Facts of the Case

  • The Revenue challenged ITAT orders granting extension of stay of tax demand recovery beyond 365 days in favour of:
    • M/s Maruti Suzuki India Ltd.
    • Bose Corporation India Pvt. Ltd.
  • Revenue argued that under Section 254(2A), as amended by Finance Act, 2008, ITAT cannot continue any stay beyond an aggregate period of 365 days.
  • Maruti Suzuki's matter involved substantial tax demands concerning transfer pricing adjustments and Advertisement, Marketing and Promotion (AMP) expenses.
  • Bose Corporation's case involved transfer pricing and determination of arm's length pricing of international transactions.
  • In several hearings, delays occurred due to departmental adjournments, bench unavailability, or administrative reasons rather than fault of the assessees.

Issues Involved

  1. Whether ITAT possesses authority under Section 254(2A) of the Income Tax Act to extend stay of tax recovery beyond 365 days.
  2. Whether stay automatically stands vacated after expiry of 365 days irrespective of fault of the assessee.
  3. Whether an assessee can seek relief from the High Court where ITAT becomes powerless to continue stay.
  4. Whether the amended third proviso to Section 254(2A) should be read down to avoid hardship.

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • Section 254(2A) expressly restricts extension of stay beyond a cumulative period of 365 days.
  • The language of the statute is mandatory and unambiguous.
  • ITAT, being a statutory creation, cannot exceed powers specifically conferred by the statute.
  • Any extension of stay beyond the prescribed period violates legislative intent.
  • Automatic vacation of stay after 365 days is compulsory irrespective of reasons for delay.

Respondent’s Arguments (Assessee)

The assessees argued that:

  • Delay in disposal of appeals was not attributable to them.
  • Automatic vacation of stay would unfairly penalize taxpayers for reasons beyond their control.
  • Several delays occurred due to:
    • Adjournments sought by Revenue;
    • Tribunal workload;
    • Administrative exigencies;
    • Bench availability.
  • Earlier judicial decisions had recognized power of tribunals to extend stay where the assessee was not responsible for delay.
  • Strict interpretation would render the statutory right of appeal illusory and oppressive.

Court Findings / Court Order

The Delhi High Court held:

1. ITAT Cannot Extend Stay Beyond 365 Days

The Court held that after amendment by Finance Act, 2008, the third proviso to Section 254(2A) clearly bars ITAT from extending stay beyond 365 days.

2. Statutory Language Is Mandatory

The Court observed that legislative language is explicit and courts cannot rewrite the provision through interpretation.

3. High Court's Constitutional Powers Remain Intact

The Court clarified that although ITAT cannot extend stay beyond 365 days, the High Court under Articles 226 and 227 retains constitutional power to grant stay in appropriate cases.

4. Relief Granted to Assessees

The Court directed:

  • Pending appeals should be disposed of expeditiously, preferably within two months.
  • Recovery proceedings shall remain stayed during that period.
  • If appeals remain pending thereafter, assessees may approach the High Court for further relief.

Important Clarifications

  • ITAT cannot grant or continue stay after expiry of 365 days.
  • High Courts retain constitutional jurisdiction to grant interim protection.
  • Revenue authorities are not prohibited from voluntarily refraining from coercive recovery action.
  • Constitutional validity of Section 254(2A) was not adjudicated and was expressly left open.
  • Tribunal may proceed with expedited hearings where delays arise from Revenue conduct.

Sections Involved

Income Tax Act, 1961

  • Section 254(2A) – Power of ITAT regarding stay of demand and disposal of appeals
  • Section 253 – Appeals to Appellate Tribunal
  • Section 234B – Interest for default in payment of advance tax

Constitution of India

  • Article 226
  • Article 227
  1. Jethmal Faujimal Soni v. ITAT
  2. L. Chandra Kumar v. Union of India
    Reaffirmed constitutional powers of High Courts.
  3. PML Industries Ltd. v. Commissioner of Central Excise

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:985-DB/SKN21022014CW50862013.pdf

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