HIGH COURT OF PUNJAB AND
Commissioner of Income-tax, Gurgaon
CWP NO. 21765 OF 2012
NOVEMBER 16, 2012
G.S. Sandhawalia, J.
The present writ petition has been filed under Articles 226 and 227 of the Constitution of India praying for issuance of a writ in the nature of mandamus or certiorari for quashing order dated 17.10.2012 (Annexure P-12) whereby, the petitioner’s bank accounts and rental income have been attached under Section 226(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘The Act’) and for grant of stay of demand pending the decision of first appeal.
2. The pleaded case of the petitioner is that the assessee is engaged in the business of IT enabled services by processing, creation of software, sale of originally created sites which are attached to various search engines and is enjoying the benefit of Software Technology Park of India under Section 10-B of the Act and is also registered with STPI authorities. The petitioner had filed return for assessment year 2009-10 declaring income of Rs. 1,30,09,970/- on 26.09.2009 and his case was picked up for scrutiny through CASS. The assessment was completed at an income of Rs. 4,99,13,470/- i.e. approximately four times of the returned income and tax demand including interest under Section 234B/C of the Act of Rs. 1,69,09,583/- was raised on 28.12.2011 by respondent no. 2. A payment of Rs. 25,00,000 had been made by the petitioner-assessee and Rs. 13,94,366/- and Rs. 30,92,048/- had been taken away by the respondents by way of attachment of different bank accounts of the petitioner resulting in payment of approximately 41.31% of tax demand. The petitioner had also deposited advance tax to the tune of Rs. 44,84,986/- resulting in payment of approximately 67.83% of demand. The additions made in the assessment order were essentially on account of disallowance under Section 10B for Rs. 3,62,19,000/- and disallowance under Section 14A of Rs. 6,84,495/- of the Act. The said additions had been contested by the assessee in appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] as patently wrong and the appeal was filed on 17.01.2012 bearing No. 327/2011-12 in which written submissions had also been made. The petitioner had filed an application for stay of demand before respondent no. 2 on 18.01.2012 but the Assessing Officer, vide order sheet dated 08.10.2012 by a non-speaking order, simply rejected the stay application. No orders for rejecting the stay application were communicated to the petitioner. Stay application dated 18.03.2012 was also filed before the Commissioner of Income Tax on 19.03.2012 and respondent no. 2 was also informed but no orders had been passed. The petitioner had requested the Assessing Officer for release of the accounts in view of the financial and business positions and placed reliance upon the instructions of the Central Board of Direct Taxes, New Delhi (hereinafter referred to as ‘The Board’) dated 21.08.1969 regarding the high pitched assessments and that the assessee was entitled to the stay of demand in case of such assessments. The Assessing Officer had issued notice under Section 221 of the Act requiring the petitioner-assessee to pay the whole of the outstanding demand on 30.01.2012 and the petitioner had submitted reply on 14.02.2012 that he had a good prima facie case on merits and the assessee fulfilled all the eligibility criteria of exemption claimed and the claim had been accepted year after year. Respondent no. 2 had issued notice under Section 226(3) of the Act to the petitioner’s bankers for attachment of various bank accounts without informing the petitioner and the petitioner was informed by its banker telephonically and by E-mail dated 18.10.2012 regarding the attachment of the bank accounts. After getting the said information, the petitioner had submitted a representation on 18.10.2012 before respondent no. 2 and the CIT(A), Commissioner of Income Tax-respondent no. 1, Additional Commissioner of Income Tax and the Deputy Commissioner of Income Tax on 19.10.2012 and 22.10.2012. Vide attachment order dated 17.10.2012 the rent and security deposits and interest thereon were attached. Accordingly, the writ petition was filed.
3. In the written statement filed in Court today, the defence taken by the respondents is that the assessee is entitled to file petition for stay of demand before the Joint Commissioner of Income Tax, Range II, Gurgaon, the Commissioner of Income Tax, Faridabad and even the CIT(A) and, therefore, there was an alternative remedy which was available to the assessee and he had failed to exhaust the same and the writ petition is not maintainable. The assessee had substantial liquid funds and other assets available with him and, therefore, no irreparable damage would be caused on account of recovery of outstanding demand from the balances available in bank accounts and rental income. The assessee had claimed a benefit under Section 10-B of the Act, but could not substantiate his claim by way of relevant documentary evidence and the proceedings of the earlier year did not debar the Assessing Officer to take a different view. The claim of the assessee that 67.83% of demand of Rs. 1,69,09,583/- had been paid was not correct. The payment of Rs. 44,84,986/- was on account of advance tax, self assessment tax and TDS and was due towards the outstanding amount on original returned income which was to be paid to the extent of 100% by 31.03.2009. Only a sum of Rs. 25,00,000/- had been paid and Rs. 44,86,414/- had been collected under Section 226(3) of the Act and a demand of Rs. 99,23,169/- was still payable. The assessee had failed to substantiate his claim and as many as 13 opportunities had been given and the matter was pending with the Appellate Authorities. Copy of the order sheets and the recovery proceedings were attached. There was no evidence to show that the financial position of the assessee was weak and after having considered the submissions and having allowed assessee sufficient time and opportunity, the application for stay was rejected as per order sheet. No stay order had been received from the Joint Commissioner of Income Tax, Range-II, Gurgaon or the Commissioner of Income Tax, Faridabad. The instructions of the Board had been duly followed while passing an order under Section 226(3) of the Act. The demand could not be termed as high pitched as pleaded by the assessee, which he had failed to substantiate. The banks accounts stood released and the total of the rental and interest income which was attached was only Rs. 3,47,045/- per month. Regular business of the assessee was not related to this income and, therefore, the attachment would not result into irreparable damage to the business interests or financial position of the assessee. The assessee had a sound financial position and he had deliberately omitted to submit any installment plan for payment of outstanding demand. That notice under Section 221 of the Act had been rightly issued on 30.01.2012 and the authorized representative was directed to submit the installment plan for payment of the outstanding demand and no payment plan had been submitted and accordingly the order had been passed under Section 226(3) of the Act. The bank accounts of the assessee had been released as the available credit balance had been remitted to the government treasury vide order dated 23.01.2012 and recovery of Rs. 44,86,414/- only had been made from these accounts. The attachment was of Rs. 3,47,045/- per month of rental income and interest income.
4. On the aforesaid premises, counsel for the petitioner submitted that once the appeals were pending before the CIT(A), respondent no. 2 was not justified in passing the order under Section 226(3) of the Act and attaching the bank accounts and the rent payment of the petitioner. Counsel for the department, on the other hand, submitted that no schedule of payment had been given by the petitioner’s representative and, therefore, the stay application of the petitioner had been rightly rejected by respondent no. 2.
5. From the facts of the present case, as noticed hereinbefore, it transpires that the petitioner’s appeal against order dated 28.12.2011 under Section 246 of the Act is pending before the Appellate Authority. Against the declared income of Rs. 1,30,09,970/-, the Assessing Officer has assessed the income at Rs. 4,99,13,470/- and also charged interest etc. The petitioner had filed an application under Section 220(6) of the Act before the Assessing Officer requesting that the entire demand was disputed in the appeal and since it was the first appeal, the demand may be stayed till the disposal of the appeal. It is also a matter of record and as per the case of the respondents themselves, a sum of Rs. 25,00,000/- has been paid by the assessee against the said demand and a sum of Rs. 44,86,414/- had also been collected. Section 220(6) of the Act provides that where an appeal is pending under Section 246, the Assessing Officer, in his discretion and subject to such conditions, would treat the assessee as not being in default till the pendency of the appeal. Section 220(6) of the Act reads as under:-
“220(6) Where an assessee has presented an appeal under section 246, the [Assessing] Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.”
6. In pursuance of the application filed, respondent no. 2 passed the following order-sheet entries on 05.10.2012 and 08.10.2012:-
“5.10.2012 Present Sh. N.L. Nasa, and submitted a copy of challan of Rs. 10 lac paid by assessee on 25-9-2012. Challan Sr. No. 00002/BSR Code 0006604. Assessee has failed to submit the installment plan for the balance outstanding demand. Assessee to show cause as to why application for stay of recovery proceedings of the outstanding demand be not rejected as the assessee has failed to deposit even 50% of the outstanding amount even after a lapse of 9 months from the creating of demand.
The assessee has also failed to furnish any evidence to show that the financial position of the assessee is weak. Hearing fixed for 8-10-2012 at 11.00 AM.”
08.10.12 Present Sh. Rajesh Mahna, Advocate and requested for stay of demand. The assesses has not submitted any plan to deposit o/s demand. ‘A’ is directed to deposit the o/s demand stay application of the ‘A’ is rejected.
7. Under Section 220(6) of the Act, where an appeal was pending against the assessment order, the assessee was not to be treated as an assessee in default in respect of the amount in dispute in appeal, in the discretion of the Assessing Officer on such conditions as he may think fit to impose. The Assessing Officer is, thus, required to pass a reasoned speaking order. The order passed by respondent no. 2 cannot be termed to be a speaking order in consonance with the requirements of Section 220(6) of the Act and the sole consideration which weighed with respondent no. 2 was that the amount had not been paid and how to recover the same. In view of non-compliance of requirements of Section 220(6) of the Act of passing a speaking order, the order dated 17.10.2012 (Annexure P-12) is quashed. Respondent no. 2 is given liberty to pass a fresh speaking order in accordance with law within 15 days from the date of receipt of certified copy of this order after affording proper opportunity of hearing to the parties.
8. Accordingly, the writ petition is disposed of with the above observations.