In a major relief to Flipkart, the Karnataka High Court held that Income Tax Authorities are bound to examine the genuine hardships of the assessee while considering stay petitions. Granting stay order for the company, Justice Raghavendra. S. Chauhan observed that the Circular dated 29.2.2016 does not supersede the Circular No.1914.
The AO completed assessment against the petitioners, Flipkart for the years 2014-15 and 2015-16. While filing appeal against the assessment orders,the petitioners sought for stay of the demand before the Assistant Commissioner, who directed them to deposit 15% of the disputed amount.Though the petitioners approached the Principal CIT against the orders, they could not secure any relief.Hence, the petitioners knocked the door of the High Court, contending that sections 246 or 246A does not impose any liability upon the assessee for depositing any amount before filing the appeals and the stay petitions are regulated by the Circulars. According to them, a decision in the matter of stay of demand shall normally be taken by the Assessing Officer, who is the immediate superior. However, a higher superior authority is empowered to interfere with the decision of the Assessing Officer in certain extraneous circumstances, namely if the assessment order appears to be “unreasonably high pitched”, or “where genuine hardship is likely to be caused to the assessee”. Moreover, according to Instruction No.2-C of Circular No.1914, certain guidelines have been provided by the said Circular, which clearly demarcate the circumstances in which the stay can be granted.
“Undoubtedly, the present case raises the issue of balancing the interest of the Revenue, and the interest of an assessee. Needless to say, the Revenue does have the right to realise the assessed income tax amount from the assessee. However, while trying to realise the said amount, the Revenue cannot be permitted, and has not been permitted by the Circulars mentioned above, to act like a Shylock. It is precisely to balance the conflicting interests that certain guidelines have been prescribed by Circular No.1914, and Circular dated 29.2.2016.”
The Circular dated 29.2.2016 clearly states that the circular is “in partial modification of Instruction No.1914” and therefore,it does not supersede the Circular No.1914 in toto, but merely “partially modifies” the instructions contained in Circular No.1914. “A comparative perusal of both the Circulars clearly reveal that Circular No.1914 deals with collection and recovery of the income tax, broadly divided into four parts: firstly responsibility of the collection and recovery; secondly, the stay petitions; thirdly, the guidelines for staying the demand; fourthly, the miscellaneous provisions.”
The bench said that Instruction No.4(A) of Circular dated 29.2.2016 speaks about a general rule that 15% of the disputed demand should be asked to be deposited. But, according to Instruction No.4(B)(a) of the Circular dated 29.2.2016, the demand can be increased to more than 15%. Instruction No.4(B)(b) of the Circular dated 29.2.2016 states that the percentage can be lower than 15%, provided the permission of the Prl. CIT is sought by the Assessing Officer. However, in case the Assessing Officer does not seek the permission from the Prl. CIT, and in case the assessee is aggrieved by the demand of 15% to be deposited, the assessee is free to independently approach the Prl. CIT. The assessee would be free to request the Prl. CIT to make the percentage of disputed demand amount to be less than 15%.
“It is true that Instruction No.4 (B)(b) of the Circular dated 29.2.2016, gives two instances where less than 15% can be asked to be deposited. However, it is equally true that the factors, which were directed to be kept in mind both by the Assessing Officer, and by the higher superior authority, contained in Instruction No.2-B(iii) of Circular No.1914, still continue to exist. For, as noted above, the said part of Circular No.1914 has been left untouched by the Circular dated 29.2.2016. Therefore, while dealing with an application filed by an assessee, both the Assessing Officer, and the Prl. CIT, are required to see if the assessee’s case would fall under Instruction No.2-B(iii) of Circular No.1914, or not? Both the Assessing Officer, and the Prl. CIT, are required to examine whether the assessment is “unreasonably high pitched”, or whether the demand for depositing 15% of the disputed demand amount “would lead to a genuine hardship being caused to the assessee” or not?”
Quashing the impugned orders, the bench stated that“a bare perusal of the two orders, both dated 23.11.2016, Annexures-`A’ and `B’, clearly reveal that the Assessing Officer has relied upon Instruction No.4(B)(b) of the Circular dated 29.2.2016, and has concluded that since the petitioner’s case does not fall within the two illustrations given therein, therefore, it is not entitled to seek the relief that less than 15% should be demanded to be deposited by it. Moreover, the Assessing Officer has jumped to the conclusion that the petitioner’s finances do not indicate any hardship in this case. However, the Assessing Officer has not given a single reason for drawing the said conclusion. Since the petitioner has been constantly claiming that it has suffered loss from the very inception of its business, from 2011 to 2016, the least that the Assessing Officer was required to do was to elaborately discuss as to whether “genuine hardship” would be caused to the petitioner in case the petitioner were directed to pay 15% of the disputed demand amount or not? Yet the Assessing Officer has failed to do so. Therefore, this part of the order, naturally, suffers from being a non-speaking order. Hence, the said orders are legally unsustainable.”
