Case Note & Summary
The petitioner, Coca Cola India Private Limited, challenged the orders dated August 11, 2005 and September 19, 2005 passed by the Assistant Commissioner of Income-tax and the Commissioner of Income-tax, Pune respectively, dismissing its applications for stay of recovery of tax demand for the assessment year 2002-2003. The petitioner also challenged six notices dated September 30, 2005 issued under Section 226(3) of the Income Tax Act, 1961 attaching its bank accounts. The assessment order under Section 143(3) for the assessment year 2002-2003 was passed on March 31, 2005, making an addition of Rs.210 crores by disallowing marketing expenses and service charges, resulting in a demand of tax and interest amounting to Rs.77 crores. The petitioner filed an appeal before the Commissioner of Income Tax (Appeals) in April 2005, which was pending. On May 2, 2005, the petitioner applied for stay of recovery. The Assistant Commissioner rejected the stay application on August 11, 2005, and the Commissioner rejected the appeal on September 19, 2005, both without considering the petitioner's prima facie case and financial hardship. Subsequently, the revenue issued attachment notices under Section 226(3) to various banks. The petitioner contended that the rejection of stay was arbitrary and that the attachment was illegal as the appeal was pending and the demand was disputed. The revenue argued that the petitioner had not made any predeposit and that the attachment was necessary to protect revenue. The court held that the authorities failed to exercise their discretion under Section 220(6) properly and did not consider the petitioner's prima facie case or financial hardship. The court set aside the impugned orders and the attachment notices, directing the revenue to reconsider the stay application afresh after hearing the petitioner and passing a speaking order. The court also directed that pending such reconsideration, no coercive measures be taken for recovery of the disputed demand.
Headnote
A) Income Tax - Stay of Recovery - Section 220(6) Income Tax Act, 1961 - Discretion of Assessing Officer - The assessing officer while considering an application for stay of recovery under Section 220(6) must consider the prima facie case of the assessee and the financial hardship likely to be caused. Mere insistence on predeposit of 20% of the disputed demand without application of mind is not sustainable. (Paras 7-10) B) Income Tax - Attachment of Bank Accounts - Section 226(3) Income Tax Act, 1961 - Validity - Attachment of bank accounts under Section 226(3) is a drastic step and should be resorted to only after considering the assessee's financial position and the likelihood of recovery. In the present case, the attachment was set aside as the revenue failed to consider the assessee's submissions and the pending appeal. (Paras 11-13) C) Income Tax - Natural Justice - Principles of Natural Justice - The revenue authorities must pass speaking orders while rejecting stay applications, giving reasons for rejecting the assessee's contentions. The orders impugned were set aside as they were non-speaking and passed without proper application of mind. (Paras 7-10)
Issue of Consideration
Whether the revenue authorities were justified in rejecting the assessee's application for stay of recovery of tax demand and in attaching the bank accounts under Section 226(3) of the Income Tax Act, 1961 without considering the assessee's prima facie case and financial hardship.
Final Decision
The court allowed the writ petition, set aside the impugned orders dated August 11, 2005 and September 19, 2005, and the attachment notices dated September 30, 2005. The court directed the revenue to reconsider the stay application afresh after hearing the petitioner and passing a speaking order, and directed that pending such reconsideration, no coercive measures be taken for recovery of the disputed demand.
Law Points
- Stay of recovery pending appeal
- Section 220(6) Income Tax Act
- 1961
- Section 226(3) Income Tax Act
- Attachment of bank accounts
- Predeposit condition
- Prima facie case
- Financial hardship
- Revenue's discretion
- Natural justice
