M/S ESSJAY ERICSSON PRIVATE LIMITED vs. COMMISSIONER OF INCOME TAX, NEW DELHI & ORS.

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W.P.(C)-14937/2021HC Delhi2021:DHC:440224 December 20215 pages
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What did the High Court hold?

The High Court held that the Government is bound to follow the rules and standards it sets, and their actions can be invalidated if they fail to do so. The Court reiterated that the Office Memorandums dated 29th February, 2016, read with the Office Memorandum dated 25th August, 2017, stipulate that the Assessing Officer shall normally grant a stay of demand till the disposal of the first appeal upon payment of 20% of the disputed demand. If a higher lump sum amount is deemed warranted, the Assessing Officer must provide reasons, demonstrating that the case falls under paragraph 4(B) of the Office Memorandum dated 29th February, 2016. The Court found that the orders for adjustment of refunds and stay of demand did not provide any special reasons for recovering an amount exceeding 20% of the outstanding demand. Therefore, the respondent was entitled to seek pre-deposit of only 20% of the disputed demand. Consequently, the Court directed the respondents to refund the amount adjusted in excess of 20% of the disputed tax demands for Assessment Year 2016-17 within six weeks, after verifying the facts stated in the writ petition. The issue of the pending appeal was implicitly addressed by directing the refund based on the principles of stay of demand.

What were the facts?

The petitioner, M/s Essjay Ericsson Private Limited, filed a writ petition seeking the refund of Rs. 6,05,46,907/-, which was recovered in excess of 20% of the total disputed tax demand for Assessment Year 2016-17. This recovery was made by adjusting refunds due for Assessment Years 2018-19 and 2020-2021, along with statutory interest. The petitioner also sought directions for the disposal of an appeal filed against an order dated 07th December, 2019, passed under Section 143(3) of the Income Tax Act, 1961. The petitioner contended that the respondents recovered 80.26% of the demand for AY 2016-17, which amounted to Rs. 8,06,40,561/-, exceeding the permissible 20% of the disputed amount (Rs. 2,00,93,653/-), without deciding their stay application. A previous writ petition filed by the petitioner concerning similar issues had resulted in directions for the CIT(A) to decide the stay application, which remained undecided.

What were the issues?

1. Whether the Revenue was justified in recovering more than 20% of the disputed tax demand for Assessment Year 2016-17 by adjusting refunds due for subsequent assessment years, in violation of the CBDT's Office Memorandums dated 29th February, 2016 and 31st July, 2017? Assessee's Contentions: - The petitioner argued that as per Section 220(6) of the Act and the CBDT's Office Memorandums, upon payment of 20% of the disputed tax demand, the Assessing Officer is mandated to grant a stay on the balance demand until the disposal of the first appeal, unless specific exceptions apply. - They contended that the Revenue recovered Rs. 8,06,40,561/-, which is 80.26% of the demand, significantly exceeding the stipulated 20% (Rs. 2,00,93,653/-). - The petitioner highlighted that their stay application, despite previous court directions, remained undecided. - Reliance was placed on the principles laid down in Amarjit Singh Ahluwalia vs. State of Punjab & Ors. and Ramana Dayaram Shetty vs. International Airport Authority of India & Ors., and the High Court's own decision in Skyline Engineering Contracts (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax Circle 22(2). Revenue's Contentions: - The Revenue stated that the petitioner had not willfully deposited the 20% of the tax demand.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 220(6),Section 245

AI-generated summary — verify with the full judgment below

W.P. (C) 14937/2021

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$~18 * IN THE HIGH COURT OF DELHI AT NEW DELHI

+ W.P.(C) 14937/2021

M/S ESSJAY ERICSSON PRIVATE LIMITED ..... Petitioner Through Mr.Yuvraj Singh with Mr.Chetan Kumar Shukla, Advocates.

versus

COMMISSIONER OF INCOME TAX, NEW DELHI & ORS. ..... Respondents Through Mr.Zoheb Hossain, standing counsel for the Revenue.

Date of Decision: 24th December, 2021

CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE NAVING CHAWLA J U D G M E N T

MANMOHAN, J (Oral): C.M.No.47165/2021

Exemption allowed, subject to all just exceptions.

Accordingly, the application stands disposed of. 1. Present writ petition has been filed seeking refund of Rs.6,05,46,907/- which was recovered in excess of 20% of the total disputed tax demand for the Assessment Year 2016-17 against the refunds due for the Assessments Years 2018-19 and 2020-2021 along with statutory interest. Petitioner also seeks directions to the Respondents to hear and dispose of the appeal filed against the order dated 07 W.P.(C) 14937/2021 & C.M.No.47164/2021 th December, 2019 under Section 143(3) of the 2021:DHC:4402-DB

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Income Tax Act, 1961 [for short ‘the Act’] that is currently pending. 2. Learned counsel for the Petitioner states that under Section 220(6) of the Act, the Assessing Officer has been conferred with the power to grant stay on recovery of outstanding tax demand subject to fulfillment of appropriate conditions. He states that in order to provide guidance and lay down principles regarding stay of demand, the Central Board of Direct Taxes has issued various Circulars/ Notification from time to time including Office Memorandums dated 29th February, 2016 and 31st 3. Learned counsel for the Petitioner submits that upon payment/recovery of the standard rate of 20% of the disputed outstanding tax demand, the assessing officer is mandated to grant stay on recovery of the balance disputed outstanding tax demand till disposal of first appeal of the assessee, unless the case of the assessee falls in the category mentioned in paragraph (B) of the Office Memorandums dated 29 July, 2017, prescribing that in cases where an assessee challenges the additions/ disallowances made in the assessment order by way of an appeal before the first appellate authority, i.e., CIT(A), and during pendency thereof deposits 20% of the total disputed outstanding tax demand, the assessing officer is empowered to grant stay of recovery of the balance outstanding demand. th February, 2016 and 31st 4. He states that while 20% of the disputed amount for the Assessment Year 2016-17 was Rs.2,00,93,653/- (20% of Rs. 10,04,68,268/-), the Respondents adjusted Rs.8,06,40,561/- being 80.26% of the demand and, July, 2017. He states that the Respondents in violation of the provisions of the Office Memorandums recovered the disputed outstanding tax demand in excess of 20% by way of adjustment of refunds due for the subsequent assessment years. 2021:DHC:4402-DB

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that too, without deciding Petitioner’s application for stay. 5. Learned counsel for the Petitioner states that the Petitioner had preferred W.P(C) No.1449/2020 before this Court wherein the Petitioner had challenged the assessment proceedings, attachment of bank account and recovery of Rs.2,13,06,741/-, which was 21.21% of the disputed demand. He states that this Court vide order dated 07th February, 2020 had allowed the Petitioner to file a stay application before the CIT(A) and directions were given to the CIT(A) to decide the stay application by passing a speaking order within two weeks. However, he states that despite directions of this Court and several requests of the Petitioner, the stay application dated 18th 6. Issue notice. Mr. Zoheb Hossain, learned standing counsel accepts notice on behalf of the Respondents. He states that in the present case, the Petitioner had not willfully deposited the 20% of the tax demand. February, 2020 of the Petitioner has not been decided till date. 7. Having heard learned counsel for the parties, this Court finds that the Respondents had recovered 21.21% of the disputed demand before the order dated 07th 8. This Court is of the view that the issue raised in the present writ petition is no longer res integra as in Skyline Engineering Contracts (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax Circle 22(2), W.P.(C) 6172/2021 and other connected matters, this Court in similar facts has held as under:- February, 2020 was passed by the learned predecessor Division Bench, which had also directed the CIT(A) to decide the Petitioner’s stay application. However, the said stay application has not been decided till date.

2021:DHC:4402-DB

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“9. Having heard learned counsel for the parties, this Court is of the view that the Government is bound to follow the rules and standards they themselves had set on pain of their action being invalidated. [See: Amarjit Singh Ahluwalia vs. State of Punjab & Ors. 1975 (3) SCR 82 and Ramana Dayaram Shetty vs. International Airport Authority of India & Ors. 1979 SCR (3) 1014].

10.

This Court is also of the view that the office memorandum dated 29th February, 2016 read with office memorandum dated 25th August, 2017 stipulate that the Assessing Officer shall normally grant stay of demand till disposal of the first appeal on payment of 20% of the disputed demand. In the event, the Assessing Officer is of the view that the payment of a lump sum amount higher than 20% is warranted, then the Assessing Officer will have to give reasons to show that the case falls in para 4(B) of the office memorandum dated 29th February, 2016.

11.

This Court finds that the order under Section 245 of the Act for adjustments of refunds as well as the order on stay of demand under Section 220(6) of the Act do not give any special/particular reason as to why any amount in excess of 20% of the outstanding demand should be recovered from the petitioner-assessee at this stage in accordance with paragraph 4(B) of the office memorandum dated 29th February, 2016. Consequently, this Court is of the view that the respondent is entitled to seek pre-deposit of only 20% of the disputed demand during the pendency of the appeal in accordance with paragraph 4(A) of the office memorandum dated 29th February, 2016, as amended by the office memorandum dated 25th 12. Consequently, this Court is of the view that the respondents are entitled to seek pre-deposit of only 20% of the disputed demand during the pendency of the appeals in accordance with paragraph 4(A) of the office memorandum dated 29 August, 2017.

th February, 2016, as amended by the office 2021:DHC:4402-DB

W.P. (C) 14937/2021

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memorandum dated 25th 9. Keeping in view the aforesaid mandate of law as well as non- compliance of order dated 07 August, 2017.

13.

Accordingly, the respondent no.1 is directed to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year 2017-18, within four weeks…..”

th 10. Consequently, this Court directs the Respondents to verify the facts stated in the writ petition and if they find them to be true and correct then refund the amount adjusted in excess of 20% of the disputed tax demands for the Assessment Year 2016-17 to the Petitioner within six weeks. With the aforesaid directions, present writ petition and application stand disposed of. February, 2020 and the fact that the refunds have been adjusted against the outstanding tax demand by the Authority without following the procedure prescribed under Section 245 of the Act, inasmuch as no notice or opportunity of pre-decisional hearing had been provided to the Petitioner prior to such adjustment of refund in excess of 20%, this Court is of the opinion that the Petitioner is entitled to refund of adjustments made in excess of 20% of the disputed tax demands. (See: Glaxo Smith Kline Asia Pvt. Ltd. vs. The Commissioner of Income Tax & Ors., 2007 (94) DRJ 681(DB) and The Oriental Insurance Co. Ltd. vs. Deputy Commissioner of Income Tax & Anr., 2014 (10) TMI 746.

MANMOHAN, J

NAVIN CHAWLA, J DECEMBER 24, 2021/KA 2021:DHC:4402-DB

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