By TIOL News Service

MUMBAI, APRIL 04, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether communication of reasons for reduction of notice period u/s 156 in terms of proviso to Section 220(1) cannot be waived, merely because Department is entitled in an appropriate case for such reduction. YES IS THE VERDICT.

Facts of the case:

The Assessee-company, had filed its return for the relevant AY and the assessment proceeding was completed by the AO by imposing a penalty of Rs.1.88 crores u/s 270(1)(c) in respect of the AY 2015-16. The assessment order was served upon the Assessee along with a notice of demand u/s 156. However, the normal period of 30 days notice to make the payment as provided u/s 220(1) was curtailed and thereby, the Assessee was directed to pay an amount within 7 days of the service of the notice. On 21st March, 2018, the Assessee made an application for stay of the said demand to the AO alongwith a copy of the reasons. Accordingly, the Revenue concluded that granting normal period of 30 days notice u/s 156 would be detrimental to the interest of the Revenue.

The AO rejected the Assessee's application on the ground that the said application would only be considered after the 20% of the penalty so imposed was paid by the Assessee. Thereafter, while exercising the power u/s 226, the AO attached the Assessee's bank account with HDFC Bank Ltd. on 26th March, 2018.

High Court held that,

++ the counsel for Revenue states that the petition was not received by the AO before he withdrew the amounts from the attached bank account. However, the Counsel for the Assessee states that the petition was attempted to be served upon the AO, who did not accept the same and directed the Assessee to file the petition in the receiving section of the Department (Tapal). Be that as it may, for the purpose of this petition it is not necessary to decide such controversy;

++ it is noted that the Revenue was not represented despite notice. Thus, the petition was kept back and the Assessee was directed to serve a notice upon the Revenue once again. Thereafter, the parties were heard again, and at that time, the Revenue were directed to deposit the amounts withdrawn from the Assessee's bank account on the next bank working day. This was for the reason that the withdrawal of the amount from the said bank accounts without notice, is in defiance of the order of this Court in the case of UTI Mutual Funds. The said amount of Rs.9.88 lakhs which was withdrawn from the attached HDFC bank account have been deposited by the AO in the attached bank account on 31st March, 2018;

++ the order under consideration is contrary to and in defiance of the orders of this Court in the case of KEC International Ltd. and UTI Mutual Funds, which provide the manner in which the stay applications u/s 220(6) have to be disposed of. This Court also pointed out to the Counsel of the Revenue that although the Revenue is no doubt entitled in an appropriate case to reduce the period of notice u/s 156 in terms of proviso to Sec. 220(1), yet, the reasons for such reduction of period should be communicated to the Assessee as directed by this Court in the case of Firoz Tin Factory Vs. Asstt. CIT;

++ the AO shall in accordance with the decision of this Court in Firoz Tin Factory provide the reasons which lead the Revenue to restrict the notice period u/s 156 to only 7 days instead of the normal 30 days period. The AO will pass a fresh order on the Assessee's stay application after hearing the Assessee in accordance with law and particularly in accordance with the decisions of this Court in KEC International Ltd. and UTI Mutual Funds.

(See 2018-TIOL-606-HC-MUM-IT)