Case Note & Summary
The petitioner, HDFC Bank Limited, challenged an order dated 18 March 2013 passed by the Assistant Commissioner of Income Tax - 2(3), Mumbai, which disposed of its stay application for a demand of Rs.1719.65 crores arising from an assessment order dated 31 January 2013 under Section 143(3) of the Income Tax Act, 1961 for Assessment Year 2010-11. The impugned order directed the assessee to deposit Rs.377.65 crores, apart from adjusting refunds of Rs.49.56 crores and Rs.518.30 crores for earlier years. The assessment order made five major disallowances: broken period interest (Rs.2649.26 crores), amortisation of premium on Held-To-Maturity securities (Rs.440.76 crores), exemption on dividend income from mutual fund units (Rs.426.33 crores), interest under Section 36(1)(viia), and disallowance under Section 14A. The petitioner contended that the first three disallowances were covered by earlier favourable orders of the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) for previous assessment years, and that the Assessing Officer had not even raised these issues in several intervening years. The petitioner argued that the impugned stay order was passed without considering the strong prima facie case, without a reasoned order, and without considering financial hardship. The court held that the impugned order was unsustainable as it did not consider the merits of the disallowances or the financial hardship. The court set aside the order and directed the Assistant Commissioner to pass a fresh reasoned order on the stay application after hearing the assessee, considering the strong prima facie case and financial hardship. The court also directed that no coercive measures be taken until the fresh order is passed.
Headnote
A) Income Tax - Stay of Demand - Prima Facie Case - The Assessing Officer must consider the assessee's strong prima facie case on merits while disposing of a stay application, especially when the disallowances are covered by earlier appellate orders in favour of the assessee - Held that the impugned order was unsustainable as it did not consider the merits of the disallowances and the financial hardship caused to the assessee (Paras 5-10). B) Income Tax - Stay of Demand - Financial Hardship - The Revenue must consider the financial hardship and the ability of the assessee to pay the demand, and should not mechanically demand a substantial portion of the disputed tax - Held that the direction to deposit Rs.377.65 crores without considering the assessee's financial position was arbitrary (Paras 5-10). C) Income Tax - Stay of Demand - Reasoned Order - The order disposing of a stay application must be a reasoned order, reflecting application of mind to the submissions of the assessee - Held that the impugned order was cryptic and non-reasoned, violating principles of natural justice (Paras 5-10).
Issue of Consideration
Whether the Assistant Commissioner of Income Tax was justified in rejecting the stay application and directing deposit of Rs.377.65 crores without considering the assessee's strong prima facie case and financial hardship, and without passing a reasoned order.
Final Decision
The court allowed the petition, set aside the impugned order dated 18 March 2013, and directed the Assistant Commissioner of Income Tax to pass a fresh reasoned order on the stay application after hearing the assessee, considering the strong prima facie case and financial hardship. No coercive measures were to be taken until the fresh order is passed.
Law Points
- Stay of demand
- prima facie case
- financial hardship
- natural justice
- reasoned order
- Section 143(3)
- Income Tax Act
- 1961
