M/S. CANON GRANITES PVT LTD. vs. THE DEPUTY COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY,THE 30TH DAY OF OCTOBER 2018 / 8TH KARTHIKA, 1940 WP(C).No. 35228 of 2018 PETITIONER: M/S. CANON GRANITES PVT LTD. MUNICIPAL BUILDING, ROUND SOUTH, THRISSUR - 680 001, REPRESENTED BY ITS MANAGING DIRECTOR MR.JOSE K.FRANCIS BY ADVS. SRI.RAMESH CHERIAN JOHN SRI.JOSEPH MARKOSE (SR.) RESPONDENTS: 1 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1 (1), AAYAKKAR BHAVAN, SHAKTHAN THAMPURAN NAGAR, THRISSUR - 680 001 2 THE COMMISSIONER OF INCOME TAX (APPEALS) O/OF THE COMMISSIONER OF INCOME TAX (APPEALS), AAYAKKAR BHAVAN, SHAKTHAN THAMPURAN NAGAR, THRISSUR-680001 ADV. SRI. JOSE JOSEPH, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 30.10.2018 ALONG WITH W.P.(C)Nos.35229/2018 AND 35301/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

WP(C).No. 35228 of 2018 & conn.cases 2 JUDGMENT The petitioner, a company trading in Granite, is an assessee under the Income Tax Act. For the assessment years 2011-2012, 2013-2014 and 2014-2015, it has faced, according to the petitioner, high pitched assessment proceedings. When the petitioner took the matters in appeal, the appellate authority passed a conditional order: the petitioner to pay 15% of the demand as a pre-condition to having further proceedings stayed. Aggrieved, the petitioner Company has filed this writ petition. 2. Sri Joseph Markose, the learned Senior Counsel for the petitioner, has submitted that though the Company has been an assessee since 2002, it has faced no scrutiny. In 2011, the Company's Director complained to the Central Bureau of Investigation, ACB, Cochin (CBI), about the demands by certain officials of the Income Tax Department for illegal gratification. Acting on the complaint, the CBI has laid a trap, the Senior Counsel further submits, and registered the Exts.P1 and P2 crimes against a few officials. Then onwards the Department has been after the Company.

WP(C).No. 35228 of 2018 & conn.cases 3 3. In all the next succeeding years, the petitioner has continuously been subjected to scrutiny and high pitched assessments. 4. The learned Senior Counsel, first, fairly admits that the pre- condition—that is, paying 15% of the disputed tax—per se cannot be termed illegal. But, then, according to him, the pre-condition must be viewed in the backdrop of the Company's complaint and the Departmental determination to persecute the Company. He stresses that people like the Company's Directors must be encouraged to contain the scourge of graft in public life. 5. The appellate authority ought to have, asserts the learned Senior Counsel, given the benefit of doubt to the Company and heard the appeal without a pre-condition; it would have, then, only enhanced the Department's reputation for impartiality. And that could have restored the Company's confidence in the system. Instead, the respondents have victimised the Company. Therefore, the learned Senior Counsel urges this Court to dispense with the Ext.P8 condition and impose a blanket stay

WP(C).No. 35228 of 2018 & conn.cases 4 on further proceedings until the appellate authority decides the statutory appeal. 6. On the other hand, the learned Standing Counsel for the Income Tax Department has submitted that the petitioner's complaint against the Department officials and the resultant crimes registered by the CBI have nothing to do with the scrutiny and assessment proceedings. He referred to the Company’s allegations: the Company was never touched until 2011 when its Director complained about the graft. To refute that allegation, the Standing Counsel submits that the assessing authority does not select the assessees for scrutiny; it is a system-generated random choice. Perhaps the petitioner, according to him, had been lucky until then. 7. The learned Standing Counsel has drawn my attention to the Ext.P8 conditional orders in W.P.(C)No.35228/2018, Ext.P14 in W.P. (C)No.35229/12018, and Ext.P13 in W.P.(C)No.35301/2018. He then stresses that the orders are well-reasoned and require no interference. In this regard, he also submits that the Department's circulars mandate that the appellate authority has jurisdiction to impose a pre-condition up to 20%

WP(C).No. 35228 of 2018 & conn.cases 5 of the demanded tax. Viewed from that perspective, 15%, as imposed by the appellate authority, is far less and cannot be termed onerous. 8. Heard Sri Joseph Markose, the learned Senior Counsel for the petitioner, as also Sri Jose Joseph the learned Standing Counsel for the respondent Department. 9. Indeed, this Court as well as the Supreme Court has time and again reiterated the well-settled legal principle: discretion by a competent judicial or quasi-judicial authority calls for no interference unless it suffers from perversity or gross illegality. Here, viewed in isolation, the Exts.P8, P14, and P13 conditional orders in these writ petitions are unexceptional: the condition of 15% pre-deposit is reasonable. 10. But the issue here needs to be viewed in the backdrop of the proceedings that preceded. Strange or fortuitous as it may seem, until 2011 the Company had never been subjected to scrutiny. Then, from that year onwards it has never been let go of. Indeed, the CBI registered crimes on the Company's complaint and those crimes are in progress. The

WP(C).No. 35228 of 2018 & conn.cases 6 Company entertains a notion—may be ill-founded—that it has been victimized and subjected to high pitched, repeated assessments. As the Company's counsel puts it, for one year, the assessment was by six times, another year by 2-3 times and the next year it seemed normal. 11. As I see, a citizen has complained about a crime: the crime of graft. An organisation like CBI has registered a crime after laying the trap. Perhaps accidentally, though, the company that complained has been in the departmental crosshairs ever since. As the learned Senior Counsel has put it, the conditional stay in an appeal is only an interim arrangement. The repeated assessments and the preconditions may have left the Company with the feeling of victimization. Its Directors have opened their mouth against the graft or alleged graft in the Department. Normally, it pays to complain. Here, the complainant is, it seems, made to pay. So the Department could have taken a lenient view to inspire confidence in the Company that it need not end up as a victim only because it has pointed out a flaw in the system, as it were.

WP(C).No. 35228 of 2018 & conn.cases 7 12. Therefore, first, I place on record that the pre-condition of the assessee's depositing 15% demanded tax can neither be termed perverse nor illegal. Yet, I also hold it is a peculiar case that deserves an exception. So I set aside the Exts.P8, P14 and P13 in W.P.(C)Nos.35228, 35229 and 35301 of 2018 respectively, to the extent of their requiring the Company to deposit 15% as a precondition. Instead, the amount stands reduced to 5% per each assessment year. Once the Company pays 5% of the demanded tax, the appellate authority will hear the appeals on merits, with no further coercive steps until the adjudication completed. Sd/- DAMA SESHADRI NAIDU JUDGE

WP(C).No. 35228 of 2018 & conn.cases 8 APPENDIX PETITIONER'S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE FIR FILED ON 19.03.2014 BY THE CBI. EXHIBIT P2 TRUE COPY OF THE RELEVANT PAGES OF THE FINAL REPORT FILED BY U/S 173 CR.PC ON COMPLETION OF INVESTIGATION. EXHIBIT P3 TRUE COPY OF THE ORDER OF ASSESSMENT DT. 30.3.2014 PASSED BY THE 1ST RESPONDENT U/S. 143(3) OF THE ACT. EXHIBIT P4 TRUE COPOY OF THE FORM OF APPEAL, STATEMENT OF FACTS AND THE GROUNDS OF APPEAL FILED BEFORE 2ND RESPONDENT. EXHIBIT P5 TRUE COPY OF POSTING NOTICE DATED 14.9.2018 EXHIBIT P6 TRUE COPY OF THE SUMMARY ARGUMENTS DT. 14.9.2018 EXHIBIT P7 TRUE COPY OF COVERING LETTER DT. 17.7.2018 EXHIBIT P7 A TRUE COPY OF INVOICE DT. 29.4.2010 EXHIBIT P7 B TRUE COPY OF SERVICE REPORT EXHIBIT P7 C TRUE COPY OF SERVICE REPORT EXHIBIT P7 D TRUE COPY OF SERVICE REPORT EXHIBIT P7 E TRUE COPY OF SERVICE REPORT

WP(C).No. 35228 of 2018 & conn.cases 9 EXHIBIT P8 TRUE COPY OF THE COMMON ORDER OF STAY DT. 18.9.2018 PASSED BY THE 2ND RESPONDENT. RESPONDENTS' EXHIBITS NIL // TRUE COPY // P.A. TO JUDGE SD