Court directs assessee to pursue appeal, pay Rs. 10 lakh to stay recovery proceedings

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Case Name:

Padmavathy Ravishankar Vs Income Tax Officer (High Court of Madras)

WP.No.35051 of 2015 MP.No.1 of 2015

Date: 16th November 2015

Key Takeaways:

1. The court is encouraging the use of proper appeal channels within the tax system.

2. A substantial payment can be used to stay recovery proceedings during an appeal.

3. The court is balancing the interests of both the taxpayer and the tax department.

Issue: 

The main question here is: Should the court intervene in the tax assessment process, or should the assessee be directed to pursue their appeal through the regular tax authority channels?

Facts: 

Our assessee bought some property back in 2006. But there was a bit of a mess with the title, which got sorted out in 2011. This led to a new sale deed being made in December 2011, showing a much higher property value. The tax folks saw this and were like, "Hey, wait a minute!" They issued a notice, did an assessment, and demanded a whopping Rs. 54,05,590 in taxes. The assessee wasn't happy about this and filed an appeal. While waiting for the appeal to be heard, they asked for the tax collection to be put on hold. The tax office said, "Okay, but you gotta pay 50% of the tax first." That's when our assessee decided to take it to the High Court with this writ petition.

Arguments:

The assessee's side is saying, "Look, it's the same property in both sale deeds. We didn't actually pay any extra money in 2011, it was just for the record." They're also arguing that an extra Rs. 9,00,000 the tax office added as unexplained investment isn't fair because they've already explained it.

The tax department, on the other hand, is saying, "Nope, the property in the 2011 deed isn't exactly the same as the 2006 one. The 2011 deed is what really gives you ownership."

Key Legal Precedents:

Interestingly, this judgment doesn't cite any specific legal precedents. It's more focused on the facts of this particular case and how to proceed with the appeal process.

Judgement:

So, here's what the court decided:

1. They're not going to dive into the nitty-gritty of who's right or wrong about the property value.

2. Instead, they're telling the assessee to go ahead with their appeal to the tax authorities.

3. But here's the kicker - the assessee needs to pay Rs. 10,00,000 within 8 weeks.

4. If they do that, the tax department can't try to collect the full amount while the appeal is going on.

5. The court also told the tax appeal authority to decide on the case as quickly as possible.

FAQs:

1. Q: Does this mean the assessee won the case?

  A: Not exactly. The court didn't decide on the merits of the case. They just set up a way for the appeal to proceed.

2. Q: Why did the court ask for Rs. 10 lakhs instead of 50% of the tax amount?

  A: The court probably thought this was a fair "middle ground" that would show the assessee's good faith without being too burdensome.

3. Q: What happens if the assessee doesn't pay the Rs. 10 lakhs?

  A: Then the tax department could potentially proceed with recovery actions for the full amount.

4. Q: Does this decision set a precedent for other tax cases?

  A: While it's not a binding precedent, it does show the court's approach to balancing taxpayer rights with the tax department's duties.

5. Q: What's the next step for the assessee?

  A: They need to pay the Rs. 10 lakhs within 8 weeks and then pursue their appeal with the tax authorities.

1. In this Writ Petition, the Petitioner seeks for adirection to the 2nd Respondent to dispose of the appeal filed against the assessment order and to quash the impugned notice dated 29.07.2015 of the 1st Respondent, demanding 50% of the demanded tax in order to stay the recovery proceedings, pending disposal of the appeal.

2. The case of the Petitioner is that the Petitioner filed Income Tax Return for the assessment year 2012-13 on 27.3.2013, admitting an income of Rs.3,57,010/-. The Petitioner purchased UDS of 1189 sq.ft. with 139 sq.ft. common passage and buildings thereon, comprised in S.No.207/24, New T.S.No.22 Part, Block No.30, Koyambedu Village, Chennai, by a registered sale deed dated 3.2.2006 for a total sale consideration of Rs.25,09,940/-. Later, the Petitioner came to know that there was a title dispute in the said lands between the Tamil Nadu Housing Board and one S.Gowri, which was settled out of court in the year 2011, pursuant to which, a sale deed dated 12.05.2011 was executed in respect of 6.06 grounds in favour of said S.Gowri, who in turn executed a sale deed dated 29.12.2011 in favour of the Petitioner. Though the market value of the property in the sale deed dated 29.12.2011 is shown as Rs.1,15,28,000/-, no consideration was paid by the Petitioner. However, a notice under Section 143(2) (of Income Tax Act, 1961) dated 23.9.2013 was issued. The defect in the title due to the change in the area of the property was sought to be rectified by the Petitioner by the sale deed dated 12.08.2011. The Petitioner explained to the 1st Respondent that the properties conveyed by the said two sale deeds are one and the same and that the property conveyed under the sale deed dated 29.12.2011 is the only area of the property reconveyed after rectification. However, the 1st Respondent by assessment order dated 31.03.2015, demanded a tax of Rs.54,05,590/- including interest, taking into consideration the market value of the property as Rs.1,15,28,000/- and adding Rs.9,00,000/- as unexplained investment, to the total income. As against the same, the Petitioner preferred an appeal before the 2nd Respondent and filed a stay petition before the 1st Respondent to stay the collection of tax, pending the appeal. By the impugned order, dated 29.7.2015, collection of tax was stayed till the disposal of the appeal, on payment of 50% of the demanded tax. As against the same, this Writ Petition has been filed.

3. The learned counsel for the Petitioner contended that the defect in the title due to the change in the area of the property was sought to be rectified by the Petitioner by the sale deed dated 12.08.2011 and after rectification, the properties conveyed under the two sale deeds are one and the same and that the Petitioner has not paid any consideration as stated in the sale deed dated 29.12.2011, which was confirmed by the vendors and the addition of Rs.9,00,000/- is unwarranted, as the same has been explained. The learned counsel for the Petitioner has submitted that the Petitioner is willing to pursue the appeal and to pay a substantial sum, as a condition to stay the recovery proceedings, till the disposal of the appeal.

4. On the above averments and the submissions of the learned counsel for the Petitioner, this court heard the learned standing counsel for the Respondents and considered the submissions made by the learned counsel on either side and also perused the materials placed on record.

5. According to the Respondents, the property conveyed in the original deed is not exactly the same as the property mentioned in the sale deed dated 29.12.2011 and hence, only by the sale deed dated 29.12.2011, the ownership is legally vested with the assessee. According to the Petitioner, only for record purpose, the total market value of the property was mentioned in the sale deed dated 29.12.2011 as Rs.1,15,28,000/- as per the directions of Sub Registrar, taking into consideration the guide line value prevailed in the year 2011. Be that as it may. It appears that the property in question, which was earlier registered inadvertently came to be registered once again, which lead the assessing authority to pass the impugned assessment order under the provisions of the Income Tax Act, 1961, as against which, the Petitioner filed an appeal before the 2nd Respondent and in the stay application filed by the Petitioner, the Petitioner was directed to pay 50% of the demanded tax in order to stay the recovery proceedings till the disposal of the appeal, which is challenged in this Writ Petition. Since the Petitioner is willing to pursue the appeal before the 2nd Respondent, she can be permitted to raise all the grounds and submissions made in this Writ Petition before the 2nd Respondent on payment of substantial sum to stay the recovery proceedings, pending the appeal.

6. Accordingly, considering the facts and circumstances of the case, without going into the merits of the case, the Petitioner is directed to pay a sum of Rs.10,00,000/- (Rupees Ten Lakhs Only) within a period of eight weeks from the date of receipt of a copy of this order. On such payment, the Respondents are restrained from initiating the recovery proceedings against the Petitioner, till the disposal of the appeal by the 2nd Respondent. The 2nd Respondent is directed to dispose of the appeal, on merits and in accordance with law, as expeditiously as possible.

7. With the above directions, this Writ Petition is disposed of. No costs. Consequently, the connected MP is closed.

Sd/- Assistant Registrar(CS IV)

//True Copy// Sub Assistant Registrar

Srcm

To: 1.The Income Tax Officer, Non Corporate Ward 23 (2) Tambaram, Chennai-45 2.The Commissioner of Income Tax, Appeals-10 Nungambakkam, Chennai-34 +1cc to Mr.K.Ravi, Advocate, S.R.No.61912 WP.No.35051 of 2015 AR IV CA(25/11/2015)