By TIOL News Service

ERNAKULAM, FEB 06, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether recovery proceedings can be effected by virtue of Section 263 order alone, if an appeal against such revisional order is pending consideration before the Tribunal. NO IS THE VERDICT.

Facts of the case:

The assessee company is engaged in the business of sale of Indian made Foreign liquor & Foreign made Foreign liquor and other spirits within the State. For the relevant A.Y, the assessee had filed its returns and the assessments were completed thereon, after accepting the returned income. Later on, the CIT invoking the powers u/s 263, directed the AO to disallow an amount of Rs.96,076.20 lakhs debited to P&L A/c, towards surcharge on sales tax & turnover tax by invoking the provisions of Section 40(a)(iib).

In the meanwhile, as permitted by the CBDT, the assessee approached the Pr CIT itself for a stay of the demand. However, the Pr CIT, relying on an Office Memorandum, issued an order directing to pay 20% of the demand. The assessee therefore approached this Court urging that the order u/s 263 specifically directed appropriate opportunity to be granted and disallowance could materialise only after that. There was a procedure contemplated of a hearing by the AO and after the disallowance was made, there should also be a demand raised. As per the assessee, the condition imposed was premature and not sustainable under a mere order u/s 263.

High Court held:

++ it is seen that the assessee had acted prematurely insofar as approaching the Principal Commissioner for a stay, when there was no demand. Even though, Section 263 enables enhancement of the demand when invoking such revisional powers, however, there is a specific direction insofar as an opportunity being afforded to the assessee before the disallowance is carried out. There is also a requirement for a demand to be raised after such disallowance is carried out by the AO. In such circumstances, there could be no condition imposed for the period in which the appeal against Section 263 order is pending before the Tribunal. This Court therefore, deletes the direction insofar as the condition imposed for not proceeding with the recovery, especially since the stage of recovery has not yet reached. However, it is made clear that if there is a demand made as a result of the consequential order, then the Revenue would be enabled to take out appropriate proceedings, subject however to any challenge made to that consequential order.

(See 2019-TIOL-295-HC-KERALA-IT)