Gujarat H.C : Where Assessing Officer as well as Principal Commissioner did not disclose reasons which persuaded them to approve collection of 50 per cent of tax demand during pendency of appellate proceedings, order passed by them being in violation of principles of natural justice, could not be upheld

High Court Of Gujarat

Ladhabhai Damjibhai Panara vs. Pr.CIT

Section : 250

Akil Kureshi And Biren Vaishnav, JJ.

Special Civil Application No. 14507 Of 2017

September  12, 2017 

JUDGMENT

Akil Kureshi, J. – The petitioner has challenged an order dated 30.06.2017 passed by the Principal Commissioner of Income Tax, Valsad, under which, the request of the petitioner to limit the requirement of pre-deposit pending petitioner’s appeal against the order of assessment to 15% of the demand came to be rejected. The Principal Commissioner reiterated the stand of the department that the petitioner must deposit 50% of the dues in order to enjoy stay against recovery of the rest of the amount.

2. Brief facts are as under.

3. Petitioner is an individual and is a government contractor carrying out construction activities. For the assessment year 2014-15, the petitioner had filed the return of income on 29.11.2014 declaring total income of Rs. 48,20,010/-. The Assessing Officer undertook the scrutiny assessment and passed the order under section 143(3) of the Act on 30.12.2016 determining total income of the petitioner at Rs. 3,38,00,260/-. In such order the Assessing Officer made sizable additions. Resultantly, the tax demand of Rs. 1,34,09,720/- arose. The petitioner paid 15% thereof i.e. Rs. 20,12,000/- on 28.01.2017 and requested for suspension of the rest of the disputed demand pending appeal which the petitioner filed on 31.01.2017.

4. The Assessing Officer however under a letter dated 04.05.2017, conveyed to the petitioner that he must, as approved by the Principal Commissioner, deposit 50% of the total demand pending such appeal. The petitioner was asked to pay such sum within four days of the receipt of the letter, failing which the petitioner would be treated as a defaulter and the department would initiate coercive recovery.

5. The petitioner thereupon appealed to the Principal Commissioner and requested that the demand, barring 15% which the petitioner had already deposited, be kept in abeyance till disposal of the appeal. The Principal Commissioner by the impugned order, rejected such a request on the ground that in terms of para 4(B)(a) of the CBDT circular dated 29.02.2016, it was open for the authorities to increase the demand pending appeal above 15%. He was of the opinion that the examples cited in the said sub-para are not exhaustive. He noted that the assessee had not submitted any documentary evidence showing financial hardships. He also recorded that the petitioner was granted several opportunities of personal hearing, despite which, no one remained present for the petitioner. The Commissioner therefore proceeded to decide the matter on the basis of the written submissions made by the assessee. It is this order the petitioner has challenged in the present petition.

6. In order to streamline the process of granting stay and to standardize the quantum of lump-sum payment required to be made by the assessee as a precondition for stay of demand disputed before the Commissioner of Income Tax (Appeals), the CBDT in its circular dated 29.02.2016 has issued certain guidelines. Relevant portion of this circular reads as under:

“3. It has been reported that the field authorities often insist on payment of a very high proportion of the disputed demand before granting stay of the balance demand. This often results in hardship for the taxpayers seeking stay of demand.

4. In order to streamline the process of grant of stay and standardize the quantum of lump sum payment required to be made by the assessee as a pre-condition for stay of demand disputed before CIT (A), the following modified guidelines are being issued in partial modification of Instruction No.1914:

(A) In a case where the outstanding demand is disputed before CIT (A), the assessing officer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category discussed in para (B) hereunder.

(B) In a situation where,

(a) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.) or,

(b) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.)

The assessing officer shall refer the matter to the administrative Pr. CIT/CIT, who after considering all relevant facts shall decide the quantum proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand.

(C) In a case where stay of demand is granted by the assessing officer on payment of 15% of the disputed demand and the assessee is still aggrieved, he may approach the jurisdictional administrative Pr. CIT/CIT for a review of the decision of the assessing officer.

(D) The assessing officer shall dispose of a stay petition within 2 weeks of filing of the petition. If a reference has been made to Pr. CIT/CIT under para 4(B) above or a review petition has been filed by the assessee under para 4 (C) above, the same shall also be disposed of by the Pr. CIT/CIT within 2 weeks of the assessing officer making such reference or the assessee filing such review, as the case may be.

(E) In granting stay, the Assessing Officer may impose such conditions as he may think fit. He may, inter alia,—

(i) require an undertaking from the assessee that he will cooperate in the early disposal of appeal failing which the stay order will be cancelled.

(ii) reserve the right to review the order passed after expiry of reasonable period (say 6 months) or if the assessee has not cooperated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the above situations:

(iii) reserve the right to adjust refunds arising, if any, against the demand, to the extent of the amount required for granting stay and subject to the provisions of section 245.”

7. Perusal of the circular would show that conscious of the fact that the insistence of the field authorities on payment of a very high proportion of a disputed demand before granting stay of the balance amount often resulted in hardship of the taxpayers seeking stay of the demand, the CBDT was prompted to issue the said circular. The purpose of issuing the guidelines was to streamline the process of granting the stay and to standardize the quantum of lump-sum payment for adjourning stay of the remaining amount pending appeal before the appellate Commissioner. Two main purposes for issuance of circular therefore were to obviate the hardship of the tax payers and to standardize the quantum of lump-sum payment is required to be made.

8. In this background, if we peruse the guidelines, clause (A) of para 4 prescribes as a general thumb rule insistence of collecting 15% of the demand pending appeal, subject to which stay would be granted against recovery of the rest of the amount. Clause (B) of para 4 envisaged situations where this standard formula of 15% predeposit would be deviated from. Under sub-clause (a) it would be open for the Revenue authorities to demand higher amount than 15% and if sub-clause (b) applied, such requirement could be reduced. Clause (E) of para 4 authorizes the Assessing Officer to impose suitable conditions to safeguard the interest of the Revenue.

9. Sub-clause (a) of clause (B) of para 4 envisages that where the Assessing Officer is of the view that the nature of addition leading to demand is such that collection of amount higher than 15% is warranted, the Assessing Officer would refer the matter to the Principal Commissioner who after considering all relevant aspects would decide the quantum of demand to be paid by the assessee to enjoy stay pending appeal. In this sub-clause, by way of example, it is pointed that such cases requiring collection of higher amount than 15% would be where addition on the same issue has been confirmed by the appellate authorities in earlier years or the decision of the jurisdictional High Court or Supreme Court is in favour of the Revenue or addition is based on credible evidence collected in a search or survey operation etc.

10. When we peruse the scheme of the circular, it would become clear that while intending to streamline the procedure for granting the stay pending appeal on condition6 of pre-deposit, the CBDT never intended to completely eliminate the discretion of the concerned authority in insisting on collecting higher (or lower as the case may be) percentage of the disputed demand than the prescribed 15%. Para 3 itself uses the word guidelines which under normal circumstances be understood as directions for general application. Sub-clause (a) of clause (B) of para 4 itself leaves sufficient discretionary powers. Clause (E) of para 4 permits the Assessing Officer to impose suitable conditions to protect the interest of the Revenue while granting stay against recovery of the further amount. In that view of the matter, the Commissioner was correct in recording in the impugned order that the examples cited in sub-clause (a) of clause (B) of para 4 enabling the Revenue authorities to increase the percentage of predeposit over 15% are not meant to be exhaustive. The instances cited in the said sub- clause are merely by way of providing examples. However, the fair reading of the circular which aims to bring in a certain standardization in the process of collecting disputed tax pending appeal, would persuade us that the increase of 15% outside of the examples cited in sub-clause (A) should be in special or exceptional cases after recording reasons.

11. Insofar as the present order is concerned, there are two fundamental flows due to which the same may be set aside. First is that the Principal Commissioner cited the non-appearance of the petitioner during personal hearings as the main ground for rejecting the request for reduction of predeposit. Though he did refer to the petitioner’s written submissions, the grounds raised in the written submissions were not met with. The main reason for rejecting the request of the petitioner was that he could not demonstrate any financial hardship. Financial hardship need not be the sole ground on which increase in predeposit of 15% can be opposed. Further, if the petitioner was not interested in personal hearing, his written submissions could and should have been taken into consideration before deciding his request.

12. There is yet another defect in the said order. As noted, the Assessing Officer in the present case proposed collection of amount pending appeal at the rate of 50% of the disputed demand. He also obtained approval of the Commissioner in terms of the said circular which must have been by citing his reasons. The Principal Commissioner or any other authority without disclosing such reasons which had weighed with the Assessing Officer and which had persuaded the Commissioner to authorize the Assessing Officer to increase the demand from the petitioner, confirmed the demand rejecting the petitioner’s objections. This was in breach of principles of natural justice. When the petitioner had no idea on what grounds the authorities prima-facie thought that the standard formula of granting stay on depositing 15% of the disputed tax demand would not be appropriate, it was incumbent upon the Revenue to put such reasons to the petitioner enabling the petitioner to meet with such grounds and oppose higher collection by raising suitable defense.

13. In the result, impugned order dated 30.06.2017 is set aside. The Principal Commissioner shall pass a fresh order after first providing the reasons which had weighed with the Assessing Officer in proposing and the Principal Commissioner in approving collection of 50% of the demand pending appeal to the petitioner, giving him reasonable time to respond. Counsel for the petitioner clarified that the petitioner is not interested in personal hearing, instead would make written representation and submissions. The Principal Commissioner shall decide the issue bearing in mind the observations made above and on the basis of such further representation and objections of the petitioner. Till then, there shall be no further recovery.

14. Petition is disposed of.

[Citation : 399 ITR 539]