Initiation of Recovery Proceeding without before disposing stay application is invalid

IN THE ITAT HYDERABAD BENCH ‘A’

Capital IQ Information Systems India (P.) Ltd.

versus

Assistant Commissioner of Income-tax, Cir. 1(2), Hyderabad

IT APPEAL NO. 1961 (HYD.) OF 2011

STAY APPLICATION NO. 96 (HYD.) OF 2012

[ASSESSMENT YEAR 2007-08]

JUNE 15, 2012

ORDER

D. Karunakara Rao, Accountant Member

By this application, assessee seeks stay of recovery of outstanding demand pending hearing and disposal of its appeal ITA No. 1961/Hyd/2011 for assessment year 2007-08 by this Tribunal.

2. Briefly stated, facts leading to the filing of the present application are that the assessee is engaged in Information Technology enabled services and business support services to the parent company. Assessment for the year under appeal, was completed invoking the provisions relating to the Transfer Pricing, under S. 143(3) of the Act read with S. 144C of the Act, determining the income of the assessee at Rs. 14.49 crores, as against returned income of Rs. 8.29 crores. The assessing officer raised the demand of Rs. 3,30,51,041 which includes tax component of Rs. 1,97,86,736 and interest segment of Rs. 1,32,74,305.

3. During the proceedings before us, learned counsel for the assessee filed a copy of the notice under S. 226(3) dated 6.6.2012 regarding the attachment of the bank of account of the assessee with Oriental Bank of Commerce, Ameerpet Branch, Hyderabad. Learned counsel mentioned that such attachment made by the assessing officer when the assessee’s application for stay of recovery is still pending, is not proper. Learned counsel attempted to highlight the high handed approach of the officer. Further, learned counsel mentioned that the demand raised is so huge that the assessment order falls in the category of high pitched assessment as the assessed income is almost twice that of the returned income. Learned counsel took us through the instructions of the CBDT, at page 23 of the paper-book, setting out the circumstances in which recovery proceedings cannot be initiated by the assessing officer. He mentioned that when the assessment order is not a speaking one, notwithstanding the financial soundness of the assessee, stay must be granted as per para 2 of the said circular.

4. Assessee’s counsel took objection to the manner in which the provisions of S. 220(6) were invoked in this case, without taking any decision on the stay application of the assessee pending before the assessing officer. It is unfortunate, according to the learned counsel, that the Revenue authorities did not bother to inform the assessee about the fact of attachment on the bank account of the assessee, which in fact, has ultimately been informed to the assessee by the bank.

5. Learned counsel for the assessee relied on a number of decisions, wherein considering the high pitch assessments made determining the income of the concerned assessees have been determined in multiples of the returned incomes, stay of recovery of outstanding demand has been justified, which may be tabulated hereunder-

6. Highlighting the unfair assessment order of the AO/TPO, the learned counsel mentioned that the assessee outsourced the database from the known databases (i) Capitaline Plus and (2) Prowess. At the back of the assessee, the assessing officer picked up the comparables from the database from unknown sources, in violation of the set principles of natural justice. The counsel relied on the arguments contained in para 1.4 of the Annexure G to the present Stay Application, at page 11 thereof. Further, he reiterated by stating that in all probability, the assessment may have to be set aside by the Tribunal in view of the violations caused to the principles of natural justice and the enquiries carried out at the back of the assessee, without meeting the objections raised by the assessee before the TPO/Assessing officer, DRT, etc. Regarding the net margins, learned counsel submitted that the assessing officer determined the assessable net margins at very high figures, without granting due adjustments to the assessee.

7. Referring to the financial balance of convenience in matters of payment of tax, the learned counsel filed a status report indicating available cash at page 1 of the paper-book, according to which as on 31st May, 2012, there is only an amount of Rs. 36,94,528, on account of total cash available of Rs. 10,73,31,886 as against cash requirement for the month of June of Rs. 10,36,37,358. He submitted that any recovery of outstanding demand by the Department at this point of time, would seriously harm the smooth running of the business by the assessee.

8. In response to a query from the Bench as to the assessee’s willingness to pay any part of the outstanding demand, learned counsel mentioned that he would be in a position to pay the taxes provided, easy instalment facility is granted.

9. The Learned Departmental Representative on the other hand, opposed the request of the assessee for stay of recovery of outstanding demand. If at all, any stay is ordered, he pleaded that at least 50% of the demand may be directed to be paid by the assessee.

10. The learned counsel for the assessee, submitted in view of the stand of the Revenue on the present application, that the assessee would be in a position to pay an amount of Rs. 15-lakhs per month, subject to stay of recovery of the balance outstanding demand, pending hearing and disposal of appeal.

11. We heard the parties and perused the material available on record. This is a fact that the assessed income of Rs. 14.49 crores is nearly twice the returned income of Rs. 8.29 crores. It is also a fact that the assessing officer initiated the recovery proceedings without passing any order on the stay application of the assessee. It is also a fact that the recovery proceedings under S. 220(6) were initiated without attending to or expressly rejecting the stay application filed by the assessee before the assessing officer. In our opinion, this approach is certainly not appreciated. So also, in the manner of picking up the comparables for applying the TNMM method, rejecting the comparables provided by the assessee, we find there is lack of transparency and the assessing officer failed to honour the set principles of natural justice. The assessing officer should have provided opportunity as to why the comparables relied upon by the assessee are not acceptable. We also find that the objections raised by the assessee before the lower authorities were not met by passing a speaking order. On these issues, the arguments made out by the learned counsel for the assessee cannot be dismissed outright. Considering the above aberrations, the assessment made has to fall under the high-pitched category, and in view of the guidelines provided by the CBDT, more particularly in para-2 of the circular referred to above, the present application of the assessee, may have to be allowed. Regarding the financial position of the assessee and the capacity to pay the arrears, nothing is brought on record by the Revenue to suggest that the net cash available position for the month of June, 2012 is much more than Rs. 36 lakhs (rounded off). As such, the assessee is willing to pay the whole of the demand, at least the tax component, if easy instalment is granted. We have also discussed in the preceding paras that the Revenue has not attended to the stay application filed by the assessee before them. Considering the above, we are of the opinion that the assessee deserves grant of conditional stay, which is accordingly granted subject to the following conditions-

(a)  The assessee shall pay the whole of tax component of the demand amounting to Rs. 1.97 crores (rounded off).

(b)  We shall grant instalment facility for the payment of the above demand;

(c)  Each instalment shall be Rs. 15 lakhs per month.

(d)  The first instalment shall be paid by 30th June, 2012 and each successive instalment shall be paid by the last date of each succeeding calendar month.

Subject to the above conditions, recovery of balance outstanding demand is stayed for a period of six months from the date of this order or till the disposal of the appeal of the assessee, viz. ITA No. 1961/Hyd/2011, whichever is earlier.

12. In view of the above order granting conditional stay in favour of the assessee, Department is directed to lift forthwith the attachment under S. 226(3) on the bank accounts with Oriental Bank of Commerce and others, if any, of the assessee. Parties are directed to not to seek any adjournment on frivolous grounds and cooperate in the early disposal of the assessee’s appeal.

13. In the result, Stay Application of the assessee is partly allowed.

NF