TMI Blog2000 (7) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under section 143(3), the Assessing Officer issued the receipts from various licensees as income but in regard to expenditure on repairs and renovation, the Assessing Officer was of the view that about 75 per cent. of the expenditure is of capital nature. He accordingly disallowed the claim of the assessee on account of repairs to the extent of Rs.23,49,631, but allowed depreciation at the rate of 10 per cent. Besides, some other additions were made in respect of expenditure on travelling, etc. The assessment order is dated March 15, 1999. The assessee had filed an appeal to the Commissioner of Income-tax (Appeals). A request had been made to the Assessing Officer under section 220(6) for not treating the assessee as in default till the disposal of the appeal by the Commissioner of Incometax (Appeals). The Commissioner of Income-tax (Appeals) disposed of the appeal of the assessee vide order dated February 24, 2000, a copy of which was served upon the assessee on March 7, 2000, confirming the addition on account of repairs and renovation. The Assessing Officer issued a letter dated March 16, 2000, to the assessee informing him about the rejection of the appeal by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very filed by the assessee at the time the Assessing Officer resorted to the coercive action of attachment of the bank account and recovering the amount therefrom. That the Assessing Officer had himself allowed three days time for payment of the demand from the date of service of letter (i.e., March 29, 2000) but had resorted to coercive action before the expiry of three days from the date of the service of his letter. That the Commissioner of Income-tax was wrong to dispose of the stay application without giving an opportunity of being heard to the assessee. That the recovery of the disputed demand was made by resorting to coercive action notwithstanding the decision of the jurisdictional High Court of Bombay in the case of Mahindra and Mahindra Ltd. v. Union of India [1992] 59 ELT 505, where it was held that is was highly improper for the customs authorities to encash the bank guarantees before the expiry of the statutory period prescribed for appeal to the Tribunal. It is further submitted that the Tribunal has the power to grant stay of recovery till disposal of the appeal. The Assessing Officer had recovered the demand illegally as a result of which the power of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Departmental Representative, on the other hand, contended that the Tribunal has no power to direct the Assessing Officer to refund the tax. It was contended that if the amount has been recovered illegally the assessee could approach the High Court for redress. However, the Tribunal in exercise of its powers for grant of stay does not have the power to grant refund of tax even when it is recovered illegally. The learned Departmental Representative further contended that in this case the amount has not been recovered illegally. The Assessing Officer had waited till the decision of the Commissioner of Income-tax (Appeals) for the recovery of the disputed demand. It was only when the Commissioner of Income-tax (Appeals) had decided the appeal against the assessee that the Assessing Officer recovered the amount from the bank. Referring to the provisions of section 226(3), the learned Departmental Representative contended that the requirement of law is that the assessee should be given a copy of the notice issued under section 226(3) but it was not necessary for the Assessing Officer to first issue the notice to the assessee and then to the parties. In this case as and when ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to give an opportunity of being heard to the assessee and is he required to pass a speaking order on the stay application of the assessee ? We will first consider the scheme of the Act. When any sum is determined as payable in consequence of any order passed under the Income-tax Act, 1961, the Income-tax Officer is required to serve upon the assessee a notice of demand under section 156 in the prescribed form specifying the sum so payable. After the service of the demand notice the assessee gets a right of appeal against the assessment order. If the decision of the Assessing Officer is accepted, then the demand becomes absolute and the Assessing Officer is free to recover the demand in accordance with the provisions of the Act relating to the recovery of the said demand. The assessee, however, may dispute the demand by filing an appeal under section 246/246A of the Act against the assessment order within thirty days of the service of the demand notice/assessment order. Section 220(6) empowers the Assessing Officer to treat the assessee as not being in default so long as the appeal under section 250 of the Income-tax Act, 1961, remains pending with the first appellate authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the customs authorities were not justified to recovery the disputed demand by encashment of the bank guarantee during pendency of the stay application and before the expiry of the statutory period of three months for filing the appeal. The Department was accordingly directed by the Bombay High Court to pay back the entire amount recovered by encashing the bank guarantee. Therefore, it is evident that when the assessee is having a right to seek extension of time/stay of recovery of the disputed demand pending an appeal before the respective authorities, it will be unreasonable to hold that during the intervening period the Assessing Officer has unfettered powers of resorting to coercive action for recovery of the disputed demand. The rationale behind the decision of the Bombay High Court in the case of Mahindra and Mahindra Ltd. [1992] 59 ELT 505, is that the authorities cannot by their actions render the provisions of the Act as in-effective and nugatory. If the Assessing Officer is allowed to resort to coercive action within the time allowed for filing of appeal to the Tribunal, the power of the Tribunal to grant stay of recovery pending an appeal will be rendered ineffect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the said letter, issued a notice to the Standard Chartered Bank under section 226(3) attaching the bank account and collecting the sum of Rs. 19,43,000 from them. This action of the Assessing Officer is highly improper and contrary to various decisions of the Tribunal and High Courts. It has been impressed upon the Assessing Officer, time and again, that coercive action for the recovery of the disputed demand should not be resorted to when an application for stay of recovery is pending before any authority. The Bombay High Court in the case of Mahindra and Mahindra Ltd. [1992] 59 ELT 505, has also held that it is highly improper for the Revenue authorities to recover the disputed demand when they are informed about the pendency of the stay application. There is another instance of the Assessing Officer s action demonstrating the high-handedness and the callous approach. The Assessing Officer had given effect to the order of the Commissioner of Income-tax (Appeals) vide his order purported to have been passed on March 21, 2000. This was followed by a demand notice pursuant to the said order. The order giving effect and the demand notice are both dated March 21, 2000. The outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal after the receipt of the order of the Commissioner of Incometax (Appeals) had not expired. The action of the Assessing Officer was also highly improper in so far as he had been informed about the filing of the appeal in the Tribunal and pendency of the stay application. We accordingly hold that in the peculiar facts and circumstances of the case the Assessing Officer has unjustifiably recovered the sum of Rs. 19,43,000 from the Standard Chartered Bank. The question that arises is as to whether the Tribunal has the power to direct refund of the tax recovered by the Assessing Officer without the authority of law. In this connection reference may be made to the decision of the Supreme Court in the case of ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815. In this case their Lordships of the Supreme Court held as under (headnote) : The statutory power under section 254 carries with it the duty in proper cases to make such orders for staying recovery proceedings pending an appeal before the Tribunal, as will prevent the appeal, if successful, from being rendered nugatory. It has further been held (page 819) it is a firmly established rule that an express grant of statutory power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that is, the ultimately successful party, is to reap the fruits of that litigation, and not obtain merely a barren success . Considering the principles of law laid down by their Lordships of the Supreme Court that the Tribunal has the power to grant stay of recovery and all other powers to make the power effective, we hold that in appropriate cases the Tribunal has all the powers relating to the subject matter of appeal including the power of granting stay of recovery and refund of tax recovered by the Revenue authorities. In this view of the matter we are of the considered view that the Tribunal has the power to direct the Revenue authorities to refund the tax recovered by the Assessing Officer by misusing his powers. Since the Assessing Officer has misused his powers, we consider it our duty to curb such a trend. We are conscious of the fact that the power to direct refund of tax when the appeal is pending in the Tribunal is to be exercised only in exceptional cases. In our view, this case falls within the category of such exceptional cases. If we do not interfere in this case it would amount to allowing a public servant to circumvent the law and prevent the subjects from tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disputed demand when the appeal has been disposed of by the first appellate authority. Nevertheless the prevailing practice in the department and the existence of the administrative powers with the Commissioner of Income-tax and others for giving necessary relief of staying recovery to the assessee at the same time has been recognised. Thus there is no doubt that the Commissioner of Income-tax, in his administrative capacity, has the power to grant stay of the disputed demand when the appeal is pending in the Tribunal. This is further supported by the fact that under section 225 the Tax Recovery Officer has been specifically empowered to extend the time for payment of the disputed demand. This power is not confined for the period during which the appeal is pending before the first appellate authority. Under section 118 the Commissioner of Income-tax is having administrative control over the Tax Recovery Officer working in his jurisdiction. It is therefore implicit that the Commissioner of Income-tax may direct the Tax Recovery Officer to extend the time for the payment of the disputed demand. The issue had also come up for consideration before the Madras Bench of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India [1973] 92 ITR 1. Respectfully following the aforementioned decisions it is held that the Commissioner of Income-tax is required to pass a speaking order giving reasons for the exercise of his discretion in the matter of stay application. The issue as to whether an opportunity of being heard is required to be given to the assessee before the Commissioner of Income-tax passes an order on the stay application had come up before the Tribunal in the case of Security and Detective Bureau Ltd. and it was held that an order passed by the Commissioner without giving an opportunity of being heard is unreasonable and bad in law. Though the order of the Commissioner of Income-tax is in his administrative capacity, yet the principles of natural justice demand that an order affecting the party is passed after giving him an opportunity of being heard. We hold accordingly. The contentions on behalf of the Revenue that the assessee should approach the High Court for redress in this is rejected as we consider it our duty not to burden the High Court with unnecessary litigation. When the Tribunal has the power to redress the grievance of taxpayers, it is our duty to exercise that powe ..... 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