Case Law Details
U.P. Financial Corporation Vs CIT (TDS) And 3 Others (Allahabad High Court)
Summary: The Case concerns writ petitions challenging the rejection of stay applications against recovery arising from a penalty order under Section 271C of the Income-tax Act. The petitioner contended that the stay rejection order dated 25.05.2026 was passed mechanically without assigning reasons. The Allahabad High Court observed that the impugned order rejecting the stay application contained no reasons and, therefore, could not be justified in law. Referring to earlier decisions and Supreme Court authorities on the necessity of recording reasons in judicial and administrative orders, the Court reiterated that reasons are an essential component of natural justice and that administrative as well as quasi-judicial orders must be supported by reasons. Holding that the absence of reasons alone rendered the impugned orders unsustainable, the Court quashed the orders passed in both writ petitions, allowed the writ petitions, and remanded the matter to the respondent authority to decide the stay applications afresh by a reasoned and speaking order in accordance with law, preferably within six weeks from the production of a certified copy of the judgment.
Core Issue: Whether a stay application filed during the pendency of an appeal can be rejected by the Income-tax Department through a non-speaking order without recording reasons, and whether such rejection violates the principles of natural justice.
Facts: The petitioner, U.P. Financial Corporation, challenged the orders rejecting its stay applications against recovery of demand arising from penalty proceedings under the Income-tax Act. The petitioner had preferred an appeal before the National Faceless Appeal Centre (NFAC) against the penalty order and simultaneously sought stay of the disputed demand on various legal grounds, including limitation and a strong prima facie case. The competent authority rejected the stay applications by brief, cryptic orders without assigning any reasons or dealing with the submissions made by the petitioner. Aggrieved by the arbitrary rejection of the stay applications, the petitioner approached the Allahabad High Court under Article 226 of the Constitution.
Statutory Provisions and Legal Position: The controversy arose under the provisions of the Income-tax Act, 1961 relating to TDS default and penalty proceedings, particularly Sections 193, 201(1), 201(1A), 250 and 271C. While examining the validity of the stay rejection orders, the High Court applied the settled principles of natural justice and Article 14 of the Constitution of India, holding that every judicial, quasi-judicial and administrative authority is legally bound to pass a reasoned and speaking order. The Court relied upon the decisions of the Supreme Court in Assistant Commissioner, Commercial Tax Department v. Shukla & Brothers (2010) 4 SCC 785 and Travancore Rayons Ltd. v. Union of India (1969) 3 SCC 868, which lay down that recording reasons substitutes subjectivity with objectivity and that the absence of reasons renders an administrative or quasi-judicial order legally unsustainable.
Observation and Finding: The High Court observed that reasons are the heartbeat of every conclusion and constitute an indispensable component of natural justice. A reasoned order demonstrates due application of mind, ensures fairness and transparency, and enables effective judicial review. The Court held that the impugned orders merely rejected the stay applications without discussing the petitioner’s contentions or assigning any justification. Such non-speaking orders reflected complete non-application of mind and failed to satisfy the requirements of law. The Court categorically held that even administrative orders affecting civil rights must disclose reasons, and the absence of reasons alone is sufficient to invalidate the order.
Outcome: The Allahabad High Court allowed both writ petitions, quashed the impugned orders rejecting the stay applications, and remanded the matters to the competent authority with a direction to reconsider and decide the stay applications afresh by passing reasoned and speaking orders, in accordance with law, after due application of mind, preferably within six weeks from the date of production of the certified copy of the judgment.
Cases Discussed
- M/s World Solution Vs. State of UP (Allahabad HC), Neutral Citation No. 2023:AHC:188861
- Om Prakash Mishra v. State of U.P. & Ors. (Allahabad HC), Writ Tax No.100 of 2022 decided on 06.09.2022
- Assistant Commissioner, Commercial Tax Department, Works Contract & Leasing, Kota Vs. Shukla & Brothers (SC), (2010) 4 SCC 785
- Whirlpool Corporation v. Registrar of Trademarks, Mumbai and Ors. (SC), (1998) 8 SCC 1
- M/s Travancore Rayon Ltd. v. Union of India (SC), 1969 (3) SCC 868
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Mr. Ashish Bansal, learned counsel for the petitioner and Mr. Amit Mahajan, learned counsel for the respondent.
2. Learned counsel for the petitioner is permitted to correct the date of order in the writ petition during course of the day.
3. Similar controversy is involved in both the aforesaid writ petitions, therefore, with the consent of the parties, both the writ petitions are being decided by a common order treating Writ Tax No. 3047 of 2026 as leading case.
Writ Tax No. 3047 of 2026
4. By means of present petition, the petitioner is praying for the following reliefs:-
(a) Issue writ, order or direction in the nature of certiorari quashing the order dated 25.5.2026 passed by the respondent no. 4 (Annexure -11) for assessment year 2003-04 rejecting the stay application filed by the petitioner corporation.
(b) issue writ, order or direction in the nature of mandamus commanding the Respondent no. 4 not to enforce recovery of demand created in consequence of penalty order dated 30.3.2026 and to take coercive action against the petitioner corporation during pendency of the writ petition;
(c) issue writ, order or direction in the nature of mandamus commanding the respondent no. 3 to decide the appeal filed before him, against the penalty order dated 30.3.2026, on 17.4.2026 (which stood rectified on the e-portal on 19.4.2026) (Annexure -8) expeditiously during the pendency of the writ petition;
5. Learned counsel for the petitioner submits that the petitioner is a financial corporation duly incorporated on 11.11.1954 under the State Financial Corporation Act, 1951 with the prime objective to provide developmental finance for setting up industries in Uttar Pradesh under the statutory control of the State Government. He submits that for functioning of the petitioner, SLR & Non SLR Bonds were issued for raising the funds for its financial activities. In the A.Y. 2003-04, the petitioner has filed return on 1.12.2003 showing loss of Rs. 72,74,31,518/- and the return was processed and as the accounts were not audited at the time of filing the return, the audit report dated 26.4.2004 was submitted before the assessing authority. He submits that the return filed by the petitioner -corporation was picked up for scrutiny and notice dated 1.10.2004 was issued under Section 143(2) of the Income Tax Act. He submits that the assessing authority has passed the order dated 12.8.2005 assessing the income at a loss of Rs. 70,77,61,910/- as against the returned loss of Rs. 72,74,31,518/- after making additions /disallowance to the claim made by the petitioner corporation in its return of income; thereafter a show cause notice for the F.Y. 2002-03 was issued to the petitioner corporation as to why it may not be treated as ‘assessee in default’ under Section 201 (1) of the Act for the failure of deduction of tax at source under Section 193 of the Act, on the alleged payment of interest on S.L.R. bonds made to various payees as also liable to pay interest under Section 201 (A) of the Act on such tax and thereafter a detailed reply was submitted by the petitioner corporation on 20.3.2007. However not being satisfied with the same, the order dated 29.3.2007 was passed imposing the liability of Rs. 74,31,585/- along with interest of Rs. 41,67,902/- against which an appeal was filed on 3.5.2007 before the first appellate authority being CIT (A) -I, Kanpur but in the meantime a demand was created in pursuance of the order dated 29.3.2007, which was recovered by the Income Tax Department from the bank account of the petitioner corporation. He submits that the appeal filed by the petitioner before the CIT (A) -I, Kanpur was dismissed vide order dated 30.7.2010 against which the petitioner corporation preferred an appeal under Section 253 of the Income Tax Act before the Income Tax Appellate Tribunal, Lucknow Bench, bearing Appeal No. ITA No. 642/LKW/2010, which was decided vide order dated 25.6.2013 and the matter was remanded to the assessing authority (respondent no. 4). Thereafter a show cause notice was issued on 16.1.2017 which is after the lapse of more than three and half years from the date of passing of the order of the Tribunal and reply was filed by the petitioner on 27.1.2017 stating therein that the proceedings are time barred as per the provisions of Section 153 of the Act. He further submits that the objection raised by the petitioner raising the ground of limitation has been rejected on 2.2.2017. Thereafter vide order dated 8.3.2017, respondent no. 4 has reaffirmed the order dated 29.3.2007. Against the said order, the petitioner has filed an appeal on 31.3.2017 before the first appellate authority, which has been transferred to National Faceless Appeal Centre (NFAC), Delhi, respondent no. 3. On 21.3.2023, the appeal filed under Section 250 of the Act was rejected. Thereafter a show cause notice was issued on 26.12.2025 under Section 271 C of the Act and reply was submitted on 12.1.2026 stating that the penalty proceeding is time barred, still the order dated 30.3.2006 was passed imposing the penalty equivalent to the amount of alleged failure to deduct tax for the year under consideration i.e. Rs. 74,31,585/-. On 17.4.2026, the appeal was filed against the penalty order dated 30.3.2026 before the NFAC on 17.4.2026 but due to minor error in selection of relevant section from drop down menu of Form 35 etc. corrected Form 35 was filed on 19.4.2026. Thereafter on 17.4.2026, a petition seeking stay of the demand was filed by the petitioner before respondent no. 4, which has been rejected by the ITO (TDS) Kanpur vide order dated 25.5.2026 without assigning any cogent reason. Hence the present petition.
6. Learned counsel for the petitioner submits that order rejecting the stay application has been mechanically passed without application of mind as no reason has been assigned for rejecting the same, therefore, the same is liable to be quashed.
7. In support of his submission, learned counsel for the petitioner has relied upon the judgement of this Court in the case of M/s World Solution Vs. State of UP (Writ Tax No. 931 of 2023) Neutral Citation No. 2023:AHC:188861.
8. Per contra, learned ACSC supports the impugned order and submits that no case for stay has been made out, therefore, the stay application has rightly been rejected.
9. After hearing learned counsel for the parties, the Court has perused the records.
10. By the impugned order, the stay application filed by the petitioner has been rejected. The record shows that while rejecting the stay application of the petitioner, no reason has been assigned in the impugned order. In the absence of reason, the impugned order cannot be justified in the eyes of law.
11. This Court in the case of M/s World Solution (supra) has held as under:-
“9. Admittedly from the perusal of the order dated 3.2.2023 it transpires that no reason has been assigned for cancellation of the registration of the petitioner. The order of cancellation is in the teeth of various judgments of this Court as also referred to above. The reasons are heart and soul of any judicial and administrative order. In absence of the same the order cannot be justified in the eye of law. Further since the appeal of the petitioner was dismissed on the ground of delay, this Court finds that the doctrine of merger will have no application considering the facts and circumstances of the present case.
10. In M/s Chandra Sain (supra) this Court has held as follows:
6. Learned counsel for the petitioner argues that although no fault can be found with the appellate order dismissing the appeal as Appellate Authority does not have the power to condone the delay in terms of the scheme of the Act, however, he argues that the order cancelling the registration is without application of mind; he draws my attention to the impugned order dated 13.02.2020, which does not disclose any application of mind. He, thus, argues that the quasi judicial order which has an adverse effect on the right of the petitioner to run business as guaranteed under Article 19 of the Constitution of India, the same has been done without any application of mind which is neither the intent of the Act nor can it be held to be in compliance of the mandate of Article 14 of the Constitution of India. He further argues that as the appeal has not been decided on merit, the doctrine of merger will have no application and it is only the order dated 13.02.2020 which affects the petitioner and as the same is devoid of any reasons, the same can be challenged before this Court as decided by the Hon’ble Supreme Court in the case of Whirlpool Corporation v. Registrar of Trademarks, Mumbai and Ors. – (1998) 8 SCC 1.
7. He further places reliance on the judgment of this Court in the case of Om Prakash Mishra v. State of U.P. & Ors.; Writ Tax No.100 of 2022 decided on 06.09.2022 wherein this Court had recorded that every administrative authority or a quasi judicial authority should necessarily indicate reasons as reasons are heart and soul of any judicial or administrative order.
8. In the present case from the perusal of the order dated 13.02.2020, clearly there is no reason ascribed to take such a harsh action of cancellation of registration. In view of the order being without any application of mind, the same does not satisfy the test of Article 14 of the Constitution of India, as such, the impugned order dated 13.02.2020 (Annexure – 2) is set aside. The petition is accordingly allowed.
11. In Om Prakash Mishra (supra) this Court has held as follows:
I am not inclined to accept the submission of the counsel for the petitioner in so far as it relates to the appellate order dated 29.03.2022. However, I am inclined to accept the submission of the petitioner made against the order dated 15.03.2019. A perusal of the Annexure no.2, makes it clear that no reasons whatsoever have been recorded while passing the order of cancellation of the registration of the petitioner’s firm. The order clearly being without any reason cannot be accepted to be an order in accordance with law.
It is essential that every administrative authority or a quasi judicial authority should indicate the reasons, howsoever, brief they may be before passing an order of the nature which has been done by the authority. The order passed dated 15.03.2019 has a very harsh consequences and the same being without any reason whatsoever, fails to satisfy the test of a judicial order and suffers from the vice of violation of Article 14 of the Constitution of India, as such, the order dated 15.03.2019 is set aside with direction to the petitioner to file his response to the show cause notice before the respondent no.3 who shall pass fresh order after giving an opportunity of hearing to the petitioner with all expedition. The petitioner would be at liberty to place whatever documents he pleases to rely upon in support of his defense. In view of the fact that the order dated 15.03.2019 is set aside, the appellate order, although not interfered with, is also set aside.
The writ petition is allowed in terms of the said order. “
12. It is settled law that reason is the heartbeat of every conclusion. An order without valid reasons cannot be sustained. To give reasons is the rule of natural justice. One of the most important aspect for necessitating to record reason is that it substitutes subjectivity with objectivity. It is well settled that not only the judicial order, but also the administrative order must be supported by reasons recording in it.
13. Highlighting this rule, the Hon’ble Supreme Court, in the cases of Assistant Commissioner, Commercial Tax Department, Works Contract & Leasing, Kota Vs. Shukla & Brothers, (2010) 4 SCC 785, M/s Travancore Rayon Ltd. v. Union of India, 1969 (3) SCC 868 have observed that the administrative authority and the tribunal are obliged to give reasons, absence whereof would render the order liable to judicial chastisement.
14. Once the reason has not been assigned by the competent authority for rejecting the stay application of the petitioner then on this ground alone, the impugned order cannot be sustained.
15. In view of the facts and circumstances of the case as well as law laid down by this Court, impugned orders passed in both the writ petitions cannot be sustained in the eyes of law and same are hereby quashed.
16. Both the writ petitions are allowed.
17. The matter is remanded to the respondent no. 4, who shall decide the stay application afresh by reasoned and speaking order in accordance with law expeditiously preferably within a period of six weeks from the date of production of certified copy of this order.
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