1991 (11) TMI 45 - HC - Income Tax

Issues Involved:
1. Quashing of the order rejecting the assessee's application under section 220(6) of the Income-tax Act, 1961.
2. Restraining the enforcement of tax demand and bank guarantees.
3. Alleged violation of principles of natural justice by the Assessing Officer.
4. Alternative remedy and jurisdiction under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Quashing of the Order Rejecting the Assessee's Application under Section 220(6):

The petitioner-assessee sought to quash the order dated July 10, 1991 (Annexure P-9), issued by the Assessing Officer (Respondent No. 1), which rejected the assessee's application under section 220(6) of the Income-tax Act, 1961. The petitioner contended that the rejection was made without granting a hearing, violating the principles of natural justice. The court noted that the exercise of discretion under section 220(6) is a quasi-judicial function requiring fairness and reasonableness, as established in Seth Gopaldas Paliwal v. WTO [1983] 139 ITR 900.

2. Restraining the Enforcement of Tax Demand and Bank Guarantees:

The petitioner also sought to restrain Respondent No. 1 from enforcing the tax demand under appeal and from encashing the bank guarantees (Annexures P-4 and P-5). The court observed that the Assessing Officer was seeking to encash the bank guarantees worth Rs. 25 lakhs even though the appeal against the demand was still pending. The petitioner argued that the guarantees should not be enforced until the final determination of the tax liability.

3. Alleged Violation of Principles of Natural Justice:

The petitioner argued that the rejection of the application under section 220(6) without a hearing was a violation of the principles of natural justice. The court emphasized that the Income-tax Officer should provide reasons for dismissing such applications and must hear the assessee, as per the principles laid down in Seth Gopaldas Paliwal v. WTO [1983] 139 ITR 900. The court found merit in the petitioner's contention that the Assessing Officer acted arbitrarily by not providing a hearing.

4. Alternative Remedy and Jurisdiction under Article 226:

Respondent No. 1 argued that the petitioner was disentitled to invoke the court's extraordinary jurisdiction under Article 226 due to the availability of an alternative remedy and breach of undertaking. The court referred to the Supreme Court's decision in A. V. Venkateswaran, Collector of Customs v. Ramchand Sabhraj Wadhwani, AIR 1961 SC 1506, which allows for exceptions to the rule of alternative remedy, particularly in cases involving a lack of jurisdiction or violation of natural justice. The court concluded that the circumstances justified entertaining the writ petition despite the availability of an alternative remedy.

Conclusion:

The court quashed the order (Annexure P-9) rejecting the petitioner's application under section 220(6) and directed Respondent No. 1 to hear the petitioner and decide the application afresh. The court also ordered that the bank guarantees be encashed only to the extent of 50%, with the petitioner required to furnish a fresh bank guarantee for the remaining 50% by November 20, 1991. This decision balanced the interests of the Revenue and the petitioner, ensuring that the petitioner could continue his business while securing the government's revenue interests. The petition was disposed of with no order as to costs, and the petitioner was directed to appear before Respondent No. 1 on November 15, 1991, and on further dates as directed.

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