facie that the Assessing Officer could not lawfully have proceeded under Section 148A(b)/(d) while the ad-interim order restraining further steps remained in force, and therefore granted an additional ad-interim injunction restraining steps pursuant to the post-148A action. Issue 2 - Legality of recovery/adjustment of refunds against a stayed assessment Legal framework: Principles governing provisional stays, injunctions against recovery, and the Revenue's power to adjust refunds against outstanding demands were applied. The Court treated the ad-interim stay as suspending the operation of the assessment order, thereby affecting lawful recovery avenues. Precedent treatment: The Revenue's asserted position that the original assessment 'no longer survives' under the new regime was taken into account but not accepted as justifying prior adjustments. The Court referenced internal departmental practice (ITBA) only insofar as the Revenue relied on absence of entries there; no binding departmental precedent was treated as superseding the injunction. Interpretation and reasoning: Two core reasons led to the Court's prima facie finding that adjustment was improper: (1) the ad-interim order stayed the operation of the assessment order, and therefore recovery pursuant thereto could not be initiated; (2) the Revenue's own pleaded case that the assessment order 'no longer survives' under Section 148A makes it incoherent to have adjusted refunds against that very demand. The Court found it irrelevant that the adjustment was not reflected in the ITBA summary when the taxpayer produced departmental challans evidencing the adjustment. Ratio vs. Obiter: Ratio - Recovery/adjustment of refunds by the Revenue against an assessment order that has been stayed by court order is prima facie impermissible; if the Revenue itself contends the assessment order does not subsist, such contention does not validate earlier adjustments. Obiter - Technicalities about ITBA reflection do not absolve the Revenue where independent departmental records (challans) establish an adjustment. Conclusion: The Court held prima facie that the recovery/adjustment of Rs. 1,63,45,488/- against the stayed assessment could not have been made and ordered the Revenue to deposit that sum in court. Issue 3 - Interim relief by deposit despite absence in ITBA records Legal framework: Equitable relief and interim measures: the power of the court to order deposit of disputed sums into court pending final adjudication where prima facie entitlement and risk of prejudice are shown. Precedent treatment: The Court relied upon standard interim relief principles rather than any particular authority; the presence of documentary proof (challans) was treated as sufficient for prima facie satisfaction. Interpretation and reasoning: The Court rejected the Revenue's contention that absence of the adjustment in the Assessing Officer's ITBA summary negated the adjustment. The taxpayer produced challans generated by the Income Tax Department confirming the adjustment. Given (a) the ad-interim stay, (b) the Revenue's inconsistent position about the survival of the assessment order, and (c) documentary proof of adjustment, the Court found it appropriate to order deposit into court to preserve the subject matter pending final determination. Ratio vs. Obiter: Ratio - Where departmental records (challans) establish adjustment of refunds against a stayed demand, and where prima facie the adjustment appears impermissible, the court may order the Revenue to deposit the disputed amount in court as an interim measure. Obiter - The Court's finding that lack of ITBA reflection is immaterial in the face of direct departmental challans is persuasive but context-specific. Conclusion: The Court ordered deposit of Rs. 1,63,45,488/- into court by a specified date as interim relief, and directed continuation of injunctive relief restraining steps under the impugned notices and orders. Interrelationship and final practical orders (cross-references) Cross-reference: The injunction analysis under Issue 1 directly informs Issues 2 and 3 - the stay on 'taking any further steps' is the linchpin for holding that recovery/adjustment was prima facie impermissible (Issue 2) and for justifying deposit of adjusted funds into court (Issue 3). Final conclusions: The Court (a) extended ad-interim relief restraining steps pursuant to orders/notice issued post the original injunction, (b) ordered deposit of the adjusted amount into court pending final adjudication, and (c) treated the absence of ITBA entries as not dispositive where departmental challans evidence adjustment. The Court preserved the right to finally dispose of the writ petition on the returnable date.