$~50
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 24th February, 2014
+ W.P.(C) 1235/2014, C.M. APPL. 2576/2014
SONY INDIA PVT. LTD. ..... Petitioner
Through: Sh. Deepak Chopra, Sh. Harpreet
Singh and Sh. Amit Shrivastava, Advocates.
versus
ADDL. COMMISSIONER OF INCOME TAX AND ANR.
..... Respondents
Through: Sh. Rohit Madan, Sh. Akash Vajpai
and Sh. P. Roy Choudhry, Advocates.
+ W.P.(C) 1178/2014, C.M. APPL. 2465/2014
SONY MOBILE COMMUNICATIONS (INDIA) PVT.LTD
..... Petitioner
Through : Sh. Deepak Chopra, Sh. Harpreet
Singh and Sh. Amit Shrivastava, Advocates.
versus
ADDITIONAL COMMISSIONER OF INCOME TAX & ANR.
..... Respondents
Through : Sh. Kamal Sawhney, Sr. Standing
Counsel with Sh. Sanjay Kumar and Sh.
Raghvendra Singh, Advocates.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J.
WP(C) 1178/2014
W.P.(C)s 1235/2014 & 1178/2014 Page 1 of 14
This writ petition has been filed by Sony Mobile communications
(India) Pvt. Ltd. ("Sony Mobile" hereafter) a company which has now
merged with Sony India Pvt. Ltd., the petitioner in WP(C)
No.1235/2014 ("Sony India", hereafter). The claim in the petitions is
for issuance of a writ quashing the attachment order passed by the first
respondent i.e., the Additional Commissioner of Income tax under
section 226(3) of the Income Tax Act, 1961 for the assessment year
2009-10. The impugned order was passed on 17.2.2014 in the
circumstances narrated below.
2. Sony Mobile was incorporated on 23.4.2007 as a subsidiary of
Sony Ericson Mobile Communications of Sweden. It is engaged in the
business of importing, buying and selling a wide range of mobile phones
in India and providing after-sales support services. In respect of the
assessment year 2009-10, it filed a return of income declaring a total
income of Rs.31.13 crores. The first respondent i.e. the Assessing
officer, scrutinised the return after issuing notice under Section 143(2)
and referred the return to the transfer pricing officer (TPO) requiring
him to determine the arm's length price of the international transactions
of the petitioner. The TPO recommended the adjustment of Rs.70.15
crores on account of excess advertising, marketing and promotion
W.P.(C)s 1235/2014 & 1178/2014 Page 2 of 14
expenses (AMP expenses) incurred by the petitioner in respect of the
brand owned by the foreign parent company. A draft assessment order
was accordingly prepared by the first respondent on 26.3.2013
proposing to make a transfer pricing adjustment of Rs.70.15 crores on
account of AMP expenses and disallowance of advertisement and
marketing expenses of Rs.12.27 crores on the footing that such expenses
were capital in nature.
3. Sony Mobile filed objections to the draft assessment order before
the dispute resolution panel (DRP) which gave some minor relief in
respect of the transfer pricing adjustment but dismissed the other
objections. In terms of the directions of the DRP, a final assessment
order was passed by the first respondent on 10.1.2014 computing the
total income of the petitioner at Rs.113.56 crores and raised a tax
demand of Rs.43,87,90,358/-.
4. On receipt of the assessment order, an appeal was preferred
against it before the Income Tax Appellate Tribunal, Delhi Bench on
13.2.2014 and the same was registered as ITA No.836/Del/2014. On
17.2.2014, a stay application was filed before the Tribunal seeking stay
of the disputed demand and it is claimed that on the same day it
informed the respondents about the filing of the stay application and
W.P.(C)s 1235/2014 & 1178/2014 Page 3 of 14
requested that no coercive action may be taken till the Tribunal disposed
of the stay application. In the meantime, on 14.2.2014, an application
had been filed before the AO under section 220(3) of the Act seeking
stay of the recovery of the demand of tax. On this, the AO passed an
order on 17.2.2014. There, he observed that the demand became
payable in the month of February, 2014 but no payment was made by
Sony Mobile against the same. The AO also noted the statement of the
petitioner that it was in the process of filing an appeal as well as a stay
application before the Tribunal and the request that till the disposal of
the appeal the proceedings should be kept in abeyance. He however
observed that the stay application cannot be accepted for the following
reasons :
"01. Mere filing of an appeal with the ITAT is not ground
enough for the stay of recovery proceedings.
02 From perusal of your latest return of income filed, it
is observed that your financial condition is stable and you
have liquid funds at your disposal. Since you are in a
position to pay the outstanding demand, and it will not
cause any genuine hardship on you, your stay petition is
rejected.
The stay petition is therefore, rejected. You are
again requested to pay the outstanding demand
immediately. In case of failure, coercive measures will be
taken to recover the outstanding demand, without giving
any opportunity of being heard."
W.P.(C)s 1235/2014 & 1178/2014 Page 4 of 14
5. On the same day on which he rejected the application filed by the
petitioner, i.e. on 17.2.2014, the Deputy Commissioner, Circle 9(1),
New Delhi issued a notice under section 226(3) to the Branch Manager,
Citi Bank (Parliament Street Branch) calling upon it to pay any amounts
which Citi Bank had to pay the account holder, Sony Mobile. The
relevant details of the amount of tax due from the petitioner were also
given. Thus, the Citi Bank was garnished from making any payment of
the monies which the petitioner had in its bank account with the said
bank.
6. On 19.2.2014 (wrongly written as 19.3.2014) the Citi Bank wrote
to the Deputy Commissioner of Income Tax reporting compliance and
enclosing the demand draft in favour of the Deputy Commissioner of
Income Tax, Circle 9(1), new Delhi for an amount of Rs.43,87,90,358/-.
7. On the same day, the Deputy Commissioner of Income Tax wrote
to City bank that the bank account may be released from attachment
since the assessee has made sufficient payment.
WP(C) 1235/2014
W.P.(C)s 1235/2014 & 1178/2014 Page 5 of 14
8. This writ petition, by Sony India Pvt. Ltd. seeks the same reliefs
as in WP(C) 1178/2014. For the sake of completeness of the record we
may notice the following facts. Sony India was incorporated in India on
17.11.1994; it was a subsidiary of Sony Holding (Asia), B.V.,
Netherlands and Sony Gulf FZE. It is engaged in the business of
importing and disputing a wide range of consumer electronic products in
India and providing after-sales support services. In respect of the
assessment year 2009-10, it filed a return of income on 29.9.2009
declaring a loss of Rs.24.72 crores. After issue of a notice under section
143(2) of the Act, the AO referred the matter to the TPO for
determination of the ALP of the international transactions. The TPO
made an adjustment of Rs.149.35 crores on account of excess AMP
expenses and another adjustment of Rs.5.98 crores on account of
additional compensation for software services transactions. The AO
prepared a draft assessment order on 26.3.2013 on the basis of the
recommendations of the TPO and after making further disallowances,
determined the total income of the petitioner at Rs.161.56 crores.
Objections were filed by Sony India before the DRP which gave some
minor reliefs but substantially dismissed the objections.
W.P.(C)s 1235/2014 & 1178/2014 Page 6 of 14
9. On 13.1.2014 the AO passed the final assessment order
computing the total income of Sony India at Rs.137.26 crores, against
which it preferred an appeal before the Income tax Appellate Tribunal,
Delhi Bench in ITA 837/Del/2014. The said appeal was filed on
13.2.2014; a stay application was also filed before the Tribunal on
18.2.2014.
10. In the meantime on 14.2.2014, Sony India filed an application for
stay of the payment of tax under section 220(3) of the Act. On
19.2.2014 Sony India appears to have met the officer in connection with
the stay of demand and informed the latter of the stay application field
before the Income Tax Appellate Tribunal. It further appears that the
first respondent did not dispose of the stay application filed before him.
A garnishee order was passed under section 226(3) attaching the bank
account of Sony India. The latter apprehends that as in the case of
WP(C) No.1178/2014, in the present case too the first respondent may
follow the same course and it may withdraw the disputed tax demand
from the garnished bank accounts.
11. Both the appeals and the stay applications filed before the
Tribunal are stated to be pending and no orders have been passed
thereon.
W.P.(C)s 1235/2014 & 1178/2014 Page 7 of 14
12. The argument of the counsel for the petitioner in both the
petitions is that the assessing officer was not justified in passing
garnishee orders under section 226(3) of the Income Tax Act even while
being aware that the petitioners have filed appeals and stay applications
before the Tribunal. It is contended that the AO has shown unseemly
haste in withdrawing the money from the Citi Bank without waiting for
the outcome of the stay applications filed before the Tribunal.
According to the counsel for the petitioners, this shows lack of faith in
the judicial process and should be deprecated. He accordingly requests
that the respondents should be restrained from withdrawing the monies
from the bank account in WP(CP 1235/2014 and should be directed to
return/reverse the same in WP(C) 1178/2014, where the amount was
already withdrawn from the bank account. He also claims directions to
the Tribunal to dispose of the stay applications at the earliest.
13. The learned standing counsel for the revenue submitted that the
respondent was well within his rights in appropriating the amount of
Rs.43.87 crores. He submitted that the assessed tax demand became
payable as soon as a period of 30 days from the date on which the notice
of demand issued under Section 156 of the Act was served on the
petitioner expired; since the demand notice was served on 17.1.2014, the
W.P.(C)s 1235/2014 & 1178/2014 Page 8 of 14
tax became due for payment on the expiry of 30 days thereafter, i.e.
16.2.2014 and since the petitioner did not pay the same until that period,
the assessing officer rightly resorted to recovery proceedings. He
further pointed out that there was no impropriety in the assessing officer
taking coercive measures to recover the tax, including
attachment/garnishee orders under section 226(3) passed on 17.2.2014,
since such step was taken after the stay applications filed by the
petitioners were rejected; moreover the petitioner filed stay applications
before the Tribunal on 17.2.2014 and 18.2.2014 which fact was not
known to the assessing officer when he passed the orders under section
226(3). In these circumstances, it was submitted by the learned standing
counsel that there was no illegality or impropriety in recovering the
amounts due from the petitioners under section 156 of the Act.
14. We have carefully considered the facts and the material on record
in the light of the rival submissions. Section 156 of the Act provides for
the service of the notice of demand in the prescribed form pursuant to
the framing of the assessment. This section does not provide for the
period of 30 days within which tax is to be paid, failing which steps for
recovery of the same can be taken. The period of 30 days is prescribed
in section 220(1). The proviso to section 220(1) empowers the assessing
W.P.(C)s 1235/2014 & 1178/2014 Page 9 of 14
officer, for sufficient reasons, to curtail the period of 30 days, if in his
opinion the grant of 30 days will be detrimental to the revenue. Sub-
section (3) of Section 220 empowers the assessing officer, on an
application made by the assessee before the expiry of the due date under
sub-section (1), to extend the time for payment or allow payment by
instalments, subject to such conditions as he may think fit to impose in
the circumstances of the case. Sub-section (4) says that if the tax
demand is not paid within the period of 30 days or within the extended
period, the assessee shall be deemed to be in default. Sub-section (6)
confers a discretion upon the assessing officer to be exercised subject to
such conditions as he may think fit to impose in the circumstances of the
case, to treat the assessee as not being in default in respect of the amount
in dispute in the appeal, if an appeal has been presented by the assessee
under Section 246/ 246A even though the time for payment has expired;
the discretion can be exercised by the assessing officer as long as the
appeal remains undisposed of.
15. Technically section 220(3) requires an application for extension
of time to pay the tax demanded or for permission to pay the same in
instalments to be filed before the expiry of the due date for payment. In
the present case, the petitioners filed the applications under Section
W.P.(C)s 1235/2014 & 1178/2014 Page 10 of 14
220(3) before the assessing officer on 14.02.2014, which satisfies the
sub-section. This is not disputed. 14.02.2014 happened to be a Friday,
and 15.02.2014 and 16.02.2014 were Saturday and Sunday. The next
working day therefore was only 17.02.2014 and it was on this day that
the assessing officer rejected the applications. The same day, he issued
the garnishee order under Section 226(3) to the Citi Bank. It was on
17.02.2014 that Sony Mobile submitted a stay petition before the
Tribunal seeking stay of the disputed tax demand in the appeal filed in
ITA No.836/Del/2014 on 13.02.2014. Sony India Pvt. Ltd. seems to
have filed an appeal before the Tribunal on 13.02.2014 in ITA
No.837/Del/2014 but the stay application was filed before the Tribunal
on 18.02.2014. At least in the case of Sony India Pvt. Ltd., the
respondent could not have known that a stay application would be filed
before the Tribunal on the next day. In the case of Sony Mobile, it is a
moot question whether the assessing officer, at the time of passing the
garnishee order and rejecting the stay application on 17.2.2014, was
aware of the stay application filed by the petitioner on that day. His
letter dated 17.2.2014 in this case states that mere filing of an appeal
with the Tribunal is not good ground for the stay of the recovery
proceedings.
W.P.(C)s 1235/2014 & 1178/2014 Page 11 of 14
16. Having said that this is a case in which technically no fault could
be found with the assessing officer, we feel that there was an element of
impropriety in his action in issuing the garnishee order under section
226(3) on 17.2.2014, the very day on which he rejected the stay
application filed by the petitioner under section 220(3). It is expected of
him, having rejected the stay application, to wait for a reasonable period
before he takes coercive steps to recover the amounts since the
petitioner, faced with an order rejecting the stay application, may need
some time to make arrangements to pay the entire tax demand or come
up with proposals for paying the same in instalments. That opportunity
was not afforded by the assessing officer in the present cases. The
assessing officer is a prospector of the revenue and he is no doubt
expected to protect the interests of the revenue zealously, but such zeal
has to be tempered with the rules of fair play and an anxiety to ensure
that a opportunity is not lost to the assessee to make alternative
arrangements for clearing the tax dues, once the stay applications filed
under section 220(3) are rejected. Taking away the amount of Rs.43.87
crores from the bank account of the petitioner may perhaps not be
legally faulted, but taking into account the haste with which the
assessing officer acted in the present case it seems to us that there was
W.P.(C)s 1235/2014 & 1178/2014 Page 12 of 14
an element of arbitrariness in the action of the assessing officer. In our
opinion, since the stay applications filed by the petitioners are pending
before the Tribunal, the more appropriate course would be to issue the
following directions :
a) the assessing officer shall reverse the amount of Rs.43.87 crores
recovered from the bank account in Citi Bank and credit the same in the
account of the petitioner;
b) the petitioner however will not be entitled to draw from the said bank
account any amount that may reduce the balance in the account to an
amount below Rs.43.87 crores in other words the petitioner shall
maintain a balance of Rs.43.87 crores in the said account;
c) the Income Tax Appellate Tribunal, Delhi Bench before which the
appeals and stay applications are pending is directed to hear the stay
applications on 28.2.2014 (Friday) and pass such orders thereon as it
may think fit after hearing both the sides;
d) the parties shall abide by the orders passed by the Tribunal; and
e) the respondents shall not take any coercive steps to recover the tax till
the Tribunal disposes of the stay applications;
W.P.(C)s 1235/2014 & 1178/2014 Page 13 of 14
f) the appeals filed by the assessee before the Tribunal shall be disposed
of as expeditiously as possible.
The writ petitions are disposed of in the above terms with no
order as to costs.
Dasti.
(R.V. EASWAR)
JUDGE
(S. RAVINDRA BHAT)
JUDGE
FEBRUARY 24, 2014
vld
W.P.(C)s 1235/2014 & 1178/2014 Page 14 of 14
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