2011 (12) TMI 158 - HC - Income Tax

Whether the first appellate authority, namely, CIT(Appeals) or DCIT (Appeals) have inherent power to grant stay and decide the stay application filed along-with appeal/s filed before them u/s 246/246A of Act respectively appeal preferred u/s 246A - application for stay of entire disputed demand made u/s 220 (3) and 220 (6) claim rejected and coercive measures taken - Held that - First appellate authority, namely; DCIT (Appeals) or CIT (Appeals) have inherent, implied and ancillary powers to grant stay against the recovery of disputed demand of tax while seized of the appeal filed before them in accordance with Section 246 or 246A of the Act. Such inherent powers have to be inferred even in the absence of any specific statutory provision conferring the power to grant stay upon such authorities under the Act. Section 220(6) only give discretion to the Assessing Authority, not to treat the assessee in default and doesnot confer power to grant stay of demand. Therefore, such powers have to be exercised in accordance with Instruction No. 95 dated 21.08.1969. which states that where the income determined on assessment was substantially higher than the returned income viz. twice the later amount or more, the collection of the taxes in dispute to be held in abeyance till the decision of the appeals provided there was no fault on the part of the assessee. In present case , the main additions are trading additions on the basis of GP rates, the validity of which is subject matter of appeal before the C.I.T. (Appeals). Thus, this Court in view of Instruction No.95 dated 21.08.1969, would stay the recovery of entire balance amount from the assessee, while directing the C.I.T. (Appeals) to dispose of the pending appeal of the assessee within a period of six months from date of order. The attachment of bank accounts of the assessee already attached by the Assessing Authority are also be lifted. The assessee may also file stay application before the C.I.T. (Appeals), who may also consider such stay application on its own merits upon the relevant factors. Further, it is directed that first appellate authorities and assessing authorities would act in accordance with the said decision in the cases of other appellant assessees within the State of Rajasthan also. - Decided in favor of assessee.

Issues Involved:

1. Power of first appellate authority to grant stay under Income-tax Act, 1961.
2. Assessing Officer's power under Section 220(6) during the pendency of appeal.
3. Interpretation of relevant provisions and circulars under the Income-tax Act, 1961.
4. Application of Instruction No. 95 dated 21.08.1969.
5. High-pitched assessments and their implications.

Detailed Analysis:

1. Power of First Appellate Authority to Grant Stay:

The primary issue was whether the first appellate authority, namely, Commissioner of Income-tax (Appeals) or Deputy Commissioner (Appeals), has the power to grant stay and decide stay applications filed along with appeals under Section 246/246A of the Income-tax Act, 1961. The court concluded that these appellate authorities inherently possess the power to grant stay against the recovery of disputed tax demands. This power is implied, necessary, and ancillary to their appellate jurisdiction. The court emphasized that the powers of appellate authorities are concurrent and co-extensive with those of the Assessing Officer but are broader and superior in nature. The words "as he thinks fit" in Section 251(1)(c) of the Act were interpreted to include the power to grant stay, even though not explicitly stated.

2. Assessing Officer's Power Under Section 220(6):

The court examined the Assessing Officer's power under Section 220(6) to grant stay during the pendency of an appeal. It was determined that this provision gives the Assessing Officer discretion to treat the assessee as not being in default regarding the disputed amount. This discretion should be exercised in favor of the assessee, particularly in cases of high-pitched assessments. The court noted that the power under Section 220(6) is not to grant stay per se but to mitigate the consequences of being treated as in default, such as interest and penalties.

3. Interpretation of Relevant Provisions and Circulars:

The court referred to various provisions of the Income-tax Act, including Sections 220, 246, 246A, 250, 251, 253, 254, and 255, to interpret the powers of appellate authorities and the scope of stay during the pendency of appeals. It also examined several circulars and instructions issued by the Central Board of Direct Taxes (CBDT), particularly Instruction No. 95 dated 21.08.1969, which mandates that in cases where the assessed income is substantially higher than the returned income (twice or more), the collection of disputed tax should be held in abeyance until the appeal is decided.

4. Application of Instruction No. 95 Dated 21.08.1969:

The court extensively discussed Instruction No. 95, which directs that in high-pitched assessments, the recovery of disputed tax should be stayed until the appeal is resolved. This instruction was deemed still applicable and binding on assessing authorities. The court highlighted that the spirit of this instruction survives in subsequent CBDT circulars and should guide the exercise of discretion under Section 220(6).

5. High-Pitched Assessments and Their Implications:

The court addressed the issue of high-pitched assessments, where the assessed income is significantly higher than the returned income. It was noted that such assessments could lead to severe prejudice and potential insolvency for the assessee if recovery is enforced without considering the pending appeal. The court emphasized that the purpose of the appeal process would be frustrated if recovery is not stayed in such cases, advocating for a balanced approach that considers the assessee's hardship and the revenue's interests.

Conclusion:

The court allowed the writ petition, holding that first appellate authorities have the inherent power to grant stay against the recovery of disputed tax demands. It directed that all stay applications filed before such authorities should be decided on their merits, considering factors like prima facie case, balance of convenience, irreparable injury, and the nature of the demand. The court also directed the CBDT to issue guidelines to ensure uniform application of these principles across the country. The specific case was remanded to the CIT (Appeals) with directions to dispose of the appeal within six months and stay the recovery of the disputed amount in the interim.

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