The Madras High Court has quashed an Income-Tax department order of July 16 this year directing the State-owned Tamil Nadu State Marketing Corporation (TASMAC) to pay Rs.1,235.78 crore for the assessment year 2010-11 in 20 equal instalments.

Allowing a writ plea by TASMAC, Justice K.K. Sasidharan remitted the matter to the income tax Assistant Commissioner concerned for fresh consideration on merits and in the light of earlier orders passed by the IT Appellate Tribunal (ITAT) in the company’s case, besides a Central Board of Direct Taxes (CBDT)’s circular in the matter of grant of stay pending disposal of statutory appeal. The exercise should be completed within four weeks.

The company filed a return in September 2010 admitting a total income of Rs.14.01 crore. It claimed a deduction of Special Privilege Fee (SPF) of Rs.2,937.70 crore paid to the State in the profit and loss account for the year ended March 31, 2010. However, the income-tax assessing authority disallowed the deduction of SPF.

Additional Advocate-General P.H. Arvindh Pandian said similar orders were passed during earlier assessment years. Those orders were set aside by the ITAT. However, the AO had been passing similar orders every year. The same mistake was committed during the assessment year 2010-11 also.

The Judge said though the AO attempted to distinguish the earlier orders passed by the tribunal, there was nothing in the impugned order to show how the authority arrived at a prima facie finding that the company was not entitled to an absolute stay of recovery. The authority was bound by the tribunal’s earlier decisions. Even if the AO had a case on merits, by distinguishing the earlier orders, yet, while considering the application for stay, the earlier orders of the tribunal should have been referred to. However, no such attempt had been made.

The CBDT issued detailed guidelines on December 1, 2009 in the matter of grant of stay of recovery during currency of appeal. Clause C laid down that in case the dispute related to the issue that had been decided in the assessee’s favour by an appellate authority or court earlier, it was a sufficient ground to stay the recovery of demand.

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