Recovery proceedings Initiation before stay application disposal is illegal

 Brief of the case:

• The Hon’ble Bombay High Court in the case of Khandelwal Laboratories Pvt. Ltd. DCIT while disposing of writ petition held that the any action of revenue  to recover taxes adopting coercive means is not permissible till the assessee’s  application for stay under section 220(6) of the Act is disposed of.
• Further, an application for stay should be disposed off by a speaking order. Merely ordering assessee to pay demand within certain period of time doesn’t free AO from his responsibility to dispose off stay application.

 Facts of the case:

• In the case of assessee, assessment order was passed by AO on 27th March, 2015 under Section 143(3) read with Section 263 of the Income Tax Act, 1961 for the AY 2009-10 determining the tax payable at Rs.46.23 crores.
• Aggrieved assessee filed an appeal against the order before CIT(A) and also filed an application on 14th April, 2015 to the Assessing Officer seeking rectification of the order dated 27th March, 2015 as well as seeking a stay of the demand on the ground that the issue on the basis of which demand raised had been  concluded in its favour by a decision of the Tribunal in assessee’s  own case for the A.Y. 2000-01.
• The rectification application of assessee was disposed off by AO on 20^th Aug,2015 wherein AO dismissed the application for divergent reasons and requested the assessee to pay the entire demand within 5 days from the receipt of this letter.
• The assessee received a communication dated 8th March, 2016 from Punjab National Bank indicating the attachment of the  bank account. Thereafter, on 14th March, 2016, the petitioners received a communication dated 10th March, 2016 from the HDFC Bank, Fort, Mumbai to the effect that the an  amount of Rs.7,59,185 had been withdrawn by the Revenue from the petitioners’ bank accounts. Similarly, the petitioners have now learnt that an amount of Rs.34,265/- withdrawn from its  State Bank of India Account  by the Revenue.

• Aggrieved assessee filed a writ petition before Bombay High court compelling the coercive action taken by the Revenue.

 Contention of the Revenue:

• The learned counsel for the revenue submitted that the assessee’s rectification and stay application was disposed off by a single order dated 20^th August,2015. In that order AO rejected rectification application and asked assessee to pay the demand within 5 days. Such order to pay demand within 5 days clearly indicate that the AO rejected the stay application. Thus, along with rectification application stay application also got disposed of.
• Therefore, the action of revenue in attaching assessee’s bank accounts and withdrawing sums therefrom was right in law as the assessee failed to pay the demand and became assessee in default who likely to face the recovery proceedings under the law.

 Held by the Hon’ble High Court:

• High court observed that right to file a stay application u/s 220(6) is a statutory right available to an assessee, if he chooses to so exercise. Once assessee’s chooses to exercise such right then AO is bound to dispose of assessee’s application for stay by an speaking order (i.e. with proper reason of acceptance/rejectance).
• In the present case, the petitioner’s application for stay dated 14th April 2015 under Section 220(6) is still pending disposal before the Assessing Officer. In the order dated 20^th Aug,2015 the AO has only dealt with the assessee’s rectification application and not with the stay application.
• The argument of revenue that the stay application stand disposed of by rejecting rectification application stating assessee to pay the demand in five days is not acceptable because AO must give some prima facie reasons in the context of the submission for stay made by the petitioner while disposing it.
• Thus, the application for stay filed on 14th April, 2015 filed jointly with the Rectification Application is not yet been disposed of by the Assessing Officer as the order dated 20th August, 2015 has only disposed of the petitioners’ Rectification Application.
• Therefore, any action to recover taxes adopting coercive means is not permissible till the petitioner’s application for stay under section 220(6) of the Act is disposed of. The action of AO in attaching the

petitioners’ bank accounts under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts from the bank accounts is without jurisdiction and bad in law.

• In result the petition was decided in favour of assessee and court directed the AO to re-deposit the withdrawn amount in respective bank accounts of petitioners within a week of the order.