2022 (5) TMI 1289 - RAJASTHAN HIGH COURT

This case may be a glaring example of an abuse of authority by the revenue, ignoring the provisions of law, the judicial pronouncements of higher forum and the action of the concerned revenue officers in not considering the appeal in time, being against the principles of natural justice, law, fair play, equity and therefore, the action of the assessing officer and the concerned income tax circle is violative of Article 265 of the Constitution of India.

No tax shall be levied or collected except by the authority of law.

A writ petition under Article 226 of the Constitution of India has been filed by the Petitioner Assessee to issue a writ of mandamus before the Rajasthan High Court .

On 13/12/2019 one Assessment Order was passed by the Assessment Officer (hereinafter referred to as 'AO') under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'IT Act') for the Assessment Year 2017-18 and a demand of Rs.2,09,44,100/- was raised, under Section 156 of the IT Act. Section 156 tax notice is the notice of demand issued by the Income Tax Department when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed.

Amount which is demanded in the Section 156 demand notice has to be paid by the Assessee within a period of 30 days after the date of receipt of the notice.

Section 143(3) states of a detailed assessment and is referred to as scrutiny assessment. A detailed scrutiny of the return of income is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income after a notice issued under Section 143(2).

The petitioner-assessee filed an appeal under Section 246 of the IT Act on 26/12/2019 in the prescribed form submitting that he has a prima-facie case and the demand raised is not maintainable.

On 13/01/2020, Income Tax Return for the Assessment Year 2018-2019 processed by the Central Processing Wing of the Income Tax Department. A refund of Rs.70,86,950/- due in favour of the petitioner-assessee was adjusted against the balance demand of Assessment Year 2017-18 created on 13/12/2019.

Petitioner-assessee filed a Stay Application in response to intimation issued to him on 13/01/2020 under Section 245 of the IT Act. Petitioner in his letter dated 22/01/2020 in response to intimation under Section 245 of the IT Act dated 13/01/2020 pointed out that 20% of the demand amounting to Rs.41,88,620/- be adjusted from the said refund in terms of the departmental circulars.

An appeal against the said order was pending, nonetheless again on 25/02/2020, while processing Income Tax Return for the Assessment Year 2019-20,Central Processing Wing adjusted a refund of Rs.32,35,662/- against the balance demand of Assessment Year 2017-18 in spite of the appeal and the stay application filed in response to intimation under Section 245 of the IT Act. A stay on the recovery of the balance amount was granted. As per law Petitioner-assessee was in no default.

Respondent Department's counsel submitted that it is true that against the impugned order passed under Section 143(3) of the IT Act for the Assessment Year 2017-18, on 13/12/2019 a demand of Rs.2,09,44,100/- was raised under Section 156 of the IT Act against the addition of Rs.2,51,98,421/- on 13/12/2019.

The petitioner assessee filed an appeal on 26/12/2019 which is pending adjudication with the department. No application for waiver of recovery and stay of demand was filed along with appeal.

It was only on 22/02/2021 that an application under Section 220(6) of the IT Act for stay of demand was filed by the petitioner-assessee and thereafter, the respondents/department has passed an order of stay on the balance amount till disposal of the appeal before the Commissioner of Income Tax (Appeals).

Respondent/Department alleged that the recovery made is within the four-corners of law and till filing of the stay application on 22/02/2021, the assessee was deemed to be in default and hence the recovery was made.

Respondent/Revenue was not able to reflect that why the appeal was not disposed of when the same was filed promptly nor was it able to refute the fact that under Section 220(6) of the IT Act, once on filing the appeal, the petitioner was not to be treated as an 'assessee in default' and that the recovery taken place is outside the provisions of Section 245 of the IT Act.

Unlike the Customs Act, 1962 or the Central Excise Act there is no mandatory requirement of pre deposit for entertaining the appeal.

A provision of stay mandates, as if a demand of 20% is pre-deposited, vide office memorandum dated 29/02/2016.The IT Act does not provide for the same.

Respondents have failed to consider the provisions of Section 220(6) of the IT Act whereby on filing of appeal, the Respondent/Assessee will not be deemed in default.

The recovery action as per Sections 222, 223 of the IT Act can only be initiated by the Tax Recovery Officer, the adjustment from due refund can only be carried out after serving intimation and giving opportunity of hearing as per provisions of Section 245 of the IT Act as held in various landmark judgments.

In UNION OF INDIA VERSUS KAMLAKSHI FINANCE CORPORATION LTD. - 1991 (9) TMI 72 - SUPREME COURT, the Apex Court held that tax authority/revenue considered its previous judgments on the same principle as merely pieces of papers. They have completely given go-bye to the principles of judicial discipline, majesty of law and even their action is contrary to their own departmental circulars.

This high-handed action of the  tax authority/revenue is against Article 14, 19 and 265 of the Constitution of India. Revenue authorities have violated Article 265 of the Constitution.

Decision:

Held by the Hon'ble Rajasthan High Court it being appropriate to issue strictures to the effect that appropriate departmental action be initiated against the officers and authority concerned of the respondent-Revenue who are involved in non-consideration of appeal of the petitioner in time as well as for not obeying and considering the judgments of the Apex Court,i.e. UNION OF INDIA VERSUS KAMLAKSHI FINANCE CORPORATION LTD. - 1991 (9) TMI 72 - SUPREME COURT. as well as the provisions of Section 220(6), 245 of the IT Act and the circulars of the department.

The Chief Commissioner of Income Tax, Rajasthan, Jaipur, Udaipur, etc. is directed to apprise about pendency situation and statistics to the Rajasthan State Legal Services Authority, Jaipur so that in the interest of justice, the same can be considered and appropriate correspondences can be made with the higher/appropriate authorities in the larger public interest as illegal recoveries, levy of interest is imposed for the reasons beyond their control.

Further cost of Rs.50,000/- upon the respondent-department is levied, which shall be paid by the respondent-department or recovered from the officers and be paid half to the Petitioner assessed and half be deposited with Rajasthan State Legal Services Authority, Jaipur within two months of passing of this order. Further a copy of the order was directed to be sent to Ministry of Finance, for appropriate compliance and to issue necessary instructions in the interests of citizens and the assesses.

This judgment once again reiterates, in a democracy, time and again the judiciary has stood up to protect the citizens from the high handedness of the executive.

---

Full Text:

2022 (5) TMI 1289 - RAJASTHAN HIGH COURT

Abuse of revenue authority: improper recoveries and refund adjustments contrary to statutory stay and intimation safeguards. The note addresses revenue practice of effectuating recoveries and adjusting taxpayer refunds without complying with statutory safeguards, characterising such conduct as an abuse of authority and a breach of constitutional taxation limits under Article 265. It emphasises that filing an appeal precludes an assessee from being treated as an 'assessee in default' for recovery purposes under the statutory stay framework, and that automatic adjustment of refunds against demands without prior intimation and opportunity of hearing conflicts with the statutory process for refund adjustment and recovery.