2005 (5) TMI 39 - HC - Income Tax

Period for payment of tax demand recovery of tax -Assessing Officer issued a notice of demand u/s 156 - However, he reduced the period for payment of the tax to 7 instead of allowing 30 days, as contemplated under section 220. The notice of demand was issued on that very date, i.e., March 21, 2005 - there was no material before the Assessing Officer which could lead a person of common prudence to believe that the demand would become unrecoverable or that it would otherwise be detrimental to the Revenue belief of the Assessing Officer should not be based on untenable apprehensions or assumptions - Held that the reasons to believe that grant of full period of 30 days for payment of tax to the assessee would be detrimental to the Revenue, are mere assumptions - Thus, we would quash the order-cum-direction issued by the Assessing Officer dated March 21, 2005, reducing the period for payment of tax demand raised upon the assessee under section 156

Issues Involved:
1. Legality and validity of the Assessing Officer's discretion to reduce the period for payment of tax from 30 days to 7 days.
2. Compliance with the statutory provisions under Section 220 of the Income-tax Act, 1961.
3. The requirement for the Assessing Officer to record reasons for reducing the payment period.
4. The impact of the Assessing Officer's decision on the petitioner, including potential penalties and interest.

Detailed Analysis:

1. Legality and Validity of the Assessing Officer's Discretion:
The petitioner challenged the legality and validity of the Assessing Officer's decision to reduce the period for payment of tax from 30 days to 7 days. The petitioner argued that there was no material basis for the Assessing Officer's satisfaction regarding the pre-requisites for enforcing the reduced period. The petitioner claimed that the exercise of power was arbitrary and capricious, lacking any rational nexus to the interest of the Revenue.

2. Compliance with Statutory Provisions under Section 220:
The court examined the statutory powers vested in the Assessing Officer under Section 220(1) of the Income-tax Act. The provisions empower the Assessing Officer to curtail the period for payment of tax if he has "reason to believe" that it will be detrimental to the Revenue if the full period of 30 days is allowed. This decision must be made with the previous approval of the Joint Commissioner. The court emphasized that the exercise of such quasi-judicial powers requires the Assessing Officer to act in conformity with the provisions and ensure that the legislative object is achieved.

3. Requirement for the Assessing Officer to Record Reasons:
The court highlighted the importance of recording reasons for the Assessing Officer's belief that granting the full period of 30 days would be detrimental to the Revenue. The reasons must have a direct nexus to the belief and should be based on cogent material on record. The belief must be held in good faith and not be arbitrary or irrational. The court cited various legal precedents to establish that the belief must be reasonable and based on relevant and material reasons.

4. Impact on the Petitioner:
The court noted that the Assessing Officer's order had serious consequences for the petitioner, including the potential for penalties and interest. The petitioner argued that the order was based on incorrect assumptions and presumptions. The court found that one of the reasons cited by the Assessing Officer-that the petitioner had not paid advance tax on the due dates-was factually incorrect, as the petitioner had deposited advance tax on March 15, 2005. The court also found that the other reason-that the petitioner was winding up its manufacturing activities-was without foundation.

Conclusion:
The court concluded that the reasons provided by the Assessing Officer for reducing the payment period were either factually incorrect or without any material basis. The court emphasized that the exercise of such discretionary power must be based on valid, record-based reasons and should not be arbitrary or capricious. The court quashed the Assessing Officer's order dated March 21, 2005, reducing the period for payment of the tax demand and allowed the writ petition, leaving the parties to bear their own costs.

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