M/S. V. M. CONSTRUCTIONS vs. INCOME TAX OFFICER, WARD 22 (3) (1) AND ANR

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WP/8469/2015HC BombayHCBM01032947201510 September 2015Author: HON'BLE SHRI JUSTICE G. S. KULKARNI,HON'BLE SHRI JUSTICE M.S. SANKLECHA5 pages
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What did the High Court hold?

The High Court held that both orders dated June 26, 2014, and July 23, 2014, rejecting the petitioner's applications for stay of demand under Section 220(6) of the Income Tax Act, 1961, were non-speaking and passed in total breach of the law. The Court relied on its own decision in KEC International v/s. B.R. Balakrishnan, which laid down guidelines for disposing of stay applications. These guidelines include briefly setting out the assessee's case, considering whether a case for unconditional stay is made out, examining financial viability if deposit is required, and assessing the likelihood of the assessee defeating the demand. The Court found that the impugned orders were devoid of even mention, let alone consideration, of the petitioner's case. Consequently, both orders were quashed and set aside. Instead of restoring the application for final disposal by the Assessing Officer, the Court directed that no coercive proceedings be adopted by the respondent until the CIT(A) disposes of the petitioner's appeal and for a period of two weeks thereafter, given that the appeal was scheduled for final hearing. The petitioner was also directed to cooperate with the CIT(A) for an early disposal of the appeal.

What were the facts?

The petitioner, M/s. V.M. Constructions, is challenging orders dated June 26, 2014, and July 23, 2014, passed by the Assessing Officer and Additional Commissioner of Income Tax (Addl. CIT) respectively. These orders rejected the petitioner's applications for a stay of demand pending its appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessment year in question is 2008-09. The Assessing Officer had reopened the assessment under Section 148 and determined the petitioner's income at Rs. 2.71 Crores, a significant increase from the returned income of Rs. 6.68 lakhs. The petitioner filed an appeal with the CIT(A) and subsequently sought a stay of demand under Section 220(6) of the Income Tax Act, 1961. Both applications for stay were rejected without detailed reasoning.

What were the issues?

1. Whether the orders dated June 26, 2014, and July 23, 2014, rejecting the petitioner's applications for stay of demand under Section 220(6) of the Income Tax Act, 1961, are non-speaking and passed in breach of law? Assessee's Contentions: The petitioner argued that both orders rejecting their stay applications were non-speaking and passed in total breach of the law as laid down by the Bombay High Court in KEC International v/s. B.R. Balakrishnan. They contended that the authorities failed to consider the petitioner's case and provided no reasons for rejection. The petitioner sought to quash these orders and direct the Assessing Officer to keep recovery proceedings in abeyance until the disposal of their appeal by the CIT(A), and further requested the CIT(A) to dispose of the appeal expeditiously. Revenue's Contentions: The judgment does not record specific contentions made by the revenue.

Which sections of the Income-tax Act were involved?

Section 220(6),Section 143,Section 147,Section 148,Section 156

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Cause title — parties, addresses and appearances
wp-8469-2015 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.8469 OF 2015   M/s. V. M. Constructions  .. Petitioner. V/s. Income Tax Officer, Ward 22(3)(1) & Another .. Respondents. Ms. Ritika Agarwal i/b. Khusiram Jadhwani, for the Petitioner. Mr. Nirmal Mohanty, for the Respondents. CORAM:  M.S.SANKLECHA, &       G.S.KULKARNI, JJ. DATE    :  10th SEPTEMBER, 2015. P.C:­ This Petition under Article 226 of the Constitution of India  inter alia, seeks following directions:­ (a) To quash and set aside the orders dated 26th June, 2014 and 23rd  July,   2014   passed   by   the   Assessing   Officer   and   the   Addl. Commissioner of Income Tax (Add. CIT) respectively under Section 220(6) of the Income Tax Act, 1961 (the Act).   Both the above orders rejected   the Petitioner's application for stay of demand, pending     disposal     of     the     Petitioner's   appeal   to   the Commissioner   of   Income   Tax   (Appeals)   [CIT(A)]   from   the Assessment Order dated 26th March,  2014   passed   in   respect   of Assessment Year 2008­09; (b) The Assessing Officer to keep in abeyance the proceedings for   S.R.JOSHI 1 of 5 wp-8469-2015 recovery of tax consequent to the Assessment Order dated 26th  March, 2014 passed in respect of Assessment Year 2008­09 till the  disposal of the Petitioner's appeal by the CIT(A); and (c) To direct the CIT(A) to take up and dispose of the Petitioner's   appeal expeditiously. 3 For the Assessment Year 2008­09, the Petitioner had filed its  Return   of   Income,   declaring   an   income   of   Rs.6.68   lakhs   which   was  processed under Section 143(1) of the Act. Thereafter, by notice under  Section 148 of the Act, the Assessing Officer sought to re­open Assessment  for the A. Y. 2008­09. Consequent thereto the Assessing Officer passed an  order dated 26th March, 2014 under Section 143 read with Section 147 of  the Act, determining the Petitioner's income at Rs.2.71 Crores. 4 Being aggrieved, the Petitioner filed an appeal from the order  dated 26th  March, 2014 to the CIT(A). Thereafter the Petitioner sought  stay of the demand arising out of the order dated 26th March, 2014 from  the Assessing Officer under Section 220(6)of the Act till the disposal of its  appeal by the CIT(A).   5 On   26th  June,   2014,   the   Assessing   Officer   rejected   the  Petitioner's application for stay without considering the submission of the  Petitioner by merely stating as under:­ “ …. …. …. …. The request of the assessee has been examined in view of  Circular   No.530   dt.   6.3.1989,   589   dated   16.1.1991   and  instruction No.1914 dated 19.05.2003.   After considering the  facts and circumstances, the assessee's request is hereby rejected  as it does not merit any consideration.” S.R.JOSHI 2 of 5 wp-8469-2015 6 Being   aggrieved,   the   Petitioner   filed  a   further   application  seeking a stay under Section 220(6) of the Act with the Addl. CIT.  This  application for stay was rejected as under:­ “ Subject:   Stay   of   recovery   of   demand   of  Rs.1,58,27,330/­ in order u/s. 143(3) r.w.s. 147,  notice u/s. 156 of the Income Tax Act, 1961 dated  26th   March,   2014   and   subsequent   order   u/s.  220(6) of the Income Tax Act, 1961 dated 26th  June 2014 for A. Y. 2008­09. Please   refer   to   the   above   matter   and   hearing   on   16.07.2014 in this regard. Your submissions during the  stay proceedings were considered carefully vis­a­visa facts  in the assessment record. It is found that there is no merit  in your application and your request for stay of demand  is rejected.”   7 Both the above orders dated 26th  June, 2014 and 23rd  July,  2014 of the Assessing Officer and the Addl. CIT respectively are non­ speaking orders and passed in total breach of the law as laid down by this  Court in KEC International v/s. B. R. Balakrishnan 251 ITR 158.   The  above decision had laid down the following guidelines to be kept in mind  while disposing of an application for stay under Section 220 (6) of the  Act:­ “(a) While   considering   the   stay   application,   the   authority  concerned will at least briefly set out the case of the assessee. (b) In cases where the assessed income under the impugned  order far exceeds returned income, the authority will consider  whether the assesssee has made out a case for unconditional  stay. If not, whether looking to the questions involved in appeal,  a part of the amount should be ordered to   be deposited for   which purpose, some short prima facie reasons could be given

by the authority in its order. S.R.JOSHI 3 of 5

wp-8469-2015 (c) In   cases   where   the   assessee   relies   upon   financial difficulties, the authority concerned can briefly indicate whether the   assessee   is   financially   sound   and   viable   to   deposit   the amount if the authority wants the assessee to so deposit. (d) The authority concerned will also examine whether the time  to  prefer  an appeal   has expired.    Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal.   However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may  be indicated in the order. (e) We clarify that if the authority concerned complies with the   above   parameters   while   passing   orders   on   the   stay application, then the authorities on the administrative side of the   Department   like   respondent   No.2   herein   need   not   once again give reasoned order. The above parameters are not exhaustive. They are only recommendatory in nature.”

Both the orders dated 26th June, 2014 and 26th July, 2014 are devoid of even mention leave alone consideration of the Petitioner's case. Consequently both the orders are quashed and set aside. 8 Normally,   we   would   have   restored   the   application   under Section 220(6) of the Act for final disposal by the Assessing Officer in line with the decision of this Court in KEC International (supra), but are not doing so in this case.  This for the reason that we are informed that the CIT(A) had already fixed the hearing of the Appeal on 7th  September, 2015. At that time, it appears that the Petitioner sought time and the Appeal has now been fixed for hearing on 22nd September, 2015. As the appeal itself is now being finally heard by CIT(A)  beginning on the 22nd September, 2015, it would be appropriate that Respondent do not adopt any coercive proceedings till the CIT(A) to disposes of Petitioner's Appeal S.R.JOSHI 4 of 5

wp-8469-2015 on merits and for a period of two weeks thereafter. 9 However, it is made clear that the Petitioner will co­operate with the CIT(A) for early disposal of the appeal. In case the Petitioner does not co­operate and seeks an adjournment without any justification, the Respondent is at liberty to move this Court for modification of this order. 10 Petition disposed of  in the above terms.   No order as to costs. (G.S.KULKARNI,J.) (M.S.SANKLECHA,J.)

S.R.JOSHI 5 of 5

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