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Wednesday, October 17, 2012

Initiation of recovery proceedings without rejecting the Stay Application is against the Principle of Natural Justice as held by ITAT, Hyderabad

Rule of Natural Justice in TaxLaw

The principles of natural justice concern procedural fairness and ensure a fair decision is reached by an objective decision maker. 

Capital IQ Information Systems India (P.) Ltd.
Assistant Commissioner of Income-tax, Cir. 1(2), Hyderabad

The initiation of recovery proceedings without rejecting the stay petition is against the Rule of Natural Justice. 

Briefly the facts are as follows,-

Assessee is engaged in Information Technology enabled services and business support services to the parent company. Assessment for the year under appeal, was completed invoking the provisions relating to the Transfer Pricing, under S. 143(3) of the Act read with S. 144C of the Act as against returned income. Demand was accordingly raised.

The learned counsel for the assessee had filed a copy of notice under S. 226(3) dated 6.6.2012 regarding the attachment of the bank of account of the assessee and mentioned that such attachment made by the assessing officer when the application for stay of recovery was still pending, was not proper.

That without taking any decision on the stay application of the assessee pending before the assessing office, it is unfortunate that the Revenue authorities did not bother to inform the assessee about the fact of attachment on the bank account of the assessee, which was in fact, ultimately informed to the assessee by the bank.

Further, he reiterated by stating that in all probability, the assessment have to be set aside by the Tribunal in view of the violations caused to the principles of natural justice and the inquiries carried out at the back of the assessee, without meeting the objections raised by the assessee before the TPO/Assessing officer, DRT, etc.

Hon'ble ITAT held that, initiation of the recovery proceedings without passing any order on the stay application of the assessee. The recovery proceedings under S. 220(6) were initiated without attending to or expressly rejecting the stay application filed by the assessee before the assessing officer. Also stated that there was Lack of transparency and the assessing officer had failed to honor the set principles of natural justice. Subsequently, it was also observed that the objections raised by the assessee before the lower authorities were not met by passing a speaking order. 

In the result, Stay Application of the assessee was partly allowed.

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