High Court imposes penalty of Rs. 50,000/ on Income Tax Department for harassment of assessee in illegally attaching bank account and denying stay of demand
ABCAUS Case Law Citation:
ABCAUS 2862 (2019) (04) HC
Important Case Laws Cited/relied upon by the parties
KEC International Ltd. Vs. B.R. Balkrishnan, 251 ITR 158
MMRDA Vs. Deputy DIT (Exemption) (2015) 230 Taxman 178
In the instant case, a Petition under Article 226 of the Constitution of India was filed by the assessee seeking inter alia quashing of order of provisional attachment u/s 281B of the Income Tax Act, 1961 Act (the Act) passed by the Assessing Officer (AO) setting aside of notice issued under section 226(3) of the Act, attaching Petitioner’s bank accounts.
The Petitioner was a trust established under the Indian Trusts Act, 1882. The Petitioner had been granted a certificate of registration by the Securities and Exchange Board of India (SEBI) as Venture Capital Fund making the Petitioner eligible for exemption u/s 10 (23FB) of the Act while computing its taxable income
For the subject Assessment Year, the Petitioner filed its return of income claiming exemption under Section 10(23FB) of the Act and also exemption of dividend income earned from mutual funds under Section 10(35) of the Act. This return of income was accepted under Section 143(1) of the Act.
Later, the Assessing Officer issued a notice u/s 148 of the Act and the Petitioner’s assessment was taken up for scrutiny, to examine the Petitioner’s claim for exemption under Section 10(23FB) of the Act;
However, during the course of the scrutiny assessment proceedings, the AO passed an order u/s 281B without notice to the Petitioner for provisional attachment u/s of the Act, attaching the Petitioner’s Bank Account.
Subsequently, the AO issued notices under Section 226(3) of the Act to the Petitioner’s Bankers requesting to pay the amounts available towards income tax demands. On objection by the Petitioner that there was no amount due from the Petitioner when the notice was issued, the AO issued a corrigendum substituting the words ‘demand has fallen due’ with the words ‘demand is to be fallen due’;
In the meantime, the Assessing Officer passed an order u/s 143(3) read with Section 147 of the Act rejecting the claims for exemption u/s 10(23FB) of the Act and exemption u/s 10(35) of the Act on dividend for Mutual funds. This resulted in a huge demand in crores;
The Petitioner immediately preferred an appeal to the CIT(A) and also applied to AO u/s 220(6) of the Act, seeking a stay of the demand.
However, the Assessing Officer rejected the Petitioner’s application for stay pending disposal of its appeal by the CIT(A). The Petitioner then made a representation to the Pr. CIT, seeking a complete stay of the outstanding demand.
During the course of hearing before the Pr. CIT, the Petitioner was informed that the AO had withdrawn a huge amount from the Petitioner’s bank account. The Petitioner was informed about a proposed adjustment of the refunds due with the demand. This was without the Petitioner being given any notice and/or intimation of the withdrawal of the amount from the Petitioner’s bank account and/or adjustment for refund. The Petitioner made its submissions for complete stay as the issue of exemption under Section 10(23FB) of the Act, was concluded on merits in its favour by orders of the Appellate Authorities for earlier Assessment Years;
Later, Pr. CIT passed order in respect of stay and recorded that after adjustment of the refund with the aggregate demand, the balance demand would be stayed till the disposal of the appeal by the CIT(A).
After that, the Petitioner received an order/notice from the Assessing Officer seeking to adjust the refund against the demand.
It was at this stage that the Petitioner had filed the aid Petition before the Hon’ble High Court.
The Hon’ble High Court observed that both the impugned order passed by the Assessing Officer and Pr. CIT had completely ignored the binding directions of the Court of the manner in which the stay applications are to be disposed of and the test to be applied while considering grant of a stay of demand under Section 220(6) of the Act pending disposal of appeal by CIT(A).
The Hon’ble opined that on the above ground itself, the impugned order of the AO and that of Pr. CIT were unsustainable.
The Hon’ble High Court noted that the eligibility of the Petitioner for claim under Section 10(23FB) stood concluded in its favour by orders of the CIT(A) and ITAT for different Assessment years. However the AO refused to follow the same on the ground that the orders were subject matters of further appeal before a higher forum by the Department.
The Hon’ble High Court opined that while dealing with an application for stay of demand pending the disposal of an appeal before the CIT(A), the demand relatable to the assessment order being contrary to the orders of appellate authorities ought to be stayed for the mere asking. Notwithstanding the above settled position in law, both the AO and the Pr. CIT in while rejecting the stay, choose not to deal/consider the submission on the above account made by the petitioner.
The Hon’ble High Court expressed that normally, on setting aside the orders under Section 220(6) of the Act, it restore the application to the Authorities for fresh consideration in accordance with law. However, looking at the conduct of the Assessing Officer and Pr. CIT, restoring the stay application to them for fresh disposal would not serve any purpose.
Joining the date and time wise action and the intent of the both AO and the Pr. CIT the Hon’ble High Court stated that the conduct shown was not expected of the Officers of the State. It was unbecoming of the State. The manner in which the Assessing Officer was communicating with the assessee, it was planned attempt to make it impossible for the petitioner to challenge the communication as by the time the petitioner came to know of the proposed action on receipt of the communication, the action had already taken place making it a fait accompli.
The Hon’ble High Court pointed out that the adjustment of refund due for the other years with the demand for the subject Assessment Year under Section 245 of the Act was contrary to the law laid down by the Court that in terms of Section 245 of the Act, which empowers the Revenue to set off or adjust the amounts to be refunded against any amounts remaining payable by the person concerned under the Act is a discretionary remedy. However, before the adjustment is done, intimation would under Section 245 of the Act to the party is mandatory. This intimation enable a party to point out any factual errors or any other development which would warrant nonadjustment of the refund against the demand payable for the consideration of the Assessing Officer.
Accordingly, the Hon’ble High Court set aside the order the Assessing Officer and that of Principal Commissioner of Income Tax and we granted an unconditional stay of the demand u/s 220(6) till the petitioner’s appeal before the CIT(A) is disposed of.
Also, the Hon’ble High Court set aside the notice issued u/s Section 226(3) of the Act by the AO to the petitioner’s bankers and directed the Revenue to deposit the amount withdrawn from the petitioner’s bank account along with appropriate interest at the bank lending rate. The Court also set aside the order passed under Section 281B of the Act.
The Hon’ble High Court strongly expressed its dismay at the conduct of the Officers of the Revenue in the matter. The Hon’ble High Court stated that the least that is expected of the Officers of the State is to apply the law equally to all and not be over zealous in seeking to collect the revenue ignoring the statutory provisions as well as the binding decisions of this Court.
The Hon’ble High Court opined that the action of the AO and Pr. CIT indicated that they applied a separate set of rules in the case of the Petitioner and the Petitioner was being singled out for this unfair treatment.
The Hon’ble High Court stated that the desire to collect more revenue cannot be at the expense of Rule of law and directed Income Tax Department to pay cost of Rs. 50,000/ to the Petitioner for the unnecessary harassment, it had to undergo at the hands of the Revenue.