By TIOL News Service

MUMBAI, APR 26, 2019: THE issue is - Whether attachment order passed u/s 281B, two days before the assessment order and that too without mentioning any basis for apprehension or stating any reasons in support of such action, is not sustainable. YES is the verdict.

Facts of the case

The assessee is a trust established under the Indian Trusts Act and had been granted a certificate of registration by SEBI as Venture Capital Fund. For the subject A.Y 2016-17, the assessee filed its return declaring total income of Rs.19.23 Crores after claiming exemption u/s 10(23FB) and also exemption of dividend income earned from mutual funds u/s 10(35). However, during the course of scrutiny assessment, the AO issued an order for provisional attachment u/s 281B, attaching the assessee's Bank Account, in order to protect the interest of Revenue for the likely demand to be raised for the A.Y 2016-17. This attachment order was served on assessee only on Jan 02, 2019, although in the meantime, the attachment order had already been served on assessee's bankers, attaching assessee's bank account. Further, during the pendency of scrutiny assessment, the AO issued notices u/s 226(3) to the assessee's Bankers stating that an amount of Rs.46.47 Crores was due from the assessee for A.Y 2016-17 along with interest thereon u/s 220. The notices also requested the assessee's Bankers to make payment of the amounts available with it to the Income Tax Department to meet the assessee's dues. This was objected on the ground that no amount was due from the assessee to the Revenue when the notice was issued. It was also pointed out, that the notices u/s 226(3) make reference to an attachment u/s 281B, but the same had not been received by it. Thus, requesting the AO to withdraw the attachment order u/s 281B and notices u/s 226(3). The AO however, instead of acting upon the same, issued a corrigendum and substituted the words 'demand has fallen due' with the words 'demand is to be fallen due'. In the meantime, the AO passed the assessment rejecting the assessee's claim for exemption and hence, determined the income at Rs.147.08 Crores, which resulted in a demand of Rs.65.94 Crores;

Challenging the same, the assessee appealed to the CIT(A), and also requested the AO for grant of stay of the demand till the disposal of its appeal by the CIT(A). After considering the same, the AO lifted the attachment of some of the assessee bank accounts. However, the attachment of other bank accounts continued undisturbed. Further, the AO also rejected the assessee's application for stay, opining that mere filing of an appeal to the CIT(A) was not sufficient to grant a stay. Not satisfied, the assessee approached the Pr CIT seeking seeking complete stay of outstanding demand. In the meanwhile, the AO withdraw an amount of Rs.29.25 Crores from the assessee's bank account and and also proposed adjustment of refunds for A.Ys 2012-13 and 2014-15 against the demand for A.Y 2016-17. However, this was done without the assessee being given any notice and/or intimation. Later on, the Pr CIT passed a common order recording that after adjustment of the refund in the aggregate of Rs.34.46 Crores for the A.Ys 2012-13, 2013-14 and 2014-15 with the aggregate demand of Rs.1.33 Crores, the aggregate balance demand of Rs.69.66 Crores would be stayed till the disposal of appeal by the CIT(A) and it was only then the aassessee received an order/notice from the AO seeking to adjust the refund of Rs.60.46 lakhs and Rs.12.42 Crores for the A.Ys 2012-13 and 2014-15 against the demand of Rs.51.32 Crores for the A.Ys 2016-17.

On Writ, the HC held that,

++ in the present case, it is noted that both the order passed by AO as well as Pr CIT have completely ignored the binding directions of this Court of the manner in which the stay applications are to be disposed of and the test to be applied while considering grant of a stay of demand u/s 220(6) pending disposal of appeal by CIT(A). In fact, none of the two orders set out even briefly the issue involved and the submissions of the parties in support of its application for stay and yet both the orders dispose of the stay application, adverse to the assessee, hence unsustainable. oreover, in the stay proceedings, it was the assessee's contention that the issue of eligibility for claim u/s 10(23FB) stood concluded in its favour by orders of the CIT(A) for the A.Y 2014-15 and by the Tribunal for the A.Y 2013-14 and there are no material changes in facts and law which would warrant a different view for the A.Y 2016-17. This fact viz. the issue being concluded by the orders of the Appellate Authorities is also noticed and accepted by the AO in his assessment order dated Dec 20, 2018. Even though he refused to follow the same simply because they are subject matters of further appeal before the higher forum;

++ it is not open to the lower authorities to seek to enforce decisions contrary to and in defiance of the orders of the higher forums in the absence of any change in the facts and/or in law. Thus, while dealing with an application for stay of demand pending the disposal of an appeal before the CIT(A), the demand relatable to the assessment order being contrary to the orders of appellate authorities ought to be stayed for mere asking. Notwithstanding the settled position in law, both the AO and the Pr CIT while rejecting the stay, choose not to deal/consider the submission on such ground made by the assessee. However, the Revenue's counsel relies upon stand taken in the affidavit-in-reply filed by the AO in the month of March, 2019 that the CIT(A) in the case of HDFC Property Fund has departed from the view taken by him in the assessee case on similar facts to hold that HDFC Property Fund is not entitled to the benefit of Section 10(23FB). Thus, the issue is now open and not concluded in assessee's favour. Therefore, the need to protect the Revenue. However, such submissions ignores the fact that on Feb 20, 2019 the Tribunal has reversed the decision of the CIT(A) in HDFC Property Fund while allowing the appeal of the party in line with the decisions in the case of assessee. In any event, one must not loose sight of the fact that it is the assessee's own case which stands covered by the orders of the Appellate authorities and the same must take precedence over other decisions as the facts and circumstances in the other cases may be different from that of the assessee. On the said grounds also, the subject orders are unsustainable;

++ normally, on setting aside the orders u/s 220(6), the application merits to be restored to the Authorities for fresh consideration in accordance with law. However, looking at the conduct of the AO and Pr. CIT in this particular case, restoring the stay application to them for fresh disposal would not serve any purpose. This for the reason that the conduct of the AO and the Pr CIT in this case has been high handed and manifestly unfair towards the assessee being in defiance of settled law. The order u/s 281B was issued just two days before the assessment order was passed and neither does the order mention any basis for apprehension of the Revenue nor does the affidavit state any reasons in support of the action nor any submission made in support of its order u/s 281B. Moreover, the notices u/s 226(3) were issued on Dec 19, 2018 to the assessee's bankers. This without any amount being due from the assessee to the Revenue on that date and calling upon the assessee's bankers to pay over the amounts of assessee lying with them to the Income Tax Department. As if this was not enough, the stay application was disposed of by the AO and he withdrew an amount of Rs. 29.25 crores from the assessee's bank account even before the hard copy of the order was served upon the assessee. In the present case, the assessee could have moved the Pr. CIT or the CIT for appropriate relief. It appears that letter/intimation given by the AO is received by assessee only after the hearing was concluded before the Pr. CIT. In any case, this adjustment of refund due for the other years with the demand for the subject Assessment Year u/s 245 is contrary to the law laid down by this Court in Hindustan Unilever Ltd.

(See 2019-TIOL-915-HC-MUM-IT)