Case summary, Income Tax

Stay of demand on payment of an amount lesser than prescribed per cent of disputed tax demand: Jurisdiction of tax authorities to grant a stay

Case: Mansukhlal Amritlal Modi vs The Union of India, Bombay HC

Outcome: Assessee

Facts

  • The Assessee had not filed return of income. During the assessment proceedings, Assessing Officer treated the sale transaction amount of Rs. 2.62 Cr as the unexplained income of the under the section of the Act and added the same to the income of the Assessee as it was not disclosed in the return of income.
  • Pursuant thereto a notice of demand under section 156 of the Act to the Assessee informing that an amount of Rs.1.57 Cr was the demanded due which was required to be paid by the Assessee. Aggrieved by the impugned order of assessment, preferred an appeal before the first appellate authority.
  • In the stay application, the Assessee stated that he was a senior citizen of about 87 years of age. Though he was an Advocate by profession, because of old age and ill health, he was no longer in legal practice. Because of frequent hospitalization and medical treatment his financial condition was not sound. Thus, his bank account in the PMC Bank could not be operated because of the moratorium imposed on the bank for various reasons. In these circumstances, the Assessee prayed for a complete stay of the demand and not to take coercive action.
  • However, the revenue called upon the Assessee to pay 20% of the demand as per the instant CBDT Circular and to seek a stay of the remaining demand from him on furnishing of evidence pertaining to payment of 20%.

Key Points

  • The following guidelines should be borne in mind by the revenue while effecting recovery-
    • No recovery of tax should be made pending (a) Expiry of the time limit for filing an appeal; (b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move to a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
    • The stay application, if any, moved by the assessee should be disposed of after hearing the assessee and bearing in mind the guidelines.
    • If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay.
    • When a bank account has been attached, before withdrawing any amount therefrom, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law.
    • In exercising the power of stay, the Income Tax Officer should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate the hardship of the assessee. Though the assessing officer has made an assessment, he must objectively decide the application for stay considering that an appeal lies against his order: the matter must be considered from all its facets, balancing the interest of the assessee with the protection of the Revenue.
  • In the present facts of the case, the assessing authority while considering the stay application had to act as a quasi-judicial authority, which meant that he had to apply his mind to all relevant factors and thereafter, take a decision which is just, fair and reasonable. Though the Assessing Officer had made the assessment, nonetheless at the time of deciding stay of the demand, he must objectively decide the application for stay considering that an appeal lied against the order which in fact has been filed.
  • Therefore, the order was devoid of any reasons which reflected non-application of mind and could not be sustained.

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