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Issues involved:
The judgment addresses the denial of deduction claims u/s 80HH and 80-I of the Income-tax Act by the Assessing Officer for various assessment years, the application of section 220 for recovery of tax demand, and the discretionary power of the Assessing Officer to treat the assessee as not in default. Deduction Claims under Sections 80HH and 80-I: The petitioner, a company, took over the business of a partnership firm, Madhu Chemicals, which had claimed deductions under sections 80HH and 80-I for the assessment years 1987-88 and 1988-89. While initially disallowed, these deductions were later allowed by the Income-tax Appellate Tribunal. However, for subsequent assessment years, the Assessing Officer denied the deductions to the petitioner. The Commissioner of Income-tax (Appeals) upheld the petitioner's claim for the assessment years 1989-90, 1990-91, and 1991-92. The Assessing Officer continued to deny the deductions for the assessment years 1992-93 and 1993-94, leading to a dispute. Application of Section 220 and Discretionary Power: The petitioner, facing recovery proceedings u/s 220, requested not to be treated as "assessee in default" for the tax demand related to the disallowed deductions under sections 80HH and 80-I. The Assessing Officer approved a stay of 80% of the demand, subject to certain conditions. The petitioner contended that as per section 220(6), the Assessing Officer has discretionary power to treat the assessee as not in default in certain circumstances, such as when the demand relates to issues decided in favor of the assessee in an earlier order. Decision and Legal Interpretation: The High Court analyzed the provisions of section 220(6) and circulars issued by the Board, emphasizing that the Assessing Officer's discretion to not treat the assessee as in default is guided by specific circumstances. The Court found that the conditions for exercising discretion in favor of the assessee existed in this case, as the deduction claims had been decided in the petitioner's favor in earlier years. Therefore, the Court quashed the order treating the petitioner as in default and directed the assessing authority to pass a fresh order in accordance with the law. Conclusion: The judgment clarifies the application of section 220 and the Assessing Officer's discretionary power in cases where tax demands are disputed, particularly concerning deduction claims under sections 80HH and 80-I. It underscores the importance of following guidelines issued by the Board for proper administration of the Income-tax Act and upholding decisions in favor of the assessee in earlier orders.
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