DEPUTY COMMISSIONER OF INCOME TAX vs. ITAT DELHI BENCH-I, NEW DELHI AND ANR.

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CWP/8321/2013HC Punjab & HaryanaPHHC01096226201311 October 2013Author: MR. JUSTICE RAJIVE BHALLA,MR. JUSTICE DR. BHARAT BHUSHAN PARSOON11 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the adjournment granted on January 16, 2013, did not constitute a violation of the stay order by the assessee. The Court found that the assessee's counsel had merely brought to the Tribunal's notice the pendency of a similar issue before a Special Bench in the LG Electronics case. The Tribunal, in its discretion and in the interest of judicial discipline and propriety, chose to adjourn the case as it could not be decided without the decision of the reference. The Court found no error in the Tribunal's opinion that the stay order did not stand vacated because the assessee did not explicitly pray for an adjournment. Furthermore, the Court affirmed the ITAT's jurisdiction to order a refund. It reasoned that the power to ensure its orders are not violated during the pendency of a lis is inherent in any Court or Tribunal, and it is the Tribunal's duty to redress violations and order restitution of appropriated money. The Court noted that if the revenue believed the stay order was vacated, it should have sought clarification from the Tribunal rather than appropriating the amount. The Court found no error of jurisdiction or law in the ITAT's order.

What were the facts?

The revenue (Deputy Commissioner of Income Tax, Circle-II, Gurgaon) filed a writ petition before the High Court of Punjab and Haryana at Chandigarh challenging an interim order dated April 10, 2013, passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench-I. The ITAT had directed the refund of Rs. 208 Crores to the respondent-assessee. The dispute arose from the revenue's appropriation of this amount from the assessee's account, which the revenue claimed was permissible as a conditional stay order dated December 13, 2012, had been vacated due to the assessee seeking an adjournment on January 16, 2013. The assessee contended that the stay order remained in effect.

What were the issues?

1. Whether the stay order of the Tribunal dated December 13, 2012, was flouted by the assessee, turning on whether the adjournment granted on January 16, 2013, constituted a violation of the condition that the assessee should not seek an adjournment. 2. Whether the stay order was flouted by the department. 3. If the department flouted the stay order, whether its action was bonafide or malafide. 4. If the department flouted the stay order, whether the Tribunal had the power to direct a refund. 5. If the Tribunal has the power to direct a refund, what safeguards can be ensured to protect the interest of the Revenue. Assessee's arguments: The assessee argued that the appropriation of funds by the revenue was illegal and lacked bonafides. They contended that the adjournment granted by the ITAT on January 16, 2013, was not sought by the assessee but was granted by the Tribunal due to the pendency of a similar issue before a Special Bench in the case of LG Electronics, thus not violating the stay order. They further argued that the revenue's delay in acting and the nature of the show cause notice indicated malafides and an attempt to meet revenue targets. The assessee also asserted that the Tribunal has the power to order a refund, citing Section 256 of the Income Tax Act, 1961, and the Supreme Court's ruling in Income Tax Officer v. M.K. Mohammed Kunhi. Revenue's arguments: The revenue contended that the stay order dated December 13, 2012, stipulated that the assessee should not seek any adjournment. By praying for and being granted an adjournment on January 16, 2013, the assessee violated this condition, causing the stay order to stand vacated. Consequently, the revenue was within its rights to appropriate the tax due. They argued that the ITAT had no jurisdiction to direct a refund of an amount legally appropriated by the revenue, as it does not exercise appellate or revisional powers in this regard, and that reliance on Section 151 of the CPC and irrelevant judgments was erroneous.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144 C,Section 226(3),Section 256

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Civil Writ Petition No.8321 of 2013 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.8321 of 2013 Date of Order: 11th October, 2013 The Deputy Commissioner of Income Tax, Circle-II, Gurgaon. ...Petitioner Versus The ITAT, Delhi Bench-I, New Delhi and another. ..Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Mr. Rupinder Khosla, Asstt. Solicitor General of India, with Mr. T.K.Joshi, Advocate for the petitioner Mr. C.S.Aggarwal, Senior Advocate, with Mr. Prakash Kumar, Advocate and Mr. Ashim Aggarwal, Advocate, for respondent no.2. RAJIVE BHALLA, J. The revenue is before us with a prayer to set aside an interim order dated 10.04.2013 (Annexure P-2), passed by the Income Tax Appellate Tribunal, directing refund of Rs.208 Crores to the respondent- assessee. A trivial adjournment, an overzealous revenue department, compelled apparently by year ending revenue collection targets, has led to this unnecessary litigation. The bone of contention between parties is whether in view of adjournment of the appeal, by the Tribunal on 16.01.2013, the conditional stay order, passed by the Tribunal on 13.12.2012, stands vacated. The revenue strenuously asserts that the stay order stands vacated and, therefore, the revenue has appropriated Rs.208 Kumar Naresh N 2013.10.21 14:14 I attest to the accuracy and integrity of this document High Court Chandigarh Civil Writ Petition No.8321 of 2013 -2- crores from the account of the assessee, whereas the assessee urges to the contrary. The Tribunal has ordered the revenue to refund this amount. Counsel for the revenue, in his strenuous attempt to defend appropriation of Rs.208 crores by the revenue and assert the illegal nature of the order of refund, submits that stay order dated 13.12.2012, enjoined the assessee not to seek any adjournment and get the appeal finalised on 13.01.2013 or on any subsequent date. The fact that counsel for the assessee prayed for and was granted an adjournment, even if on the ground that a similar dispute was pending before a Special Bench of the Tribunal, the stay order, dated 13.12.2012, stood vacated. The stay order having been vacated by the act of the assessee seeking an adjournment, the revenue was well within its rights to demand and recover the tax due. The Income Tax Appellate Tribunal has no jurisdiction to direct refund of the amount legally appropriated by the revenue, by interpreting the stay order and the order of adjournment, as it does not exercise appellate or revisional powers. A perusal of the order reveals that the case was adjourned as counsel for the assessee contended that the appeal involves an issue, which is pending before a Special Bench, in the case of LG Electronics. The continuance of the stay order being dependent upon the assessee not seeking an adjournment, the adjournment of the appeal pursuant to a request made by counsel for the assessee violated this condition of the stay order. The revenue was, therefore, well within its right to call upon the respondent-assessee to pay the tax due. The Income Tax Appellate Tribunal has no jurisdiction to hold that the adjournment was granted suo-motto or that the Bench was obliged, on the principle of judicial discipline and judicial propriety, to adjourn the case. It is further submitted that the Income Tax Appellate Tribunal has proceeded to assume that it has jurisdiction to pass an order of refund by relying upon Kumar Naresh N 2013.10.21 14:14 I attest to the accuracy and integrity of this document High Court Chandigarh Civil Writ Petition No.8321 of 2013 -3- Section 151 of the CPC and judgments that are irrelevant. It is also contended that as the Income Tax Appellate Tribunal itself has held that action of the revenue is bonafide, there is no question of ordering refund or holding that the stay order does not stand vacated. It is further contended that even if the stay order had not been vacated, the Income Tax Appellate Tribunal should have decided the appeal on merits, instead of issuing interim directions as the issue with respect to AMP charges has been decided in the case of LG Electronics. It is prayed that as the impugned order is legally, factually and jurisdictionally flawed, the writ petition may be allowed and the impugned order may be set aside. Counsel for the assessee submits that action of the revenue in appropriating money from the account of the petitioner is as brazen and illegal as its justification, lacks bonafides. The assessee paid tax, as per the stay order and furnished a bank guarantee, for the remaining amount, which is valid till date. The fact that an adjournment may have been granted by the Income Tax Appellate Tribunal, on the ground that a similar matter is pending adjudication, before a Special Bench, is insufficient to hold that the assessee violated the stay order. It is further submitted that as MAP proceedings are pending and the stay order is in operation, the respondents cannot be allowed to appropriate any amount from the account of the assessee. It is further submitted that around 50% of the tax demanded emanates from an issue relating to advertising, marketing and promotion expenses, which was referred to a larger Bench of the Income Tax Appellate Tribunal, in the case of LG Electronics India Limited and, therefore, the assessee's counsel was duty bound to bring this fact to the notice of the Tribunal. The Income Tax Appellate Tribunal has made specific mention of this case, while adjourning the case. The mere fact that it recorded that this fact was brought to its notice by counsel for the Kumar Naresh N 2013.10.21 14:14 I attest to the accuracy and integrity of this document High Court Chandigarh Civil Writ Petition No.8321 of 2013 -4- assessee, has rightly been held to be irrelevant while holding that the case had to be adjourned in order to maintain judicial propriety and judicial discipline. It is further submitted that the Income Tax Appellate Tribunal has clearly held that adjournment was not taken by counsel for the assessee but was granted by the Tribunal in view of pendency of a similar matter before a Larger Bench. It is further submitted that the alleged adjournment is dated 16.01.2013, but the revenue took no action till 26.03.2013 and only at the fag end of the financial year, issued a notice under Section 226(3) of the Act. The sole object of the notice was to meet targets placed upon revenue officers for collection of tax. A plea raised by the revenue that it was not aware of the fine print of order dated 13.12.2012 upto 22.03.2013, is a blatant misstatement. If the department was not aware of the fine print of the order, it would not have entertained the bank guarantee or accepted payment of tax. It is further submitted that the show cause notice dated 22.03.2013, does not allege that order dated 13.12.2012 has been vacated. The said plea was raised during the personal hearing. The assessee was, therefore, not put to statutory notice of the alleged vacation of the stay order. The notices refer to non admission of MAP proceedings, which are, admittedly, pending. It is further submitted that in case the revenue was of the opinion that the said order has been vacated, it was obliged to approach the Tribunal seeking clarification of order dated 16.01.2013. The failure of the revenue to adopt this course indicates malafides and an attempt to achieve targets set by the department. It is further argued that the Tribunal has not committed an error while holding that it is empowered to order refund, as Section 256 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') empowers a Tribunal to pass an order that may be necessary to achieve the ends of justice. The department had no jurisdiction to interpret that adjournment Kumar Naresh N 2013.10.21 14:14 I attest to the accuracy and integrity of this document High Court Chandigarh Civil Writ Petition No.8321 of 2013 -5- granted by order dated 16.01.2013 was an automatic vacation of the stay order and should have approached the Tribunal for clarification. The revenue instead, issued notice under Section 226(3) of the Act and appropriated a huge amount without authority of law. Even otherwise, as the Tribunal exercises judicial powers, as held by the Hon'ble Supreme Court in Income Tax Officer v. M.K.Mohammed Kunhi, 1968(71)ITR, 815, the power exercised, would necessarily include a power to undo any injustice caused during pendency of an appeal. It is, thus, argued that as the stay order was not violated, the order is still in force. We have heard counsel for the parties and perused the

impugned order.

The DCIT Circle-II, Gurgaon, raised a demand of Rs.210.57 Crores under Section 143(3), read with Section 144 C of the Income Tax Act (hereinafter referred to as 'the Act') for the assessment year 2008-09, pursuant to an order passed by the Dispute Resolution Panel. The assessee filed an appeal before the Income Tax Appellate Tribunal, New Delhi, accompanied by an application for stay of the demand. The assessee also filed an application before the Central Board of Direct Taxes under Mutual Agreement Procedure (MAP). It would be appropriate, at this stage, to point out that Article 27 of the Convention (Treaty) between Governments of United States of America and India, executed for avoidance of double taxation etc. empowers a person considering that actions of one or both of States would result in taxation in contravention of provisions of the convention, irrespective of the remedies provided by domestic law of those States, to present his case to the competent authority of the State of which he is a resident or national. The Convention/Treaty was followed by a memorandum of understanding (MOU) regarding deferment of assessment and/or suspension of collection Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -6- of taxes was issued. The MOU contemplates that Tax Authorities in India and USA shall retain the right to demand security for deferment of assessment/payment of tax. The security to be furnished in India is an irrevocable bank guarantee. The CBDT has issued instruction No.10/2007, dated 23.10.2007, providing that on receipt of formal request for suspension of collection of outstanding tax in terms of the Treaty/MOU, the Assessing Officer is required to keep the tax in abeyance if the same has been “admitted” by the Indian Competent Authority. The appeal filed by the assessee against the order passed by the DCIT-II, Gurgaon, came up for consideration before the Income Tax Appellate Tribunal. Vide order dated 13.12.2012, a stay of the demand for a period of 180 days or disposal of the appeal or of the MAP application, whichever is earlier was granted. The conditional order dated 13.12.2012 reads as follows:- “In consideration of the application of the assessee in the light of rival submissions and material on record, we grant of stay of recovery, subject to condition that assessee shall deposit Rs.2.50 crores on or before 21.12.2012 and shall furnish bank guarantee for the amount involved for which MAP application has been filed, on or before 31.12.2012, for a period of 180 days or disposal of the appeal/MAP application, whichever is earlier. However, assessee shall not seek any adjournment and get finalised the appeal fixed for hearing on 13.01.2013 or any subsequent date. In case assessee seeks adjournment or commits default in making payment or furnish bank guarantee within the stipulated time, the accommodation herein granted shall stand automatically cancelled and entire outstanding Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -7- demand would be recoverable as per law.”

The assessee, admittedly, complied with these conditions and it is not denied that MAP proceedings are pending. The appeal came up for hearing on 16.01.2013, and the following order was passed:- “Ld. Counsel for the assessee contends that the appeal involved AMP issue on which the Special Bench order in the case of the LG Electronics is awaited. Adjourned to 16.04.2013.” A perusal of the order reveals that counsel for the assessee made a statement that the appeal involves an issue relating to advertising, marketing and promotion, which is pending before a Special Bench in the case of LG Electronics. The Tribunal, thereafter, adjourned the appeal to 16.04.2013. The department claims that, though, it was aware of the stay order dated 13.12.2012, it was not aware of the fine print of order dated 13.12.2012, as the order only became available to the revenue on 22.03.2013. The department perused the stay order dated 13.12.2012 and order dated 16.01.2013 and as it was satisfied that an adjournment has been sought by the assessee, beyond 16.01.2013, the stay order stands automatically vacated. A notice was issued under Section 221(1) of the Act, on 22.03.2013, calling upon the assessee to discharge liability for assessment year 2008-09. A perusal of the notice reveals that it does not refer to the vacation of the stay order but alleges that it is not clear whether MAP application has been admitted. However, it appears from the reply filed by the respondents, to the show cause notice, that this matter was discussed with the respondents during meetings in their office, but as noticed above, does not form part of the notice issued to the assessee. It would be Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -8- appropriate to point out that replies filed by the assessee on 24.03.2013, do refer to the stay order, pendency of a matter before a Special Bench in the case of LG Electronics and that the innocuous adjournment granted on 16.01.2013, cannot be construed as a vacation of the stay order, or an adjournment at the request of the petitioner. The revenue, however, proceeded to appropriate the amount of tax due from the assessee by serving a notice on Standard Chartered Bank.

The assessee filed an application under Section 151 of the Code of Civil Procedure, before the Income Tax Appellate Tribunal, for refund of the amount recovered by the revenue. The revenue raised a plea that as the stay order stood vacated, in view of adjournment, dated 16.01.2013, the Income Tax Appellate Tribunal has no juri iction to order refund. After a detailed perusal of the facts, the Income Tax Appellate Tribunal framed five questions for adjudication in the following terms:- “a)

Has the stay order of the Tribunal been flouted by the assessee; b)

Has the stay order of the Tribunal been flouted by the department; c)

If the answer to b) is yes then is the action of the department bonafide or malafide on facts; d)

If the answer to b) is yes then does the Tribunal have the power to direct a refund; e) in case the answer to d) is yes, then what are the safeguards which can be ensured to protect the interest of the Revenue.”

The Income Tax Appellate Tribunal held that adjournment was granted by the Tribunal in confirmity with judicial discipline and judicial propriety as the appeal could not be decided in view of pendency of Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -9- another appeal, relating to Advertising, Marketing and Promotion expenses before a Special Bench and, therefore, the appeal had been adjourned, suo moto. The Income Tax Appellate Tribunal also held, on the basis of certain judgment and by relying upon Section 151 of the CPC, that it is empowered to pass an order of refund of an amount illegally appropriated by the revenue and, thus, proceeded to pass an order directing the revenue to refund the amount collected in violation of the stay order dated 13.12.2012 on or before 18.04.2013.

Before we consider whether the Tribunal is empowered to pass such an order, it would be appropriate to examine order dated 16.01.2013, which we have already reproduced in a preceeding paragraph of the judgment. A perusal of the order reveals that counsel for the assessee brought it to the notice of the Tribunal that the appeal involves an issue relating to AMP, which is pending before a Special Bench, in the case of LG electronics. The Tribunal adjourned the case to 16.04.2013. The opinion recorded by the Tribunal that order dated 16.01.2013 does not record a request for an adjournment, at the behest of counsel for the assessee, cannot be faulted. The counsel for the assessee brought to the notice of the Tribunal that an appeal involving a similar issue is pending before a Special Bench. It was for the Tribunal to hear the appeal or adjourn the appeal. The Tribunal choose, instead, to adjourn the appeal as it could not be decided without decision of the reference. The order dated 16.01.2013 must, therefore, be read as the assessee bringing a fact to the notice of the Tribunal and the latter adjourning the case. The endeavour of the revenue to interpret this order as an adjournment claimed by the assessee, in our considered opinion is erroneous as even a prima facie perusal of the order does not indicate any request by counsel for the assessee for an adjournment.

Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -10- This fact apart, it would be appropriate to point out that the show cause notice issued to the assessee does not refer to vacation of the stay order but refers to admission or not of the MAP application, though, it appears that there was some discussion relating to vacation of the stay order during a personal hearing, that preceeded issuance of the notice. If such a discussion had taken place, the officer concerned should have been honest enough to issue a show cause notice on the ground that the stay order stands vacated, a stand that was vehemently urged before the Tribunal and is reiterated before us. The vacillating stand of the revenue clearly indicates a confused state of mind, apparently compelled by the need to achieve targets fixed by superiors of the department. We, therefore, find no reason to differ with the opinion recorded by the Tribunal, that as counsel for the assessee did not pray for an adjournment, the stay order did not stand vacated.

The next plea relates to juri iction of the Tribunal to order refund of the amount appropriated by the revenue, during pendency of the appeal. The learned Tribunal has held that it is empowered, in view of nature of its juri iction, as well Section 151 CPC to order refund, as the stay order has not been vacated. The power to ensure that its orders are not violated during pendency of a lis are inherent in any Court or Tribunal.

In fact it is the bounden duty of the Tribunal to ensure where its order is violated that the violation is adequately redressed and money appropriated, is restituted. If such a power is held not to be available to the Tribunal, its interim orders would be flouted with impunity. If, the revenue was of the opinion that the stay order has been violated by the assessee or has been vacated, it should have approached the Tribunal for clarification by way of an appropriate application but instead proceeded in a ham-handed manner, to appropriate this amount. The order passed by the Tribunal, in Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh -11- our considered opinion, does not suffer from any error of juri iction or of law and must, therefore, be affirmed.

In view of what has been stated hereinabove, the writ petition is dismissed but refund of the amount shall await decision of the appeal, which shall be decided by the Tribunal, within one month from receipt of a certified copy of this order. (RAJIVE BHALLA) JUDGE 11th October, 2013 (DR. BHARAT BHUSHAN PARSOON) nt JUDGE Kumar Naresh N 2013.10.21 14:14 integrity of this document High Court Chandigarh

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