Court grants stay on tax demands, remands disallowance issue for fresh consideration

Case Name**: ANAND TRANSPORT VS ASSISTANT COMMISSIONER OF INCOME TAX **Key Takeaways**: 1. The court emphasized the importance of considering prima facie cases when granting interim relief in tax matters. 2. Previous favorable decisions in similar matters can be strong grounds for staying tax demands. 3. Assessing officers must provide reasoned orders when considering stay petitions. 4. The court showed willingness to intervene and provide relief when there are apparent inconsistencies or lack of reasoning in tax orders. **Issue**: The main question here was whether the assessee (Anand Transport) could establish a prima facie case for staying the tax demands raised by the Income Tax Department for the assessment year 2011-2012. **Facts**: Alright, let's break this down. Anand Transport received a tax assessment order for the year 2011-2012. The tax department made several disallowances: 1. Rs. 51,56,53,993 for payments to M/s. Jaldhi Overseas Pte. Ltd. 2. Rs. 76,57,574 for interest on borrowed amounts 3. Rs. 12,86,670 under Section 14A 4. Rs. 71,83,75,398 for discrepancies in gross receipts The company appealed to the Commissioner of Income Tax (Appeals) and filed a stay petition. When the Assessing Officer rejected the stay petition, Anand Transport filed this writ petition in the High Court. **Arguments**: Anand Transport argued that: 1. The first disallowance was already covered by a favorable High Court decision for a previous year. 2. The second disallowance was similar to an issue decided in their favor for an earlier assessment year. 3. The third disallowance was incorrect as it related to share application money, not an actual investment. 4. They needed time to provide documents for the fourth issue. The tax department, on the other hand, mainly argued that the previous High Court decision was limited to a specific period and couldn't be applied broadly. **Key Legal Precedents**: 1. The court referred to a Division Bench decision in W.A.No.952 of 2013 dated 05.02.2014, which dealt with a similar issue for the assessment year 2010-2011. 2. The judgment mentioned the case of M/s. SA Builders (158 Taxmann 74 SC), which was relevant to the interest disallowance issue. 3. The court also cited CBDT Instruction No. 1914 dated 02.12.1993, which provides guidelines for staying tax demands. **Judgement**: The court decided to: 1. Stay the demand for the first two heads (payments to Jaldhi Overseas and interest disallowance) until the appeal is decided. 2. Set aside the third head (Section 14A disallowance) and send it back to the Assessing Officer for fresh consideration. 3. Allow the tax department to proceed on the fourth head after receiving the necessary documents from Anand Transport. The court emphasized that the Assessing Officer should have provided a reasoned order when considering the stay petition, especially for the Section 14A disallowance. **FAQs**: 1. Q: What does "prima facie case" mean in this context? A: It means that on the face of it, there seems to be a good reason to grant relief. The court looks at whether there's a reasonable chance of success in the main appeal. 2. Q: Why did the court stay some demands but not others? A: The court stayed demands where there were previous favorable decisions or clear issues. For others, it either needed more information or felt the tax department's approach was reasonable. 3. Q: What's the significance of the court remanding the Section 14A issue? A: It shows that the court felt the Assessing Officer didn't properly consider the company's arguments. It's giving them another chance to make their case. 4. Q: Does this mean Anand Transport won't have to pay any tax for now? A: Not exactly. They got relief on some issues, but they still need to comply with the tax department's requests on the fourth issue about gross receipts discrepancies. 5. Q: What's the takeaway for other taxpayers from this case? A: It shows that courts are willing to provide interim relief if you can show a strong prima facie case, especially if you have favorable precedents. It also emphasizes the importance of reasoned orders from tax authorities.

In this writ petition, the petitioner seeks for issuance of a Writ of Certiorarified Mandamus, to quash the order dated 15.10.2014 passed by the 1st respondent / Assessing Officer relating to the assessment year 2011-2012.

2. Though elaborate submissions were made by the learned counsel for the petitioner and the learned counsel for the Revenue, all the submissions need not be referred to, nor the factual contention placed before this Court in the form of affidavit and oral submissions be narrated in toto for disposal of this writ petition.

3. The 1st respondent passed an order of assessment under Section 143(3) of the Income Tax Act dated 28.03.2014 for the assessment year 2011-2012 on the following terms:

Add:

(1) Addition on account of disallowance u/s 40(a)(ia) of Income Tax Act on disallowance of payment made to M/s.Jaldhi Overseas Pte.Ltd. without deducting tax at source Rs.51,56,53,993/-

(2) Addition on account of disallownace of interest Rs.76,57,574/-

(3) Discrepancy/short reflection of gross receipts vis-a-vis 26AS credits etc Rs.71,83,75,398/-

(4) Disallowance u/s.14A Rs.12,86,670/- Assessed Income Rs.128,75,33,795/-

As against the order of assessment, the petitioner has preferred an appeal to the Commissioner of Income Tax (Appeals), Chennai on 25.04.2014 along with a stay petition. In the stay petition, the petitioner raised several contentions with regard to each of the heads under which the assessment was finalized. Subsequently, another letter dated 19.08.2014 was filed on behalf of the petitioner reiterating the contentions raised. Thereafter, the 1st respondent by impugned order disposed of the stay petition and the said order is impugned in this writ petition.

4. Heard the learned counsel for the petitioner and the learned Standing Counsel for the respondents.

5. Before this Court examines the correctness of the impugned order dated 15.10.2014, it is to be noted that while considering an application for interim relief, the original authority as in this case or the appellate authority should bear in mind the cardinal principles, which have been laid down by series of decisions, which are to be taken into consideration for the purpose of granting interim relief. The purpose and intent for granting interim relief is to preserve status quo and to ensure that the appeal remedy availed by the petitioner, should not be a futile exercise. However, in revenue matters, the said principle may not be fully applied, but the principles shall be broad guidelines, under which the application for interim relief is to be considered. In fact, the CBDT has issued instructions on 02.12.1993 vide Instruction No.1914,wherein guidelines have been issued for staying demand. One of the illustrative situations pointed out in the Circular is that if the demand in dispute relates to issues that have been decided in assessee's favour by an appellate authority or Court earlier, then that would have been the sufficient reason to stay the recovery of demand.

6. Bearing the above principles in mind, if the impugned order is perused, it is seen that observations were made under the following four heads:

i) Disallowance made to M/s.Jaldhi Overseas Pvt., Ltd., - Rs.51,56,53,993/-.

ii) Disallowance of interest on amount borrowed and advance to Sister company for development of group business – Rs.76,75,574/-.

iii) Disallowance u/s 14A – Rs.12,86,670/-.

iv) Disallowance for difference in 26AS – Rs.71,83,75,398/-. Since the observations made in the impugned order revolve around the above four heads, this Court feels it appropriate to deal with each head separately.

[7] - 1 st Head:

i) Insofar the 1st head, viz., Disallowance made to M/s.Jaldhi Overseas Pvt., Ltd., is concerned, it is to be pointed out that the issue is squarely covered by the decision of the Hon'ble Division Bench of this Court in W.A.No.952 of 2013 dated 05.02.2014. The said writ appeal arose out of an order passed in the interim application filed in W.P.No.11360 of 2013 and the Hon'ble Division Bench disposed of the said W.P.No.11360 of 2013 as well as the writ appeal by an order dated 05.02.2014. The prayer in the writ petition was to quash the order of assessment dated 29.03.2013 for the assessment year 2010-2011.

ii) Before the Hon'ble Division Bench, Revenue contended that revision order of the Director of Income-Tax has been restricted to first quarter, namely April to June 2009, and therefore, it cannot be made applicable. This submission on behalf of the Revenue was rejected by the Hon'ble Division Bench, pointing out that the order passed in the revision is to be read as a whole and a careful scrutiny of the said order would disclose that the Revisional Authority has arrived at a categorical finding that the transaction between the assessee and non-resident company would be taxable only in Singapore and not in India. Accordingly, the Hon'ble Division Bench allowed the writ petition insofar it related to disallownace under Section 49(a)(i) for alleged non-deduction of tax at source in terms of Section 195(1) of the Income Tax Act. The said order pertained to the assessment year 2010-2011.

iii) Subsequently, M.P.No.1 of 2014 was filed by the petitioner, seeking for certain correction in the order passed by the Hon'ble Division Bench dated 05.02.2014. The miscellaneous petition was ordered by an order dated 20.06.2014. While disposing of the said petition, the Hon'ble Division Bench noticed that the order passed by the Hon'ble Division Bench dated 05.02.2014 has been dispatched to the respondents on 07.02.2014 itself and though nearly four months had elapsed, no SLP has been filed and as per the counter affidavit filed in this miscellaneous petition, the Department has taken steps to file an SLP, but the fact remains that SLP has not been filed till the date on which this Court has reserved orders in this petition.

iv) In the light of the order passed by the Hon'ble Division Bench of this Court, this Court is of the view that the issue, which is raised for consideration with regard to the 1st head is prima facie covered by the decision of the Hon'ble Division Bench. Therefore, it is a good ground for granting stay of the demand. Accordingly, the demand, which has been raised on the petitioner under the 1st head shall remain stayed till the disposal of the appeal by the Commissioner of Income Tax (Appeals).

[8] - 2nd Head:

i) Regarding the observation made in this head, namely, disallownace of interest on amount borrowed and advance to Sister company for development for group business, it is seen that the identical issue has been raised for the earlier assessment year, namely, 2009-2010, wherein the petitioner had filed appeal before the Commissioner of Income Tax (Appeals) and pleaded for deletion of the disallowance by relying upon the judgment of the Hon'ble Supreme Court in the case of M/s.SA Builders (158 Taxmann 74 SC). The Commissioner of Income Tax (Appeals) by order dated 24.12.2012 accepted the submission made by the petitioner therein and deleted the disallowance. Against the said order of CIT(Appeals), an appeal has been preferred before the Income Tax Appellate Tribunal. It is stated that the said appeal is pending and no interim order has been granted by the Tribunal in favour of the Revenue.

ii) Under such circumstances, this Court is of the view that with regard to the 2nd head, the petitioner has established prima facie case. Though it is stated by the learned Standing Counsel for the Revenue that it is for the assessment year 2009-2010, yet legal principles, which were adopted by CIT (Appeals) as on date holds good and it is for the appellate authority in the present appeal to consider that issue independently. Therefore, the demand with regard to the 2nd head shall also remain stayed.

[9] - 3rd Head:

i) As regards this head, i.e., disallowance under Section 14A, it is seen that the petitioner, apart from filing stay petition on 25.04.2014, has also submitted a letter to the 1st respondent on 19.08.2014. In the said communication as well as in the stay petition, the petitioner has pointed out the following as regards the 3rd head:

“In respect to the addition u/s 14 A, as discussed in the stay petition out of the Total Investment appearing in the Balance Sheet of Rs.4,59,32,000, Rs.4,50,00,000 relates to share application money paid to Nalwa Chrome (P) Ltd. Hence this cannot be treated as an investment since no shares were allotted and the application money was returned back to the petitioner in AY 2012-13. Hence, there is no question of Income that can be earned from Share application money pending allotment and 14A does not get attract in this transaction.”

ii) Though the said submission was made by the petitioner, the 1st respondent has not assigned any reason either accepting or rejecting the petitioner's contention, but only proceeded to direct the petitioner to pay tax due immediately. The 1st respondent, while considering the stay petition filed by the petitioner pending disposal of appeal before the Commissioner of Income Tax (Appeals) against the assessment order is acting in a difference capacity, i.e., the 1st respondent should dispassionately examine the stay petition to find out as to whether the petitioner is able to prove prima facie case for staying the demand passed by the Assessing Officer or the Officer in the same cadre. Therefore, the scheme of the Act reposes such duty on the Assessing Officer, while examining the stay petition, filed by the assessee requesting for stay of the demand till the appeal against the order of assessment is heard by the Commissioner of Income Tax (Appeals).

iii) However, in the instant case, this principle has not been adhered to and the order is a non speaking order. Accordingly, the disallownace under this head (3rd head) is set aside and the matter is remanded back to the respondent for fresh consideration.

[10] - 4th Head:

i) Insofar as this head is concerned, namely, disallowance for difference in 26AS, the 1st respondent has granted liberty to the petitioner to file necessary documents and statements and granted time. The 1st respondent is entitled to proceed with in accordance with law, after receipt of documents and statements from the petitioner.

11. In the result, the writ petition is allowed. For the sake of brevity, it is reiterated that the demand in respect of 1st and 2nd heads shall remain stayed till the disposal of the appeal by the Commissioner of Income Tax (Appeals). The 3rd head is set aside and the matter is remitted to the 1st respondent for fresh consideration after affording an opportunity of personal hearing to the petitioner. With regard to the 4th head, the 1 st respondent is entitled to proceed in accordance with law on receipt of records from the petitioner as called for. No costs.

Consequently, connected miscellaneous petition is closed.

06.11.2014

Index: Yes/No

Internet : Yes/No

T.S.SIVAGNANAM, J.

To

1. The Assistant Commissioner of Income Tax, Business Circle-I, Room No.309, III Floor, Wanaparthy Block, 121, Mahathma Gandhi Road, Nungambakkam, Chennai-600 034.

2. The Joint Commissioner of Income Tax, Business Circle-I, 121, Mahathma Gandhi Road, Nungambakkam, Chennai-600 034.

3. The Commissioner of Income Tax (Appeals) – VI 121, Mahathma Gandhi Road, Nungambakkam, Chennai-600 034.