Court Overturns Tax Stay Order, Demands Detailed Reasoning

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Case Name: 

Equity Intelligence India Private Limited (Rep. by its Director, Abhilash Varghese) Vs Deputy Commissioner of Income Tax and Anr. (High Court of Kerala)

WP(C).No.10002 of 2020(A)

Date: 29th June 2020

Key Takeaways:

1. Tax authorities must provide detailed reasoning in stay orders.

2. Mechanical application of circulars without considering specific arguments is not acceptable.

3. Quasi-judicial authorities are expected to give a fair hearing and address all arguments presented.

Issue: 

Did the Commissioner of Income Tax (Appeals) err in mechanically applying a circular to demand 20% payment of disputed tax without considering the petitioner's specific arguments and relevant circulars?

Facts:

1. Equity Intelligence India Private Limited is a 'Portfolio Manager' registered under the Companies Act .

2. For the assessment year 2017-18, the company's net income was determined as Rs.17,15,01,720/- .

3. For the assessment year 2018-19, a demand of Rs.44,30,632/- was raised .

4. The company appealed against these assessments and filed stay applications .

5. The appellate authority dismissed the stay applications, ordering the company to deposit 20% of the demanded amount .

Arguments:

Petitioner's Arguments:

1. The appellate authority erroneously dismissed the stay applications based on a Circular dated 31.07.2017.

2. The authority didn't consider the arguments or Circular dated 29.02.2016, which provided options for similarly situated persons.

Respondent's Arguments:

1. The Standing Counsel argued that other connected matters not demanding 20% payment wouldn't apply as they pertained to demands under Section 80P (of Income Tax Act, 1961).

Key Legal Precedents:

While no specific case laws were cited, the judgment refers to:

1. Circular dated 31.07.2017 by CBDT 

2. Circular No. 6 of 2016 dated 29.02.2016 issued by the Central Board of Direct Taxes 

3. CBDT Instruction 1914 

Judgment:

1. The High Court set aside the impugned order (Ext.P14) .

2. The matter was remitted back to the Commissioner of Income Tax (Appeals) - I .

3. The Commissioner was directed to reconsider the stay applications for assessment years 2017-18 and 2018-19 .

4. The Court ordered a detailed hearing and decision within two months .

5. No coercive action to be taken against the petitioner until then .

FAQs:

1. Q: Why did the High Court set aside the original order?

  A: The Court found the order lacked proper reasoning and was passed in a sketchy and mechanical manner.

2. Q: What does the judgment mean for the petitioner?

  A: The petitioner gets another chance to present their case for a stay on tax payment, with the assurance of a more detailed hearing.

3. Q: Does this judgment change any tax laws?

  A: No, but it emphasizes the need for tax authorities to provide reasoned orders and consider all relevant arguments and circulars.

4. Q: What happens next in this case?

  A: The Commissioner of Income Tax (Appeals) must reconsider the stay applications within two months, providing a detailed order after giving the petitioner a fair hearing.

5. Q: Can the tax department take any action against the petitioner during this period?

  A: No, the Court has ordered that no coercive action be taken against the petitioner until the Commissioner's new decision.

Petitioner, a company registered under the Companies Act, is a 'Portfolio Manager' and through instant writ petition assailed Ext.P14 impugned order dated 20.03.2020, whereby applications for stay submitted along with Exts.P5 and P12 appeals preferred against the assessment orders pertaining to assessment years 2017-18 and 2018-19, have been disposed of by commanding the petitioner to pay 20% of the demanded amount. In support of the aforementioned prayer, it is averred that the petitioner company invests the surplus funds from its principal business of Portfolio Management in equities of Indian Companies, apart from parking the funds in Bank accounts.

2. For the assessment year 2017-18, the petitioner submitted return showing total income and net tax payable. But the same was not accepted resulting into issuance of notice under Section 143(2) (of Income Tax Act, 1961) and after scrutiny of books of accounts, Ext. P2 assessment order dated 27.12.2019, the net income of the petitioner company was determined as Rs.17,15,01,720/-. Similarly for the assessment year 2018-19, a demand of Rs.44,30,632/- was raised. The petitioner preferred Exts. P5 and P12 appeals under Section 246 (of Income Tax Act, 1961) along with stay applications.

3. Adv. Sri.P.K. Ravi Sankar, learned counsel for the petitioner submits that the appellate authority vide Ext.P14 impugned order has erroneously dismissed the applications for stay relying upon Circular dated 31.07.2017 commanding the petitioner to deposit 20% of the demanded amount and there is no reference to the arguments or Circular dated 29.02.2016, whereby an option was given to the similarly situated persons for keeping the sale proceeds either in capital gain or in stock-in-trade.

4. Issue notice before admission.

5. Adv. Sri. Navaneeth N. Nath for Sri. Jose Joseph, learned Standing Counsel accepts notice for respondents and submits that the other connected matters pertaining to disposal of the stay application by not demanding 20% of demanded amount, would not apply as they pertained to demand under Section 80P (of Income Tax Act, 1961) and do not deny the fact that there is no advertance to the Circular or the arguments alleged to have been submitted on behalf of the petitioner in support of interim stay.

6. Having heard learned counsel for the parties and appraised the paper books, I am of the view that Ext.P14 impugned order is not only bereft of the reasonings but has been passed in a most sketchy and mechanical manner. Ext.P14. Operative part of the order dated 20.03.2020 is extracted hereunder:-

"With reference to your petition for stay of collection of demand and WP(C) No. 4618 of 2020(B) of High Court of Kerala filed by you in the above mentioned cases. Please note that the CBDT's order in O.M. No.404/72/93-ITCC dated 29.02.2016 and in Office Memorandum dated 31.07.2017 "20% of the disputed demand should be paid, where the demand is contested before CIT(A)."

Taking an overall view of the facts and circumstances of the case, further as per CBDT lnstruction 1914 and O.M. Dated 31.07.2017, the appellant should pay 20% of the disputed demand immediately and pursue the appeal. Stay is granted for balance demand on the condition of payment of disputed demand till the decision of appeal."

7. Even the assessing officer had also referred to the Circular No. 6 of 2016 dated 29.02.2016 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, but interpreted in a different context. Quasi- judicial authorities like Commissioner of Income Tax (Appeals) are also legitimately expected to refer to the arguments submitted in support of the interim prayer sought in support of the memorandum of appeal preferred against the assessment orders and cannot blindly apply the Circular, as in the instant case. Even the order do not reflect whether opportunity of hearing was given to the petitioner nor any advertance to any arguments. Such order cannot escape the scrutiny of the Court, while exercising the power of judicial review under Article 226 of the Constitution of India.

8. In view of what has been noticed above, Ext.P14 impugned order is set aside and the matter is remitted to the Office of the Commissioner of Income Tax (Appeals) - I, to consider the stay applications filed along with Exts.P5 and P12 appeals in respect of assessment years 2017-18 and 2018-19 and pass detailed order, after affording opportunity of hearing to the petitioner. Let this exercise be undertaken within a period of two months and still that time, no coercive action shall be taken against the petitioner.

The writ petition is disposed of.

Sd/-

AMIT RAWAL

JUDGE