Court Halts Tax Recovery, Orders ITO to Consider Assessee's Stay Application

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Case Name: 

The Pirna Urban Co-operative Credit Society Ltd.(Through its Authorized Representative Mr. Sujit Kunju Kunju) Vs Income Tax Officer (High Court of Bombay)

Writ Petition No.180 of 2020

Date: 25th February 2020

Key Takeaways:

1. The court emphasized the importance of considering stay applications before enforcing tax recovery.

2. It highlighted that tax refunds due to an assessee should be taken into account when demanding tax payments.

3. The judgment underscores the need for proper procedure in tax recovery processes.

Issue: 

The main question here is: Should the Income Tax Officer have considered the assessee's stay application and tax refund claim before issuing a notice to the bank for tax recovery?

Facts: 

1. The ITO issued a notice on 12.02.2020 to Ratnakar Bank Ltd., asking them to remit ₹33,42,040/- from the petitioner's account for income tax dues.

2. The petitioner (our company) had already filed an appeal against the assessment order that led to this demand.

3. On 15.01.2020, the ITO told the petitioner that they could get a stay on the entire amount if they paid 20% (about ₹13,37,462/-) of the demanded amount.

4. The petitioner replied on 22.01.2020, saying they were due a tax refund of ₹23,66,633/- and asked if the 20% could be adjusted from this refund.

5. Without responding to this request, the ITO went ahead and issued the notice to the bank on 12.02.2020.

Arguments:

The petitioner's lawyer, Mr. Panandiker, argued:

1. The ITO should have considered their 22.01.2020 application before issuing the bank notice.

2. The petitioner wasn't refusing to pay, just asking for an adjustment from their due refunds.

The ITO's lawyer, Ms. Razaq, countered:

1. The amount was due and payable.

2. There was no stay granted by any authority, so the notice was justified.

Key Legal Precedents:

Interestingly, this case doesn't mention any specific legal precedents. It seems to be more about following proper administrative procedures in tax matters.

Judgement:

The court sided with the petitioner. Here's what they decided:

1. The ITO should have considered the 22.01.2020 application before issuing the bank notice.

2. They deferred the execution of the 12.02.2020 notice.

3. If the bank hasn't acted on the notice yet, they shouldn't until further orders from the ITO.

4. The ITO was ordered to hear the petitioner and decide on their stay application within six weeks.

5. Until then, the ITO can't insist on compliance with the 12.02.2020 notice.

FAQs:

1. Q: Does this mean the petitioner doesn't have to pay the tax?

  A: Not exactly. It just means the ITO has to properly consider their stay application first.

2. Q: What happens to the tax refund the petitioner claims they're owed?

  A: The court has asked the ITO to consider this claim when deciding on the stay application.

3. Q: Is this the end of the case?

  A: No, this is just about the recovery process. The main appeal against the assessment order is still ongoing.

4. Q: What's the significance of this judgment?

  A: It emphasizes that tax authorities need to follow proper procedures and consider all relevant factors before enforcing tax recovery.

5. Q: What should other taxpayers learn from this case?

  A: If you have pending refunds or valid reasons for a stay, make sure to communicate these to the tax authorities promptly and formally.

1.Heard Mr. Gaurang Panandiker for the Petitioner and Ms. Amira Razaq, Standing Counsel for the Respondent. 2. Rule. Rule is made returnable forthwith at the request and with the consent of the learned counsel for the parties.

3. The challenge in this petition is to the notice dated 12.02.2020 issued by the Income Tax Officer (ITO) to the petitioner's bank i.e. Ratnakar Bank Ltd., requiring the bank to remit an amount of `33,42,040/- as dues towards the payment of income tax by the petitioner.

4. Mr. Panandiker points out that the petitioner has already instituted an appeal against the assessment order which has become the basis for the demand for the aforesaid sum of `33,42,040/-. Besides, he points out that the ITO himself, vide communication dated 15.01.2020 addressed to the petitioner – assessee, has made it clear that the recovery of the entire amount can be stayed pending disposal of the appeal, provided, the petitioner, pays 20% of the demanded amount, which, in the present case, totally comes to `13,37,462/- or thereabouts. Mr. Panandikar points out that the petitioner, vide his application dated 22.01.2020 has pointed out to the ITO that the petitioner, is due to get refund of `23,66,633/- from the Income Tax Department and therefore, the amount of `13,37,462/- may be adjusted from out of the refunds due to the petitioner. Mr. Panandiker submits that the petitioner's application dated 22.01.2020 is yet to be decided by the ITO and in these circumstances there was no 3 WP No.180/20 dtd. 25.02.20 justification for the issuance of the impugned notice dated 12.02.2020.

5. Ms. Razaq, the learned Standing Counsel for the respondent submits that since, an amount of `33,42,040/- is due and payable by the petitioner – assessee and further, since, there is no stay granted by any authority, there was no error in the issuance of the notice dated 12.02.2020.

6. We have considered the rival contentions.

7. In terms of the communication dated 15.01.2020 addressed by the ITO, it is clear that the demand can be stayed by the ITO provided, the assessee, pays 20% of the demanded amount pending the appeal against the assessment order. The 20% of the demanded amount comes approximately to `13,37,462/-. It is not as if the petitioner, has declined to pay this amount. The petitioner, by its application dated 22.01.2020 has merely pointed out that the tax refunds due to the petitioner are to the tune of `23,66,633/-. The petitioner, has therefore only requested that necessary adjustments be made from out of the tax refunds due to the petitioner.

8. According to us, the ITO, was required to consider the petitioner's application dated 22.01.2020 which is in fact, an application seeking for stay on the recovery of the entire demanded amount before issuing the impugned notice dated 12.02.2020. On this short ground, we are inclined to defer the execution of the impugned notice dated 12.02.2020. This is more so because Mr. Panandiker, the learned counsel for the petitioner on instructions, makes a statement that despite the impugned notice dated 12.02.2020 as yet, his bankers, have not remitted this amount to the Income Tax Department.

9. Therefore, if the petitioner's bankers have till date, not acted on the impugned notice dated 12.02.2020, then, they need not act upon the same until they receive further orders from the ITO. The ITO, to hear the petitioner – assessee and dispose of the application dated 22.01.2020 seeking, in effect, a stay on the recoveries as expeditiously as possible and in any case within a period of six weeks from today. Until the petitioner's application dated 22.01.2020 is disposed of, the ITO to not insist upon compliance with the impugned notice dated 12.02.2020.

10. The petitioner – assessee to appear before the ITO on 04.03.2020 at 10.30 a.m. and file an authenticated copy of this order. Further, the petitioner, to cooperate with the ITO in the matter of disposal of the application or the request in the application dated 22.01.2020.

11. The petitioner is also authorized to communicate the authenticated copy of this order to the Ratnakar bank Ltd., so that, the bank, need not act upon the impugned notice dated 12.02.2020 until it receives further orders from the ITO in this regard.

12. Rule is disposed of in the aforesaid terms. There shall be no order as to costs.

13. All concerned to act on the basis of an authenticated copy of this order.