Tapuriah Jain & Associates

KHANDELWAL LABORATORIES PVT. LTD. VS. DCIT 
(BOMBAY HIGH COURT)

WRIT PETITION (L) NO. 710 OF 2016

DATED : 28.03.2016

Summarised Judgement (Scroll for Complete Judgement)

Citation : S. 220(6): Dept directed to redeposit moneys collected illegally by attachment of assessee’s bank account during pendency of stay application. A order passed on a stay application must give reasons for the refusal to stay the demand.

Facts of the Case : This petition filed under Article 226 of the Constitution of India challenges the attachment of  the  petitioners'  bank accounts under Section 226(3) of the Income Tax Act, 1961 (the Act) in Punjab National Bank, Nariman Point, Mumbai,  Axis Bank, Dadar, Mumbai , HDFC, Fort, Mumbai, Dena Bank Amli, and  State Bank of India, Byculla, Mumbai. The petitioners have also made a grievance that after attachment an amount of Rs.7,59,185/­ from HDFC Bank, Fort, Mumbai and Rs. 34,265/­ from State Bank of India, Byculla, Mumbai have been withdrawn without giving any notice to the petitioner before withdrawal in defiance of the law laid down by this Court in  UTI Mutual Fund Vs. Income Tax Officer, 345 ITR 71.

The petitioners state that a communication dated 8th  March, 2016 from the Assessing Officer to the Punjab National Bank indicating the attachment of the petitioners' bank account under Section 226(3) of the Act was forwarded to it by Punjab National Bank. It appears that similar communications have been sent to other bankers  also. Thereafter, on 14th March, 2016, the petitioners received a communication dated 10th  March, 2016 from the HDFC Bank, FORT, Mumbai to the effect that the an amount of Rs.7,59,185/­ had been withdrawn by the Revenue from  the  petitioners'bank accounts.Similarly, the petitioners have now learnt that an amount of Rs.34,265/­ to the credit of its account with State Bank of India was also withdrawn by the Revenue. 

However, Section 220(6) of the Act provides   that   where   an   assessee   has   filed   an   appeal against the assessment order to the Commissioner of Income Tax (Appeals) then, an assessee is entitled to file an application to the Assessing Officer to treat the assessee as not being an assessee in default, consequent to the  notice under Section 156 of the Act, till such time as its appeal filed before the Commissioner of Income Tax (Appeals) is disposed of.This right to file an application under Section 220(6) of the Act is a statutory right available to an assessee, if he chooses to so exercise.

Observation of Court : In this case, the petitioners' application for stay dated 14th April 2015 under Section 220(6) is still pending disposal before the Assessing Officer.  This is so as the order dated 20th August, 2015 as reproduced hereinabove of the Assessing Officer has only dealt with the petitioners' Rectification Application and not with the petitioners' Application for Stay. Although, Mr. Malhotra learned Counsel for the Revenue submits that the third paragraph in that order calling upon the petitioners to pay the entire demand within five days, is a communication rejecting the stay application filed by the petitioner.

Thus, any action to recover taxes adopting coercive means is not permissible till the   petitioner's application for stay under Section 220(6) of the Act is disposed of.

Therefore, the action of AO in attaching the petitioner’s bank account under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts  from  the  bank accounts is without jurisdiction and bad in law.  The petitioners have a  statutory  right  to  its  stay  application  being  heard  and  disposed  of before the Revenue can adopt any coercive proceedings on the basis of the  Notice  of  demand  under  Section  156  of  the Act  issued  to  the assessee.  This action on the part of the Assessing Officer, if permitted, would lead Section 220(6) of the Act becoming redundant.

Judgement : In the above view, the Notice under Section 226(3) of the Act issued by the Assessing Officer to the petitioners' bankers are quashed and set aside.  Further, the Assessing Officer is directed to deposit the amount of Rs.7,59,185/­ in HDFC Bank, Fort, Mumbai and Rs.34,265/­ in State Bank of India, Byculla, Mumbai within a period of one week from today. The Assessing Officer to dispose of the petitioner’s pending stay application in accordance with law.

The Writ Petition is disposed of in the above terms. No order as to costs.

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Complete Judgement

KHANDELWAL LABORATORIES PVT. LTD. VS. DCIT 
(BOMBAY HIGH COURT)

WRIT PETITION (L) NO. 710 OF 2016

DATED : 28.03.2016

(i) The Scheme of the Act provides that on passing of an assessment order under Section 143(3) of the Act, any sum is payable as tax, penalty or fine, then the Revenue would issues a notice of demand under Section 156 of the Act. Section 220 of the Act provides that within a period of 30 days from the date of the service of the demand notice under Section 156 of the Act, the assessee concerned has to make necessary payment to the person and place mentioned in the Notice of demand. In case, the assessee fails to make the payment in terms of the notice of demand, he would be considered to be an assessee in default, enabling the Revenue to adopt coercive measures for recovery of the amount due. However, Section 220(6) of the Act provides that where an assessee has filed an appeal against the assessment order to the Commissioner of Income Tax (Appeals) then, an assessee is entitled to file an application to the Assessing Officer to treat the assessee as not being an assessee in default, consequent to the notice under Section 156 of the Act, till such time as its appeal filed before the Commissioner of Income Tax (Appeals) is disposed of. This right to file an application under Section 220(6) of the Act is a statutory right available to an assessee, if he chooses to so exercise.

(ii) In this case, the petitioners’ application for stay dated 14th April 2015 under Section 220(6) is still pending disposal before the Assessing Officer. This is so as the order dated 20th August, 2015 as reproduced hereinabove of the Assessing Officer has only dealt with the petitioners’ Rectification Application and not with the petitioners’ Application for Stay. Although, Mr. Malhotra learned Counsel for the Revenue submits that the third paragraph in that order calling upon the petitioners to pay the entire demand within five days, is a communication rejecting the stay application filed by the petitioner. We do not read it as such. In any case, it has been repeatedly held by this Court beginning with KEC Vs. Balkrishna, 251 ITR 158 and also later decision in UTI Mutual Fund Vs. Income Tax Officer, 345 ITR 71, that the stay application must give some prima facie reasons in the context of the submission for stay made by the petitioner while disposing it. The order dated 20th August, 2015 is bereft of any consideration of the petitioners’ primary contention that the issue arising in its appeal before the CIT (Appeals) is concluded in its favour by virtue of Tribunal’s order for Assessment Year 2000-01 in the petitioners’ own case. Thus, according to us, the application for stay filed on 14th April, 2015 filed jointly with the Rectification Application is not yet been disposed of by the Assessing Officer. The order dated 20th August, 2015 has only disposed of the petitioners’ Rectification Application.

(iii) Thus, any action to recover taxes adopting coercive means is not permissible till the petitioner’s application for stay under Section 220(6) of the Act is disposed of.

(iv) Therefore, the action of the Assessing Officer in attaching the petitioners’ bank accounts under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts from the bank accounts is without jurisdiction and bad in law. The petitioners have a statutory right to its stay application being heard and disposed of before the Revenue can adopt any coercive proceedings on the basis of the Notice of demand under Section 156 of the Act issued to the assessee. This action on the part of the Assessing Officer, if permitted, would lead Section 220(6) of the Act becoming redundant.

(v) In the above view, the Notice under Section 226(3) of the Act issued by the Assessing Officer to the petitioners’ bankers are quashed and set aside. Further, the Assessing Officer is directed to deposit the amount of Rs.7,59,185 in HDFC Bank, Fort, Mumbai and Rs.34,265/in State Bank of India, Byculla, Mumbai within a period of one week from today. The Assessing Officer to dispose of the petitioners’ pending stay application in accordance with law.