Karnataka High Court

Shree Nagalingeshwar Urban Credit ... vs The Assessment Unit on 30 May, 2024

Author: Pradeep Singh Yerur

Bench: Pradeep Singh Yerur

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                                                          NC: 2024:KHC-D:7224
                                                            WP No. 108004 of 2023




                            IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
                                  DATED THIS THE 30TH DAY OF MAY, 2024
                                                 BEFORE
                              THE HON'BLE MR JUSTICE PRADEEP SINGH YERUR
                                WRIT PETITION NO.108004 OF 2023 (T-IT)
                       BETWEEN:

                       SHREE NAGALINGESHWAR URBAN
                       CREDIT SOCIETY NIYAMIT, MUDALGI,
                       TQ: MUDALGI, DIST: BELAGAVI,
                       REPRESENTED BY ITS SECRETARY,
                       SHRI MAHADEV S/O. RANGAPPA MALGOUDAR,
                       AGE: 49 YEARS, OCC: SERVICE,
                       R/O: AT POST MUDALGI, TQ: MUDALGI,
                       DIST: BELAGAVI-591312.
                                                                       ... PETITIONER
                       (BY SRI SANGRAM S. KULKARNI, ADVOCATE)

                       AND:

                       1.   THE ASSESSMENT UNIT,
                            INCOME TAX DEPT., MINISTRY OF FINANCE,
                            GOVT. OF INDIA,
                            NATIONAL E-ASSESSMENT CENTRE,
                            DELHI-110002.

                       2.   THE PRINCIPAL COMMISSIONER
BHARATHI
HM                          OF INCOME TAX,
Digitally signed by
                            HUBLI, C.R. BUILDING,
BHARATHI H M
Location: HIGH COURT
OF KARNATAKA
                            NAVANAGAR, HUBLI-580025.
DHARWAD BENCH
Date: 2024.06.05
15:33:10 +0530
                                                                     ... RESPONDENTS
                       (BY SRI M. THIRUMALESH AND
                        SMT. ROOPA ANVEKAR, ADVOCATES)

                            THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
                       OF THE CONSTITUTION OF INDIA, PRAYING TO ISSUE A WRIT OF
                       CERTIORARI AND QUASH THE IMPUGNED ORDER PASSED BY THE
                       SECOND RESPONDENT THE PRINCIPAL COMMISSIONER OF INCOME
                       TAX,  HUBLI,   BEARING    DIN   NO.  ITBA/COM/F/   17/2023-
                       24/1052028045(1) DATED 12-04-2023 FOR THE ASSESSMENT YEAR
                       2020-21 VIDE ANNEXURE-D AND ETC.
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                                        NC: 2024:KHC-D:7224
                                            WP No. 108004 of 2023




    THIS PETITION COMING ON FOR PRELIMINARY HEARING IN 'B'
GROUP THIS DAY, THE COURT MADE THE FOLLOWING:

                              ORDER

Heard learned counsel Sri Sangram S. Kulkarni

appearing for the petitioner and learned counsel Sri

M.Thirumalesh, appearing for respondents No.1 and 2.

2. The petitioner a Co-operative Society represented by

its Secretary is before this Court seeking to quash the

impugned order passed by the 2nd respondent, the Principal

Commissioner of Income Tax, Hubballi for the assessment

year 2020-21 dated 12.04.2023 vide Annexure-D and to

pass such other orders.

3. The petitioner is a co-operative Society engaged in

the business of providing credit facilities to its members.

Petitioner filed his returns under Section 139(1) of the

Income Tax Act, 1961 (for short, 'the IT Act') for the

assessment year 2020-21 declaring no taxable income at

Rs.NIL after claiming exemptions and deductions. The said

returns was filed by the petitioner was selected for limited

scrutiny assessment through CASS. The 1st respondent-

Assessment Unit of the Income Tax Department issued

NC: 2024:KHC-D:7224

notice under Section 143(2) of the IT Act calling upon the

petitioner to produce details. The petitioner produced

documentary proof. According to the petitioner, respondent

No.1 without considering the contents of reply and the

supporting documents so produced, passed the assessment

order dated 26.09.2022 erroneously assessing the net

taxable income of the assessee at Rs.3,09,06,259/- under

Section 143(3) of the IT Act. Based on which, respondent

No.1 issued the demand notice dated 26.09.2022 under

Section 156 of the IT Act.

4. It is this impugned assessment order and demand

notice, the petitioner is aggrieved and he preferred an appeal

before the appellate authority. Appeal is pending before the

Principal Commissioner of Income Tax (Appeals). The

petitioner filed the application under Section 220(6) of the IT

Act on 26.10.2022 seeking stay of the demand notice, the

2nd respondent without considering the guidelines issued by

the Bombay High Court in the case of KEC International

Ltd. Vs. B.R.Balakrishnan and Others, reported in (2001)

251 ITR 158 (BOM) has passed the impugned order dated

NC: 2024:KHC-D:7224

12.04.2023. The said order in the case of KEC International

(supra) passed by the Bombay High Court has subsequently

reiterated and fresh guidelines were issued by the Division

Bench of Bombay High Court in the case of UTI Mututal

Fund Vs. Income Tax Officer 19(3)(2) and Others, Writ

Petition Lodging No.606/2012.

5. It is the case of petitioner that respondent No.2

failed to consider the impugned assessment order passed by

the 1st respondent and has not provided the relief of absolute

stay and has directed the petitioner to pay 20% of the

disputed demand amount, which is questioned by the

petitioner herein. It is also contended by the learned counsel

for petitioner that the impugned order dated 12.04.2023

passed by the 2nd respondent partly allowing the stay

application is illegal, perverse and capricious and same

deserves to be quashed. He also contends that the 2nd

respondent has failed to consider the guidelines prescribed

by the Bombay High Court by the Single Judge order and

also by the Division Bench which framed guidelines in such

cases. Therefore, he contends that the impugned order is in

NC: 2024:KHC-D:7224

violation of the guidelines set up by the High Court of

Bombay in two Judgments and so also the same is in

violation of principles of natural justice. It is also contended

that it is not a well reasoned speaking order. Hence, the

same deserves to be quashed and the stay application is to

be considered in its entirety. It is also contended by the

learned counsel for petitioner that respondent No.2 failed to

consider the amount declared by the petitioner after claiming

deduction under Section 80(P) of the IT Act as NIL, whereas

respondent No.1 has calculated the assessed amount at

Rs.3,09,06,259/-. Therefore prima facie the impugned

assessment order is the faulty assessment order.

6. Per contra, the learned counsel Sri M.Thirumalesh

appearing for the revenue sustains the order passed by the

2nd respondent and contends that there is no illegality,

perversity or blatant violation of principles of natural justice

in passing the impugned order, wherein 20% of the demand

amount has been ordered to be paid by the petitioner. He

sustains the order and contends that the writ petition is

liable for dismissal.

NC: 2024:KHC-D:7224

7. Having heard the learned counsel for both parties,

the contention put forth by the learned counsel for the

petitioner is pretty appealing for the reason that the Bombay

High Court in its Judgment in the case of KEC International

stated supra has framed the certain guidelines and

parameters in dealing with such matters, which is stated at

paragraph No.6 of the said Judgment, which reads as under :

"6. Parameters:

(a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.

(b) In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay.

If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.

(c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.

NC: 2024:KHC-D:7224

(d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.

(e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No.2 herein need not once again give reasoned order."

8. Similarly, the Hon'ble Division of Bench of the

Bombay High Court taking into consideration the Judgment

passed in the case of KEC International (supra) in the case

of UTI Mutual Fund stated supra has formulated the

additional guidelines, which reads as under :

"4. (2006) 285 ITR 419 wpl-606-2012 Ltd. in disposing of stay applications also noted that the practice of attaching bank accounts even before communicating the order passed on the stay application was high handed. The Court expressed the hope that the Revenue shall ensure that such

NC: 2024:KHC-D:7224

instances do not occur in future. The caution which was addressed by the Division Bench in Coca Cola India has again not been followed. In N. Rajan Nair v. ITO5, the Kerala High Court observed thus:

"In exercising his power, the Income-tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the power of mitigating hardships to the assessee."

These are, we may say so with respect, sage observations which must be borne in mind by the assessing authorities. Consistent with the parameters which were laid down by the Division Bench in KEC International and the observations in the judgment in Coca Cola, we direct that the following guidelines should be borne in mind for effecting recovery:

5. (1987) 165 ITR 650 wpl-606-2012

1. No recovery of tax should be made pending

(a) Expiry of the time limit for filing an appeal;

(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.

2. The stay application, if any, moved by the assessee should be disposed of after hearing the

NC: 2024:KHC-D:7224

assessee and bearing in mind the guidelines in KEC International;

3. If the Assessing Officer has taken a view contrary to what has been held in the preceding previous years without there being a material change in facts or law, that is a relevant consideration in deciding the application for stay;

4. When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;"

9. Under the circumstances, after giving thoughtful

consideration to the submissions put forth by both sides, this

Court is of the opinion that the order passed by the 2nd

respondent requires to be interfered and a direction requires

to be issued to the 2nd respondent to comply and follow the

guidelines framed by the High Court of Bombay in its

Division Bench Judgment in the case of UTI Mutual Fund

(supra). Therefore, in view of non-following of the said

guidelines prescribed by the Division Bench of Bombay High

Court the impugned order would not sustain and the same

will have to be quashed. Accordingly, I pass the following :

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NC: 2024:KHC-D:7224

ORDER

(i) Petition is allowed.

(ii) The impugned order passed by the 2nd

respondent dated 12.04.2023 in bearing DIN

No.ITBA/COM/F/17/2023-24/ 1052028045(1)

is hereby quashed.

(iii) Writ of mandamus is issued to the 2nd

respondent to deal with the matter afresh by

taking into consideration and relying upon the

guidelines stipulated by the Division Bench in

the case of UTI Mutual Fund vs. Income

Tax Officer 19(3)(2) and Others, Writ

Petition Lodging No.606/2012 by the

Bombay High Court.