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March, 06th 2014

%                                    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.


                                                ..... Respondents
                    Through: Sh. Rohit Madan, Sh. Akash Vajpai
                    and Sh. P. Roy Choudhry, Advocates.

+      W.P.(C) 1178/2014, C.M. APPL. 2465/2014
                                                        ..... Petitioner
                        Through : Sh. Deepak Chopra, Sh. Harpreet
                        Singh and Sh. Amit Shrivastava, Advocates.


                                               ..... Respondents
                    Through : Sh. Kamal Sawhney, Sr. Standing
                    Counsel with Sh. Sanjay Kumar and Sh.
                    Raghvendra Singh, Advocates.



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
             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


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


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


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


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.


                                                   (R.V. EASWAR)

                                               (S. RAVINDRA BHAT)
FEBRUARY 24, 2014

W.P.(C)s 1235/2014 & 1178/2014                               Page 14 of 14
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