ORDER
Krishan Swamp, Accountant Member
1. By this petition, the assesscc has sought stay of recovery of demand in a sum of Rs. 1,60,35,67,210 arising as a result of Assessing Officer’s order under section 143(3), read with section 263 of the Income-lax Act, 1961 for the assessment year 1995-96.
2. With a view to appreciating the prayer of the assessee, it would be relevant to refer to the facts of the case. To be stated succinctly these are thus. For the assessment year under consideration, the assessee, a Public Sector Undertaking, had filed its return declaring a total income of Rs. 9,94,40,04,774. The relevant assessment was completed by the Dy. CIT, Spl. Range-20, New Delhi vide order under section 143(3) dated 27-2-1998 on a total income of Rs. 9,95,08,43,810. In the said assessment, deduction for “licence fee” of Rs. 1,47,95,35,200 stood allowed, as claimed by the assessee. Further, the Assessing Officer allowed deduction of Rs. 35,98,07,973 for cancellation of bills accounted for as income (prior period adjustments). Subsequently, on examination of the relevant records, the 1d. CIT Delhi-Ill, New Delhi felt that on the above two aspects, the
assessment order dated 27-2-1998 was erroneous and prejudicial to the interest of revenue. A show-cause notice under section 263 was issued to the assessee. In the absence of any representation from it, the ld. CIT proceeded to decide the matter on merits. After referring to the facts and the nature of “licence fee”, the ld. CIT held that the revenue sharing between the MTNL (the assessee) and the Department of Telecommunications was nothing but application of income by the assessee. Thus, according to the ld. CIT, the claim for deduction of licence fee was not allowable in law. About the prior period adjustments, after referring to the add back by the assessee of Rs. 33,94,88,652 on account of prior period adjustments and the fact that in the computation of income, the assessee had deducted an amount of Rs. 35,98,07,973 on account of “deduction for cancellation of bills accounted for as income”, the ld. CIT opined that the claim was erroneous as Schedule “S” of the audited accounts did not contain any such amount on account of cancellation of bills. On both count, the assessment order was held to be erroneous and prejudicial to the interest of the revenue. Vide order under section 263 dated 28-3-2000, the assessment order was set aside, by observing as under :–
“14. In view of the above, the assessment order dated 27-2-1998 is set aside with the direction that the assessee’s claims of Rs. 1,47,95,35,200 and Rs. 35,98,07.973 on account of purported ‘licence fee’ and prior period expenditure respectively be disallowed. The Assessing Officer would also be at liberty to initiate appropriate penally proceedings and charge interest/s as per law while completing the set aside assessment.”
3. It appears ihat in the fresh assessment made in pursuance of the above order under section 263 of the Act, the Assessing Officer disallowed deductions for Rs. 1,47,95,35,200 and Rs. 35,98,07,973. This resulted in the creation of a demand of Rs. 1,60,35,67,210. The assessee had filed an appeal before the Tribunal on 3-4-2000 against the order of the CIT under section 263 of the Act and has also filed an appeal before the CIT (Appeals)-XV, New Delhi against the order passed by the Assessing Officer under section 143(3), read with section 263 of the Act. The appeal filed before the Tribunal has already been fixed for hearing.
4. Shri Dinesh Vyas, ld. counsel for the assessee, in praying for the stay of the demand of Rs. 1,60,35,67,210, firstly submitted that on merits the assessee-applicant has a very strong case in its favour. In this connection, he drew our attention to the order of the ITAT, ‘D’ Bench, Mumbai dated 14-9-2000 rendered in the case of Videsh Sanchar Nigam Ltd (VSNL), Bombay [IT Appeal No. 1434 (Mum.) 1999, dated 14-9-2000], for the assessment year 1995-96, copy placed in the Paper Book, to contend that deduction for licence fee was allowable. The ld. counsel submitted that the assessee was a PSU substantially owned by the Central Government and great injustice will be caused to it if the demand is recovered. It was
pleaded that the balance of convenience was in asscssce’s favour. He drew our attention to the fact that in the aforesaid case of VSNL (supra), vide order dated 30-3-1994 in S.A. No. 35/Mum./1999, the Tribunal had granted stay of the recovery proceedings by observing as under :–
“6. We have considered the rival contentions. No doubt, the assessee has an arguable case, but at this stage, we need not go into the merits of the case. The balance of convenience, undoubtedly, lies in favour of the assessee. Moreover, the memorandum of the Cabinet Secretarial dated 24-1-1994 in no uncertain terms, suspends the operation of all orders and proceeding under challenge. This, itself, should be sufficient to preclude the department to proceed for the recovery of the disputed demand. However, in addition to the aforesaid embargo, we grant a slay on the recovery of the outstanding dues and direct not to initiate any recovery proceedings till the disposal of the appeal by the Tribunal.”
The learned counsel submitted that it was a precedent which should be followed in the present case. On the question of maintainability of the present stay petition, the ld. counsel emphatically submitted that in his order under section 263, the CIT had given positive directions to the Assessing Officer to disallow assessee’s claims of Rs. 1,47,95,35,200 and Rs. 35,98,07,973, thereby leaving no discretion with the Assessing Officer to apply his own mind. The appeal against the fresh assessment order passed by the Assessing Officer was, therefore, only a mechanical formality, because the whole thing would depend on the order that may be passed by the Tribunal in assessee’s appeal against the order under section 263 of the Act and if that is decided in assessee’s favour, the very foundation of the fresh assessment would collapse. After referring to at length, the Apex Court decision in the case of ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815, the Id. counsel submitted that the Tribunal had very wide powers to grant stay of demand to do substantial justice and to prevent the appeal from being rendered nugatory. The ld. counsel also drew our attention to the ITAT Bench ‘A’, Mumbai Order in [SA No. 50 (Mum.) of 1999, dated 11-6-1999] in the case of Blue Dart Express Ltd. Mumbai for the assessment years 1994-95 and 1995-96, copy placed in the paper book. It was submitted that the facts of this case were identical to the facts of the assessee’s case and the orders passed by the Assessing Officer had been set aside by the CIT under section 263 of the Income-tax Act. He submitted that in this case, the prayer was for slay of proceedings before the Assessing Officer in consequence of order passed under section 263 and the Appellate Tribunal had directed the Assessing Officer not to create the demand in pursuance of the order under section 263 till the date specified by it or the disposal of the appeals by the Tribunal, whichever was earlier.
5. Shri Sanjiv Kumar, Standing Counsel for the Department, strenuously opposed the assessee’s petition. He submitted that in similar situation in
assessment year 1996-97, the assessee’s request of slay of demand was rejected by the Department and on the writ petition filed by it, the Hon’ble Delhi High Court, while refusing to grant stay of demand, had directed the assessee to deposit a certain sum by the specified date. The ld. counsel then submitted that before the Tribunal, the assessee is in appeal against the order of the CIT under section 263 of the Act but it is not this order which has resulted in the creation of the demand. He submitted that the demand has arisen as a result of fresh order under section 143(3), read with section 263 of the Act and for that the assessee can seek such remedy as is available to it under the law. He submitted that the assessee’s petition was not maintainable in law and on facts. The other submission of the ld. standing counsel was that on merits there is a vital difference between the facts in the case of VSNL (supra), relied upon by the assessee, and in its own case. By making a reference of the ratio of the Apex Court decisions reported in Siliguri Municipality v. Amalendu Das [1984] 146 ITR 624 and Asstt.CCE v.Dunlop India Ltd. [1985] 154 ITR 172, the ld. standing counsel submitted that merely because an appeal against the order of the CIT under section 263 is pending before the Tribunal, the demand created as a result of some other order should not be stayed.
6. In reply, the ld. counsel for the assessee submitted that the issue before the Hon’ble Delhi High Court was totally different and the order cannot be considered as a precedent. He reiterated that when the CIT’s order under section 263 itself says that the claim for deduction should not be allowed, it is for all practical purposes that order which has resulted in the creation of the disputed demand, though in an indirect manner. He admitted that dispute demand cannot be stayed in all cases but submitted that when question of substantial justice was involved, it deserved to be stayed.
7.1 We have carefully considered the rival submissions. We have first to decide whether on the facts and in the circumstances of the case, the assessee’s petition for stay of demand is legally maintainable. From the Apex Court decision in the case of M.K. Mohammed Kunhi (supra), it is abundantly clear that pendency of appeal before the Tribunal is a sine qua non for exercising by it the incidental and ancillary power of granting stay of demand. To our mind, this power is an adjunct of, and flows from, the substantive power to hear the appeal pending before the Tribunal. The question that arises is pendency of which appeal? In our considered opinion, the appeal should be the one which is in relation to the order giving rise to the disputed demand. No doubt, the assessment in the present case, which has given rise to the demand in question has been made in pursuance of the directions contained in the Commissioner’s order under section 263 of the Act but the Tribunal is not seized with the appeal against the assessment, which, in fact is pending before the ld, First Appellate Authority. The appeal pending before the Tribunal against the
order under section 263 has not by itself given rise to any demand and, as such, even if the appeal was to be decided in asscssee’s favour, that would not automatically wipe off the demand in dispute. For that there has to be an order from the First Appellate Authority. We may point out that the exercise of power by the Tribunal to stay the demand in this case would amount to usurping by it the inherent and incidental powers of the First Appellate Authority, before whom the appeal against the assessment is pending. We may add that in the case of VSNL, in which stay of demand was granted by the Mumbai Bench of the Tribunal, the assessee’s appeal against the relevant assessment was pending before it. Further, in the case of Blue Dart Express Ltd. (supra) the prayer before the Mumbai Bench was for stay of proceedings before the Assessing Officer in consequence of the order passed under section 263 and the Tribunal had, while rejecting the request for grant of outright stay of proceedings, ordered for the early hearing of the appeal and further directed the Assessing Officer not to create the demand in pursuance to the order under section 263, till a certain date. The Tribunal had thus exercised its incidental and ancillary powers in different circumstances and in a different manner. In our considered opinion, the order in that case does not render assistance to the assessee’s case before us.
7.2 In view of the foregoing discussion and without going into the merits of the other aspects of the assessee’s case, we hold that its petition for the stay of demand is not maintainable in law. It is rejected accordingly.