Whether Income tax Act contains any specific provisions which vest power in authorities to grant stay or permit assessee to pay tax in instalments - NO: HC

THE issue before the Bench is - Whether Income tax Act contains any specific provisions which vest power in authorities to grant stay or permit assessee to pay tax in instalments. NO is the answer.

Facts of the case

The assessee company is engaged in the business of fabric care & personal care. The assessee had filed its return for A.Y 2010-11 declaring a total income of Rs.NIL, after claiming loss of Rs.26,12,03,142/-. While making assessment u/s 143, a notice u/s 143(2) & 142(1) was issued along with questionnaire by the AO. Pursuant to the same, the assessee's counsel appeared and submitted the details. During scrutiny, it was reflected that the assess had entered into international transaction with its AE abroad and the value of the same exceeds Rs.15 Crores, hence, after obtaining approval from the CIT, the case was referred to TPO for determining the ALP of such international transactions. Thereafter, the TPO gave a finding that an adjustment of Rs.11,32,55,061/- had been proposed in the case of assessee and accordingly, held that an upward adjustment of Rs.5,90,27,202/- was considered as necessary towards brand promotion fees and disallowance of management fees to the tune of Rs.5,42,27,859/-. Subsequently, a draft assessment was forwarded to the assessee, wherein, apart from the adjustment of Rs.11,32,55,061/-, certain other disallowances were made. Thereafter, since no objections were filed in respect of draft assessment, the assessment were completed u/s 143(3) r/w/s 144C(3) determining total income of Rs.19,51,92,486/- after adjusting the brought forward losses. Consequently, by invoking explanation (7) to Section 271(1)(c), penalty proceedings were initiated in respect of adjustments made by the TPO u/s 92CA(4), for furnishing inaccurate particulars and concealing the income in respect of all the disallowances. The AO held that the assessee had intentionally made an incorrect claim, which warrants levy of penalty leviable 300% of the tax, which comes to Rs.23,85,94,851/-, however, considering the facts of the case, the penalty was levied at Rs.10,00,00,000/-. During pendency of appeal proceedings before CIT u/s 246A, the assessee moved a stay petition u/s 220(6) before the DCIT. By proceedings, the DCIT disposed of the stay application and granted partial stay of outstanding demand of Rs.5,00,00,000/-.

Having heard the parties, the High Court held that,

++ it is noted that the assessee has not challenged the order of DCIT, who granted partial stay in respect of total outstanding demand, but only sought for mandamus, to pass direction for staying entire disputed outstanding demand of Rs.10,00,00,000/- pending disposal of the appeal. As the said order has not been challenged, it could be presumed that the petitioner has accepted the said order, of-course, partially. However, while the said order was in force, the assessee cannot seek stay for entire outstanding by way of a direction to the DCIT from this Court and even assuming that the relief as sought for by this Court is entertained, the authority cannot be expected to comply with the direction unless and until the earlier order is set aside. Admittedly, the assessee has not filed the present writ petition for grant of Certiorarified Mandamus. Therefore, on this ground, this Court is of the view that the relief sought for by the assessee cannot be granted;

++ on a perusal of the order, it transpires that the DCIT passed the order in interim stay petition, exercising his discretion by invoking Section 220(6), while entertaining the appeal filed by assessee u/s 246, treating the assessee as not being in default in respect of the amount in dispute in the appeal. A perusal of section 220(6) shows that, it is explicit that the authority has been conferred with the power to treat the assessee as not being in default in respect of the amount in dispute in the appeal, however subject to conditions as he may think fit to impose. The word 'as he may think fit to impose' if read harmoniously, it would definitely mean that the power vested in the authority is amplitude and wide enough and can be exercised according to his discretion. In fact, the above said provision enables the authority only to treat the assessee as not being in default in respect of amount in dispute in the appeal, however, it is to be noted that no power is vested in the authority to grant stay under the Act nor empowers the authority to permit the assessee to pay the tax in instalments. It is implied that once the authority, having satisfied with the facts and circumstances of the case in appeal, treated the assessee as not a defaulter for a particular amount, it is automatic that stay in respect of such amount has been granted. Therefore, the power u/s 220(6) is indeed a discretionary one. However, it is one coupled with a duty to be exercised judiciously and reasonably, based on relevant grounds. It should not be exercised arbitrarily or capriciously or based on matters extraneous or irrelevant. The Income-tax Officer should apply his mind to the facts and circumstances of the case relevant to the exercise of the discretion, in all its aspects. In exercising his power, the ITO should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee;

++ coming to the case on hand, the DCIT, having considered the facts and circumstances under which, the assessee has intentionally concealed the particulars of the income and deliberately furnished inaccurate particulars of such income, by giving sufficient reasons in respect of the issues in dispute, viz., adjustment on ALP, disallowance of loss on sale of assets, etc., has granted partial stay of outstanding demand of Rs.5,00,00,000/-, but refused to grant in respect of entire outstanding demand of Rs.10,00,00,000/-. He has also specifically stated that any refund that may arise to the assessee subsequently for any other A.Y would be adjusted against the said demand. On going through the same, this Court is of the considered view that the DCIT has rightly imposed the conditions while exercising his discretion in a justifiable and reasonable manner, which does not warrant interference. It is settled law that if the Tribunals or the functionaries appointed under the special Acts do not perform their duties, they may be compelled by an appropriate writ to do so. Where, however, they are acting within the limits of the powers assigned to them by the Legislature and have exercised their discretion in a justifiable and reasonable manner, this Court will not sit in judgment over them and will not ordinarily interfere unless the discretion has been exercised so capriciously or in such an outrageous manner so as to attract the extraordinary jurisdiction of this Court. The Courts however, will not allow discretionary power to assume the garb of arbitrary power. Further, it is a settled principle of law that the writ Court is not certainly sitting in appeal over each and every order passed by the statutory authority. In view of these discussion, this Court is of the considered view that the DCIT has not exercised arbitrarily or capriciously in order to upset the order passed by him by imposing conditions to pay Rs.5 crores while granting partial stay and that no reasonable grounds are made out to direct the DCIT to grant stay in respect of entire disputed outstanding demand or to grant injunction from taking coercive action in recovering the demand and hence, the contention raised on behalf of the assessee that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal, cannot be accepted