2013 (11) TMI 1542 - HC - Income Tax

Order under Section 220(6) - necessity of passing speaking order - petitioners submitted the application before the concerned officers to stay the entire demand during the pendency and final disposal of the appeal before the CIT(A) in exercise the powers under Section 220(6) and by impugned communication / order / notice 50% demand has been stayed on certain conditions and / or same may be rejected treated as assessee in default under Section 220 of the Act - while exercising the discretionary powers under Section 220(6) of the Act under which circumstances and when AO may treat the assessee as not being in default in respect of amount in dispute in the Appeal ? Held that - While exercising discretion vested under Section 220(6) of the Act and during the pendency of the appeal against the order of assessment the assessee is required to be treated as not being in default though the period to make the payment as provided under the Act has expired the AO in following circumstances and eventualities is required to pass an order to treat the assessee as not being in default. (a)If the demand in dispute relates to the issues that have been decided in assessee s favour by appellate authority or Court earlier; or (b)If the demand in dispute has arisen because the AO had adopted an interpretation of law in respect of which there exist conflicting decisions of one or more High Courts or the High Court ( not of the High Court under whose jurisdiction the AO is working); or (c)If the High Court having jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment. In a given case the AO may exercise discretion in favour of assessee by granting reasonable installments. Even the AO may reserve the right to review the order passed after expiry of reasonable period say upto six months and if the assessee has not cooperated in the early disposal of the appeal or where a subsequent pronouncement by a higher appellate authority or Court alters the situation considered while passing under order under Section 220(6) of the Act the AO may is a given case review the earlier order passed under Section 220(6) of the Act. It goes without saying that while exercising the powers under Section 220(6) of the Act discretion is to be exercised by the AO judiciously and passed a speaking order as stated above. In the case where the order of assessment is passed by the AO and the amount of tax determined is found to be high pitched i.e. substantiating the higher than the total amount of return income and assessee is in appeal in such situation the AO is required to consider the case on individual case to case basis and there may not be any straight jacket formula that moment on passing the order of assessment income is found to be double the returned income declared in the return assessed same is to be treated as high pitched assessment and in such situation the AO is bound to treat the assessee as not being in default. There can be no rule of universal application in such matter and order has to be passed keeping in mind the factual scenario involved. In such a situation and the case while exercising the discretion under Section 220(6) of the Act the AO may pass an order in favour of assessee on imposing such conditions as he deem fit either granting reasonable installments and / or to pass conditional order of deposit of some amount and with respect to remaining amount the security to be furnished to protect the interest of the revenue. Now so far as impugned orders passed by the AO impugned in the present petition are concerned it appears that while passing the impugned order and exercise the discretion by the AO under Section 220(6) of the Act it appears that the aforesaid criteria / principle and / or circumstance has not been appropriately considered by the respective AO s. Under the circumstances impugned orders deserve to be quashed and set aside and the matters are required to be remanded to respective AO s to pass appropriate order afresh in accordance with law and on merits and considering the observations made by this Court herein above and after giving reasonable opportunity of being heard to the Assessee to the extent the assessee may point out that in their case ground exist to exercise discretion in favour of assessee to treat him as not being in default and / or with respect to suitable installments and / or reasonable time to him to make the payment of demand.

Summary

Issues Involved:
1. Validity of treating the petitioner as assessee in default under Section 220(6) of the Income Tax Act.
2. Obligation of the Assessing Officer (AO) to follow CBDT instructions and circulars while exercising discretion under Section 220(6).
3. Requirement for the AO to pass a reasoned and speaking order under Section 220(6).
4. Consideration of financial hardship and high-pitched assessments in granting stay of demand.
5. Role of higher authorities in interfering with AO's decisions under Section 220(6).

Detailed Analysis:

Issue 1: Validity of Treating the Petitioner as Assessee in Default
The petitioner-assessee challenged the orders treating them as assessee in default under Section 220(6) of the Income Tax Act. The court noted that the demand was raised following assessment orders, and the petitioners had sought a stay of the entire demand during the pendency of appeals before the CIT(A). The AO had stayed only 50% of the demand, leading to the current petitions under Article 226 of the Constitution of India.

Issue 2: Obligation of AO to Follow CBDT Instructions
The petitioners argued that the AO must follow the CBDT instructions issued under Section 119 of the Act. These instructions, specifically Instruction Nos. 96 of 1969, 530 of 1989, and 1914 of 1993, guide the AO to defer recovery if the issues are decided in favor of the assessee in earlier appellate orders or if the assessment is substantially higher than the returned income. The court acknowledged that the AO is bound to follow these instructions for proper administration of the Income Tax Act.

Issue 3: Requirement for AO to Pass a Reasoned and Speaking Order
The petitioners contended that the AO must pass a reasoned and speaking order under Section 220(6). The court agreed, emphasizing that while the AO need not delve into the merits of the assessment, they must issue a speaking order regarding whether the assessee should be treated as not being in default and under what conditions. This ensures transparency and accountability in the AO's exercise of discretion.

Issue 4: Consideration of Financial Hardship and High-Pitched Assessments
The petitioners argued that high-pitched assessments, where the assessed income is substantially higher than the returned income, should warrant a stay of demand. The court, however, clarified that there is no straight-jacket formula for this. Each case must be evaluated individually, considering all relevant factors. The AO may grant stay or impose conditions like payment in installments, offering security, or other measures to protect revenue interests.

Issue 5: Role of Higher Authorities
The revenue argued that higher authorities could interfere with AO's decisions only in exceptional circumstances, such as unreasonably high-pitched assessments or genuine hardship. The court concurred, noting that higher authorities should not routinely interfere but can do so to prevent arbitrary or oppressive decisions by the AO.

Conclusion:
The court concluded that the AO's discretion under Section 220(6) must be exercised judiciously, following CBDT instructions and issuing a reasoned order. The impugned orders were set aside, and the matters were remanded to the respective AOs for fresh consideration in light of the court's observations. The AOs were directed to complete this exercise within four weeks, ensuring a fair and transparent process.