Stay of Tax Recovery Granted Pending Appeal

Get the full picture - access the original judgement of the court order here

Case Name:

Kalapet Primary Agricultural Co-op. Credit Society Ltd. vs. Income Tax Officer (High Court of Madras)

W.P.No.15959 of 2015

Date: 5th June 2015

Key Takeaways:

• The court emphasized the importance of staying recovery proceedings when an appeal is pending, especially if the issue has been previously decided in favor of the assessee by a higher authority.
• The decision reinforces the guidelines set by the Central Board of Direct Taxes (CBDT) regarding the stay of demand.
• The judgment highlights the duty of assessing authorities to adhere to established guidelines and instructions when handling stay petitions.

Issue

Should the recovery of the disputed tax demand be stayed while the appeal is pending, given that the issue has been previously decided in favor of the assessee by a higher authority?

Facts

• The Kalapet Primary Agricultural Co-op. Credit Society Ltd. filed a return claiming deductions under Section 80P (of Income Tax Act, 1961) for the assessment year 2009-10.
• The Income Tax Officer rejected the claim, leading to a disputed tax demand.
• The society appealed the decision and sought a stay on the recovery of the tax demand during the appeal process.
• The assessing authority initially required the society to pay 50% of the demand as a condition for considering the stay petition.

Arguments

• Petitioner (Kalapet Society): Argued that the issue had been decided in their favor by the jurisdictional Income Tax Appellate Tribunal and that they should not be required to pay the demand while the appeal is pending.
• Respondent (Income Tax Officer): Contended that the mere filing of an appeal does not automatically warrant a stay on recovery and that the society should comply with the demand.

Key Legal Precedents

• The court referred to the CBDT’s Instruction No.1914, which outlines the conditions under which a stay of demand should be granted.
• The case of “Income Tax Officer, Ward-II(3), Coimbatore v. M/s Veerakeralam Primary Agricultural Cooperative Credit Society” was cited, where a similar issue was decided in favor of the assessee.

Judgement

The court granted a stay on the recovery of the disputed tax demand, emphasizing that the assessing authority should have considered the guidelines under Instruction No.1914. The court directed the appellate authority to dispose of the appeal on its merits within three months, and until then, the recovery proceedings should not proceed.

FAQs

Q1: Why was the stay granted?

A1: The stay was granted because the issue had been previously decided in favor of the assessee by a higher authority, and the guidelines from the CBDT supported staying the demand under such circumstances.

Q2: What does this mean for the Kalapet Society?

A2: The society is not required to pay the disputed tax demand while their appeal is pending, providing them temporary relief from the financial burden.

Q3: What are the implications of this case?

A3: This case reinforces the importance of following established guidelines for staying tax demands and highlights the need for assessing authorities to consider past decisions favoring the assessee.

1. This writ petition has been directed against the impugned order dated

18.05.2015 passed by the first respondent-Income Tax Officer, Ward-4,

Pondicherry in PAN:AAAAK1570G relating to the assessment year 2009-10, to

quash the same with a further direction to forbear the first respondent from

initiating or continuing with any proceedings for recovery of the disputed demand pursuant to the order of assessment in P.A.No./G.I.R.No.AAAAK1570G dated 10.03.2015 relating to the assessment year 2009-10.

2. Dr.Anita Sumanth, learned counsel for the petitioner submitted that the

petitioner, being a primary agricultural cooperative credit society, maintains regular books of accounts and has been filing the returns of income regularly in terms of the provisions of the Income Tax Act within the statutory period, hence, assessments were also completed by the department with the co-operation of the petitioner. While so, when the petitioner filed the return of income claiming deduction under Section 80P (of Income Tax Act, 1961) for the assessment year 2009-10, the claim of the petitioner was rejected holding that the petitioner did not satisfy the definition of 'agricultural credit society' set out in terms of the Explanation to Section 80P(4) (of Income Tax Act, 1961). Yet another grievance of the petitioner is that when the impugned assessment order dated 10.3.2015 was passed under Section 143(3) (of Income Tax Act, 1961) effecting disallowance of Rs.91,92,883/- under Section 40(a)(ia) (of Income Tax Act, 1961) for the alleged violation of Section 194A (of Income Tax Act, 1961) and Rs.3,20,686/- and Rs.27,500/- as

disallowances under Section 40(a)(ia) (of Income Tax Act, 1961) for the alleged violation of Section 194H (of Income Tax Act, 1961) and Section 194J (of Income Tax Act, 1961), the order of re-assessment under Section 143(3) (of Income Tax Act, 1961) read with Section 147 (of Income Tax Act, 1961) erroneously resulted in the determination of the income of the petitioner at Rs.1,28,87,139/- and the tax payable thereon at Rs.59,79,550/-. Aggrieved by the same, an appeal has been filed before the second respondent- Commissioner of Income Tax (Appeals), Chennai and the said appeal is pending after issuance of notice dated 4.2.2015. In this background, the grievance of the petitioner is that when the petitioner is a primary agricultural credit society and comes under the exclusion of Section 194A(viia) (of Income Tax Act, 1961), the disallowance brought under Section 40(a)(ia) (of Income Tax Act, 1961) is wholly unfounded. In any event the issue raised in the present writ petition has been decided in favour of the assessee by the jurisdictional bench of the Income Tax Appellate Tribunal 'D' Bench, Chennai in I.T.A.No.197/Mds/2013 dated 11.2.2014 (Income Tax Officer, Ward-II(3), Coimbatore v. M/s Veerakeralam Primary Agricultural Cooperative Credit Society, Coimbatore) in respect of the very same assessment year, therefore, the assessing authority cannot pass the assessment order nor refuse to grant stay during the pendency of the appeal, for the simple reason that when the petitioner, aggrieved by the impugned order of reassessment dated 10.3.2015, has preferred an appeal before the Commissioner of Income Tax (Appeals),

Chennai and along with the appeal, when the petitioner has filed a petition

before the assessing authority, the first respondent herein under Section 220(6) (of Income Tax Act, 1961) on 15.4.2015 for being treated as 'not in default' during the pendency of appeal before the appellate authority, the assessing authority arbitrarily passed an order directing the petitioner to pay 50% of the demand raised for the assessment year 2009-10 as preliminary measure even before the disposal of the stay petition. Such an approach is a clear violation of the procedure and also running contrary to the issue decided in favour of the assessee by the jurisdictional Bench of the Tribunal as mentioned supra.

3. Continuing her arguments, Dr.Anitha Sumanth contended that in spite

of bringing to the notice of the assessing authority that the petitioner is falling within the exclusion of Section 194A(vii)(a) (of Income Tax Act, 1961) being a primary agricultural credit society and the issue has been decided in favour of the assessee by the jurisdictional bench of the Tribunal in I.T.A.No.197/Mds/2013 dated 11.2.2014, more particularly, that the petitioner society does not have the resources to make any portion of the demand raised, the assessing authority has neither considered the same nor followed the instructions of the Central Board of Direct Taxes in File No.404/10/2009-ITCC dated 1.12.2009 affirming Instruction No.1914 dated 2.12.93, which mandates that stay of recovery is liable to be granted if the issue covered by orders of the superior authority, directly applicable to the present case. In support of her submissions, she also brought to the notice of this Court the various decisions of the Income Tax Appellate

Tribunal, Panaji and Chennai Benches in (1) I.T.A.Nos.1 to 3/PNJ/2012 dated

30.3.2012 (Deputy Commissioner of Income Tax, Central Cirlce, Panaji, Goa v.

M/s Jayalakshmi Mahila Vividodeshagala); (2) in I.T.A.No.174/Mds/2013 dated

23.8.2013 (Income Tax Officer v. Kasipalayam Primary Agricultural Co-operative Bank Ltd.) and (3) in I.T.A.No.197/Mds/2013 dated 11.2.2014 (Income Tax Officer v. M/s Veerakeralam Primary Agricultural Cooperative Credit Society), for the proposition that if the assessee is admittedly not a credit cooperative bank, but a credit cooperative society, the exclusion clause of sub-section (4) of Section 80P (of Income Tax Act, 1961), therefore, would not apply.

4. Taking support from the above decisions, it was contended that when

the petitioner had filed an appeal against the assessment order and the same is also pending consideration before the appellate authority, in the meanwhile, as against the demand of entire tax by the first respondent, a petition for stay was moved before the first respondent-assessing officer seeking to grant an order of stay of recovery till such time the appeal is finally heard and disposed of by the appellate authority. However, by a communication dated 20.4.2015, the petitioner was informed that the stay petition would be taken up only subject to the payment of 50% of the tax demand at once or on a proposal for making the payment of demand in installments. It was also further informed that in case of failure to respond to the said communication within a week, the stay petition would be treated as rejected and necessary coercive measures would be taken to

recover the entire demand. The learned counsel further submitted that aggrieved by the demand of 50% tax as a condition precedent even for consideration of the stay petition, the petitioner again approached the second respondent-appellate authority seeking an absolute stay of the recovery proceedings pending appeal. When the appeal/stay petition has been pending consideration before the second respondent-appellate authority, the first respondent has wrongly rejected the stay petition by order dated 18.5.2015 directing the petitioner to pay the demand at once. On this basis, the learned counsel sought the indulgence of this Court for an appropriate direction to the appellate authority to decide the appeal on merits, as otherwise irreparable loss would be caused to the petitioner.

5. On the other hand, Mr. T. Pramod Kumar Chopda, learned senior standing counsel for the respondents submitted that the writ petition cannot be

entertained for the simple reason that when the order dated 18.5.2015 passed

by the first respondent is explicitly clear that a mere pendency of the appeal would not be a ground for the petitioner to escape from the payment of the disputed liability, it is not open to the petitioner to bypass the pending appeal to maintain the present writ petition. The learned senior standing counsel also submitted that if at all the petitioner wants an early disposal of the matter, a direction may be issued to the second respondent-appellate authority to take up the stay petition and dispose of the same on merits expeditiously.

6. Replying to the said submission, the learned counsel for the petitioner

requested this Court to direct the second respondent-appellate authority to take

up the appeal itself in I.T.A.No.327/CIT(A)PDY/2013-14 for final hearing on

merits expeditiously, as the petitioner had already received the notice dated

4.2.2015 fixing the date of hearing on 16.2.2015, since adjourned to subsequent

date.

7. Heard the learned counsel on either side.

8. The circular issued by the Central Board of Direct Taxes in File

No.404/10/2009-ITCC dated 1.12.2009 affirming Instruction No.1914 dated

2.12.93 clearly enlightens the duty, responsibility and the guidelines cast on the

assessing authority for staying demand. In this context, it is appropriate to

extract the relevant portions of the Instruction No.1914 dated 2.12.93, as

follows:-

''A. Responsibility

(i) It shall be the responsibility of the Assessing

Officers and the TRO to collect every demand that

has been raised, except the following:

(a) Demand which has not fallen due;

(b) Demand which has been stayed by a Court or

ITAT or Settlement Commission;

(c) Demand for which a proper proposal for write off

has been submitted;

(d) Demand stayed in accordance with paras B & C

below.

.....

B. Stay petitions

(i) Stay petitions filed with the Assessing Officers

must be disposed of within two weeks of the filing of

petition by the taxpayer. The assessee must be

intimated of the decision without delay.

(ii) Where stay petitions are made to the authorities

higher than the Assessing Officer (DC/CIT/CC), it is

the responsibility of the higher authorities to dispose

of the petitions without any delay, and in any event

within two weeks of the receipt of the petition. Such

a decision should be communicated to the assessee

and the Assessing Officer immediately.

(iii) The decision in the matter of stay of demand

should normally be taken by Assessing Officer/TRO

and his immediate superior. A higher superior

authority should interfere with the decision of the

AO/TRO only in exceptional circumstances e.g. where

the assessment order appears to be unreasonably

highpitched or where genuine hardship is likely to be

caused to the assesee. The higher authorities should

discourage the assessee from filing review petitions

before them as a matter of routine or in a frivolous

manner to gain time for withholding payment of

taxes.

C. Guidelines for staying demand

(i) A demand will be stayed only if there are valid

reasons for doing so. Mere filing an appeal against

the assessment order will not be sufficient reason to

stay the recovery of demand. A few illustrative

situations where stay could be granted are--

(a) If the demand in dispute relates to issues that

have been decided in assessee's favour by an

appellate authority or Court earlier; or

(b) if the demand in dispute has arisen because the

Assessing Officer had adopted an interpretation of

law in respect of which there exist conflicting

decisions of one or more High Courts (not of the High

Court under whose jurisdiction the Assessing Officer

is working); or

(c) If the High Court having jurisdiction has adopted a

contrary interpretation but the Department has not

accepted that judgment.

.....“

9. A careful reading of the above guidelines clearly shows that it shall be

the duty of the assessing authority to collect every demand which has not fallen

due or has been stayed by a Court or Tribunal etc. It appears that the

jurisdictional Income Tax Appellate Tribunal 'D' Bench in I.T.A.No.197/Mds/2013

dated 11.2.2014 (Income Tax Officer, Ward-II(3), Coimbatore v. M/s

Veerakeralam Primary Agricultural Cooperative Credit Society, Coimbatore), while

dealing with a similar issue, placing reliance on the judgment of the Gujarat High

Court in the case of Commissioner of Income Tax v. Jatari Momin Vikas

Cooperative Credit Society Ltd., 2014 (2) TMI 28, has held as follows:-

''7. From the above clarification, it can be gathered

that sub-section (4) of Section 80P (of Income Tax Act, 1961) will not apply to an

assessee which is not a co-operative bank. In the case

clarified by CBDT, Delhi Coop Urban Thrift & Credit

Society Ltd., was under consideration. Circular clarified

that the said entity not being a cooperative bank,

section 80P(4) (of Income Tax Act, 1961) would not apply to it. In view

of such clarification, we cannot entertain the

Revenue's contention that section 80P(4) (of Income Tax Act, 1961) would

exclude not only the co-operative banks other than

those fulfilling the description contained therein but

also credit societies, which are not cooperative banks.

In the present case, respondent assessee is admittedly

not a credit cooperative bank but a credit cooperative

society. Exclusion clause of sub-section (4) of Section

80P, therefore, would not apply. In the result, Tax

Appeals are dismissed.

The Revenue has tried to establish that the assessee

although a credit cooperative society is carrying on

banking business and is thus not eligible. In our

opinion, the assessee is not a cooperative bank...''

10. The above observation, prima facie, brings the case of the petitioner

under the guidelines-C(i)(a) for staying demand, which says that if the demand

in dispute relates to issues that have been decided in assessee's favour by an

appellate authority or Court earlier, the demand will be stayed. While the issue

appears to be clear, this Court does not find any justification why the assessing

authority has not considered the guidelines under the Instruction No.1914 dated

2.12.93. Moreover, it is well settled legal position that all authorities, civil,

criminal and judicial, coming within the territory of the High Court, shall act in

the aid of the High Court. While so, the assessing authority is bound by the order

passed by the jurisdictional Tribunal without taking any stand that the Tribunal or

High Courts of other States are taking a different view.

11. Be that as it may, when the appeal has been filed by the petitioner

before the appellate authority along with stay petition, keeping in mind that any

further observation would have a cascading effect on the pending appeal of the

petitioner, with all hesitation, is restraining to express anything on the merits,

therefore, in the fitness of things, this Court, accepting the request made by the

learned counsel for the petitioner for a direction to dispose of the main appeal

itself, as the petitioner had received the notice dated 4.2.2015, hereby directs

the second respondent-appellate authority to dispose of the appeal in

I.T.A.No.327/CIT(A)PDY/2013-14 on its own merits within a period of three

months from the date of receipt of a copy of this order. Needless to mention that

till then, the first respondent shall not proceed with the recovery, as it is well

settled law that during the pendency of the appeal before the appellate

authority, the department is not entitled to initiate the recovery proceedings.

With the above direction, the writ petition stands disposed of. Consequently,

M.P.No.1 of 2015 is closed. No costs.

Index : yes/no 05.06.2015

Issue copy on 13.7.2015

To

1. The Income Tax Officer

Ward-4

Pondicherry

2. The Commissioner of Income Tax (Appeals)-15

121, Mahatma Gandhi Road

Nungambakkam

Chennai 600 034

T.RAJA, J.

W.P.No.15959 of 2015

05.06.2015