Severe strictures passed against AO for acts of “malfeasance by pleading apparent ignorance and acting in subterfuge and an underhand manner“. CBDT requested to train officers properly to avoid them taking the law into their own hands with complete impunity and disregard for the law

The AO made a transfer pricing adjustment for the AMP expenditure incurred by the assessee and raised a demand of Rs. 210 crore. The assessee filed an appeal before the Tribunal and a stay application. The Tribunal granted a stay on recovery of the demand on the condition that the assessee would not seek an adjournment of the hearing. When the matter came up for hearing, the assessee pointed out that a similar issue was pending before the Special Bench (now decided as L. G. Electronics 152 TTJ 273) and so the Bench adjourned the appeal to await the judgement of the Special Bench. The AO took the view that the assessee had sought an adjournment and violated the stay order and so he attached the bank account u/s 226(3) and recovered some part of the demand. The assessee filed an application before the Tribunal and claimed that it had not sought an adjournment and that the AO had acted in defiance of the stay order and should be directed to vacate the attachment and refund the moneys recovered. The Tribunal accepted the plea that the assessee had not sought an adjournment and directed the AO to refund the sums collected (order attached). The AO filed a MA against the order and also a Writ Petition before the High Court. In the Writ Petition, the AO did not disclose the fact that the MA had been filed. The High Court granted an interim stay (now finally decided) against the Tribunal’s order directing refund. During the pendency of the Writ petition, the AO argued in the MA that the recovery of the demand was justified and that as the appeal was “in the process of final hearing”, “judicial propriety demanded that the interim order directing a refund should not have been passed”. HELD by the Tribunal dismissing the MA:

(i) “It alarms us that unfortunately with complete impunity and disregard of the factual position, the AO repeatedly makes apparently naive misplaced, mis-guiding and factually incorrect assertions that the Tribunal was in the process of final hearing of the appeal”. These assertions indicate either a gross ignorance or ineptitude of the Department or a deliberately calculated belief that even misstatement of facts before the Tribunal could be accepted as gospel truth on a mere assertions of the government officers. Both or either of these situations are equally dangerous and fraught of dangers as vast powers have been given by the Act to the AO in order to exercise its powers and discharge the functions under the Income Tax Act;

(ii) An AO cannot claim to be in constant and perpetual ignorance nor can the officers under whom she was functioning themselves feign ignorance of this actual factual position on the issue where on the grounds of judicial propriety the Department was constantly seeking adjournments in almost all stay granted appeals on the said issue over the years;

(iii) Being ignorant of relevant facts shows a pattern which needs to be considered before such laxity becomes endemic and plays havoc with “the interest of the revenue” which the AO most vociferously seeks to uphold;

(iv) The actions of the AO, which earlier appeared to be wrongful acts of misfeasance by a public official were actually serious acts of malfeasance. In our adversarial system, one or the other side will probably be lying, if only to exaggerate their position and hence perjury is likely to be far more common place then we would choose to admit. In either case and especially in the case of the Revenue, apparently when swearing falsely or referring to wrong facts, the concerned officers may be under the belief that he or she is doing so in a good cause that is “protecting the interest of revenue.” Judges and judicial authorities are not so unrealistic that they do not recognize that a substantive portion of the population displays a lack of respect for or otherwise merely pays lip service on oath to tell the truth. But unlike in the Courts having “lay litigants”, the litigants in tax matters are invariably of a class which recognize the solemnity of the occasion and understand the consequences of swearing to an affidavit or affirmation as a serious act outside the course of their everyday lives and it is hoped that the deponents understand the sanction for breach of such oath and the seriousness with which such a breach will be normally regarded by adjudicating authorities. In the present case, the acts of malfeasance by pleading apparent ignorance or acting in a subterfuge and underhand manner in apparently trying to achieve their objectives and targets of higher tax collection are required to be understood and addressed by the appropriate authorities;

(v) The CBDT is requested to ensure that proper legal knowledge and training is imparted to the officers addressing the appropriate interpretation of orders of higher forums and instead of resorting to underhand manner in achieving the targets set. Such an exercise will go a long way in addressing identical situations where the AO may be tempted to take matters in his or her own hands with complete impunity and disregard for the laws of the land.