Referral for lump sum stay payment must follow the Office Memorandum procedure; failure voids direct transfers and prompts administrative review.

Where additions rest on credible evidence from search operations, the prescribed procedure requires the assessing authority to refer the question of the quantum/proportion of a lump sum payment for stay to the administrative senior (Principal Commissioner/Commissioner) under the Office Memorandum, and failure to make that referral renders direct transfers and enforcement steps procedurally irregular and subject to administrative reconsideration. As a remedial measure, the document directs a fresh administrative decision on the appropriate quantum/proportion for stay and permits interim operation of attached bank accounts pending that time bound administrative exercise, which must account for prior payments, garnishee claims and applicable precedents.

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Issues: (i) Whether the rejection of stay petitions and the transfer of admitted liquidation funds to the Income Tax Department without referring the matter to the Principal Commissioner of Income Tax/Commissioner as contemplated by Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016 was proper; (ii) Whether the petitioners are entitled to operate their attached bank accounts and for remittance of the matter to the Principal Commissioner of Income Tax/CIT to decide the quantum/proportion of lump sum payment for stay.

Issue (i): Whether the assessing officer/authority was bound to refer the question of quantum of lump sum payment for stay to the Principal Commissioner of Income Tax/Commissioner under Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016 when additions were based on credible evidence collected during search, and whether transfer of funds by the liquidator to the Income Tax Department without such referral was valid.

Analysis: The Court examined Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016 (as subsequently reflected in the Office Memorandum dated 31.07.2017) which contemplates that where additions arise from credible evidence collected in search operations, the assessing officer should refer to the administrative Pr.CIT/CIT who shall decide the quantum/proportion of the disputed demand to be paid as lump sum for granting stay. The impugned stay rejection orders did not record any such reference to the Principal Commissioner/Commissioner despite the assessments being based on search-related material. The Court applied the principle that when a specific procedure is prescribed it must be followed and noted the precedential guidance in Pr.CIT vs. LG Electronics India (P.) Ltd. regarding the role of the Principal Commissioner/Commissioner in such matters. Given the absence of the mandatory referral, the transfer of admitted liquidation funds directly to the Income Tax Department without the prescribed administrative decision-making was procedurally irregular.

Conclusion: The assessing authority's rejection of the stay petitions without referring the matter to the Principal Commissioner of Income Tax/Commissioner as required by Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016 was not in accordance with the prescribed procedure; the transfers carried out by the liquidator are to be examined and addressed by the Principal Commissioner/CIT.

Issue (ii): Whether the petitioners are entitled to operate the bank accounts attached pursuant to the garnishee/attachment and whether the matters should be remitted to the Principal Commissioner of Income Tax/CIT for appropriate orders under the Office Memorandum.

Analysis: The Court considered the factual matrix showing admitted claims in liquidation, the allocation by the liquidator, payments effected and amounts retained/transferred pursuant to garnishee orders. In light of the procedural deficiency identified under Issue (i), the Court concluded that a fresh administrative exercise by the Principal Commissioner/CIT was necessary to determine the appropriate quantum/proportion for stay in accordance with the CBDT memorandum and applicable law. To secure the petitioners' interim rights pending that exercise, the Court observed that the petitioners should be permitted to operate their attached bank accounts and directed the Principal Commissioner/CIT to pass appropriate orders within a time-bound period taking into account existing payments, garnishee claims and relevant precedents.

Conclusion: The petitioners are permitted to operate the attached bank accounts. The matters are remitted to the Principal Commissioner of Income Tax/CIT to decide the quantum/proportion of payment for stay and to pass appropriate orders in accordance with Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016 (and related guidance) within three weeks from receipt of the order.

Final Conclusion: The writ petitions are disposed of by remitting the matter to the Principal Commissioner of Income Tax/CIT for a fresh decision on the quantum/proportion of lump sum payment for stay under the CBDT Office Memorandum, and by permitting the petitioners to operate their attached bank accounts pending such administrative determination.

Ratio Decidendi: Where additions are founded on credible evidence collected in a search, the assessing officer must refer the question of the quantum/proportion of lump sum payment for grant of stay to the Principal Commissioner of Income Tax/Commissioner under Paragraph 4(B)(a) of the CBDT Office Memorandum dated 29.02.2016, and failure to follow that prescribed referral procedure renders subsequent transfers and enforcement steps subject to reconsideration by the Principal Commissioner/CIT.

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