M/S.CHANDRAGIRI CONSTRUCTION COMPANY V. THE ASSISTANT COMMISSIONER OF INCOME TAX

WP(C)/25822/2010

AI Insights

The case involves M/S. Chandragiri Construction Company, a partnership firm, which faced a demand notice under Section 221(1) of the Income Tax Act, 1961, for Rs.3,59,33,420. The firm requested a stay on recovery proceedings until the disposal of their appeals, which was denied, leading to the issuance of notices under Section 226(3) that froze their bank accounts. The petitioner challenged these notices, arguing that the recovery actions were premature and that they had sufficient refundable amounts to cover the instalments. The court found merit in the petitioner's arguments, particularly noting the hasty actions of the tax authorities and rescheduled the payment dates while quashing the freezing orders.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 756039 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 09-09-2010
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: ANIL NAIR; NIVEDITA KAMATH
• Keywords: Demand notice; Garnishee proceedings; Income Tax; Stay of recovery; Instalment Scheme
• Section: 221(1); 226(3)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.T.RAVIKUMAR THURSDAY, THE 9TH SEPTEMBER 2010 / 18TH BHADRA 1932 WP(C).No. 25822 of 2010(C) ----------------------------------------- PETITIONER(S): ---------------------- M/S.CHANDRAGIRI CONSTRUCTION COMPANY, 3/402-A, KARAT ROAD, WEST NADAKKAVU, CALICUT-673011, REPRESENTED BY ITS MANAGING PARTNER SRI.T.B.KUNHIMAHI HAJI. BY ADV. SRI.ANIL D. NAIR SMT.NIVEDITA A.KAMATH RESPONDENT(S): ------------------------- 1. THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-I, KOZHIKODE. 2. THE CENTRAL BOARD OF DIRECT TAXES, NEW DELHI. R1 BY MR. JOSE JOSEPH, STANDING COUNSEL, FOR INCOME TAX. R2 BY STANDING COUNSEL MR. JOSE JOSEPH THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 09/09/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sou. C.T.RAVIKUMAR, J. ----------------------------------- W.P.(C) .NO. 25822 OF 2010 ---------------------------------- Dated this the 9th day of September, 2010. JUDGMENT The petitioner is a partnership firm and firm is an assessee before the first respondent under the Income Tax Act, 1961. As per Ext.P1 notice under Section 221 (1) of Income Tax Act, 1961 the first respondent raised a demand for an amount of Rs.3,59,33,420/-. The nature of demand has been specifically stated therein. Pursuant to the receipt of Ext.P1 notice, petitioner has submitted Ext.P2 requesting the first respondent to keep in abeyance all steps to recover the said amount till the appeals preferred are disposed of. On receipt of Ext.P2 the first respondent issued Ext.P3 dated 26.7.2010 which reads thus:-. “You are hereby informed that stay cannot be granted and you are required to pay 50% of demand in 5 instalments by 16.8.2010, 16.9.2010, 16.10.2010, 16.11.2010 & 16.12.2010 and if so the balance will be stayed till disposal of appeal. Non adherence to this scheme will result in enforcement of demand by coercive measures. Your reply regarding acceptance of the scheme of instalment granted should be received in this office by 11.8.2010.” 2. As is obvious from Ext.P3, the petitioner was required thereunder to submit reply in case of acceptance of the scheme of the instalments offered as per Ext.P3. However, the petitioner preferred to submit another representation viz., Ext.P4 W.P.(C) .NO. 25822 OF 2010 2 re-iterating his stand taken in Ext.P2. Pursuant to its receipt the first respondent has issued Ext.P5 and P6 notices under Section 226 (3) of the Income Tax Act, 1961. Subsequently, the petitioner has submitted Ext.P7 before the first respondent and Ext.P8 before the Commissioner. As per Ext.P8 the first respondent was requsted to rectify the assessments in the manner set out therein and also to adjust the amount of Rs.66,14,950/- refundable to the firm towards the tax and penalty demands besides withdrawing the attachment of the Bank account. Ext.P8 virtually, carries the same claims and contentions made as per Ext.P7. This writ petition has been filed contending that in view of the issuance of Ext.P5 its entire operations have come to a stand still and challenging Exts.P5 and P6 and also to grant stay of all further proceedings initiated as per Ext.P5 and P6. The contention of the petitioner is that the respondents should not have resorted to garnishee proceedings especially after offering scheme of instalments by Ext.P3. In that context it is further contended that till 16.8.2010, the date fixed for remittance of the first instalment the petitioner could not have been regarded as a defaulter and, therefore the action on the part of the first respondent in issuing Exts.P5 and P6, both dated W.P.(C) .NO. 25822 OF 2010 3 6.8.2010, before the expiry of the date fixed for effecting first instalment, is bad in law and liable to be interfered with. As noticed hereinbefore, the petitioner has yet another contention. According to the petitioner an amount of Rs.66,14,950/- is refundable to the petitioner firm and the said amount is sufficient to clear the first two instalments. Therefore, it is contended that only in case of failure to effect the 3rd instalment within the date fixed for that purpose viz., 16.10.2010 the petitioner firm should have been treated as a defaulter and as such, Ext.P5 and P6 are unsustainable. It is raising such contentions that the petitioner assails the said notices and the consequential action in freezing the accounts. 3. The standing counsel for Income Tax submits that the petitioner should have approached the appellate authority with the prayer for staying the implementation of the orders of recovery of tax and penalty demanded as per Ext.P1 in case of any grievance. The petitioner did not choose to avail the appellate remedy or to remit the amount demanded. Despite the same the assessing authority as per Ext.P3 has offered a scheme of instalments to the petitioner for paying 50% of the amount covered as per Ext.P1. It is further contended that though the petitioner was required to W.P.(C) .NO. 25822 OF 2010 4 communicate the authority regarding the acceptance of the scheme by 11.8.2010 he did not accept the same. 4. I think without considering the merits of the rival contentions this Writ Petition has to be disposed of based on the following ground. Evidently, the respondents were to wait till 11.8.2010 going by Ext.P1. However, Ext.P5 and P6 notices under Section 226(3) of the Income Tax Act, 1961 are dated 6.8.2010. The learned counsel for Income Tax submitted though Ext.P5 and P6 are dated 6.8.2010 they were actually despatched from office of the first respondent only after 11.8.2010. That apart, the claim of the petitioner relating the refundable amount if ultimately upheld by the authorities one has to describe the present action as hasty in the light of Ext.P3. I think in view of the facts thus obtained in this case a re-scheduling of the dates fixed for remittance as per Ext.P3 without altering other conditions of the scheme, is called for. Accordingly, this Writ Petition is disposed of on the following lines:- Evidently, the first respondent had offered the petitioner an opportunity to effect payment of 50 % of the amount demanded as per Ext.P1 in 5 instalments starting from 16.8.2010 and ending on 16.12.2010. The petitioner shall remit the first of the 5 instalments W.P.(C) .NO. 25822 OF 2010 5 on or before 16.9.2010 and then continue to make payment of the balance instalments respectively on 13.10.2010, 13.11.2010, 13.12.2010 and 13.1.2011. In case the petitioner effects payment as re-scheduled by this order, it should be deemed as substantial compliance with the order in Ext.P3. In case the petitioner pays the first instalment on or before 16.9.2010 the petitioner will also be at liberty to approach the appellate authority to move for stay of recovery pursuant to Ext.P1 in respect of the balance amount, in accordance with law. In such eventuality further action will be subject to the orders by the appellate authority. In the circumstances Exts.P5 and P6 are quashed. However, it will be open to the first respondent to initiate steps for enforcement of the demand by coercive measures in case petitioner fail to effect payment as ordered above. C.T.RAVIKUMAR, JUDGE. mns "