2015 (12) TMI 1331 - HC - Income Tax

When tax payable and when assessee deemed in default - powers under Sections 220(3) & 220(6) - validity of CBDT Instruction - Held that - It is incorrect to state that DBDT Instruction No.1914, dated 02.12.1993 supersedes all previous instructions. Although instruction No.1914 specifically states that it is in supersession of earlier instructions, the position obtaining after the decision of the case in Volvoline Cummins Limited Vs. DCIT (2008 (5) TMI 20 - HIGH COURT OF DELHI ) is not altered at all. This is so, the DBDT Instruction No.95, dated 21.08.1969 was issued with the consent of the informal consultative committee held on 13th May, 1969 formed under the business rules of the Parliament, which even now holds the field. Hence, we are of the opinion that the tendency of making high pitched assessments by the Assessing Officer is not unknown and it may result in serious prejudice to the assessee and miscarriage of justice & sometimes may even result into insolvency or closure of the business if such power was to be exercised only in a pro-revenue manner. Hence, the powers under Sections 220(3) & 220(6) of IT Act have to be exercised in accordance with the letter and spirit of CBDT Instruction No.95 dated 21.08.1969, which is binding on all the assessing authorities created under the Act. Therefore, the impugned order passed by the respondent without considering CBDT Instruction No.95, dated 21.08.1969 is against the principles laid down in the judgments stated supra. In the absence of any specific bar to provide an opportunity in the provision, the respondent ought to have provided an opportunity to get absolute stay till the disposal of the appeal as well as in consideration of the reasons to treat the assessee as not being in default , in order to avoid interest and penalty. Whereas in this case the Assessing Officer had failed to provide an opportunity of being heard prior to disposal of the application under Section 220(3) for stay. Hence, the impugned orders are liable to be set aside. The respondent is directed to consider the petition filed by the petitioner under Section 220(3) and 220(6) of IT Act, in conformity with CBDT Instruction No.95, dated 21.08.1969, by providing an opportunity of being heard to the petitioner, and pass orders in accordance with law, as early as possible.

Issues Involved:
1. High Pitched Assessment
2. Applicability of CBDT Instruction No.95 dated 21.08.1969 versus CBDT Instruction No.1914 dated 02.12.1993
3. Discretionary power under Sections 220(3) and 220(6) of the Income Tax Act
4. Requirement for providing an opportunity of being heard

Detailed Analysis:

1. High Pitched Assessment:
The petitioner, an income tax assessee, filed a return for the assessment year 2012-2013, declaring a total income of Rs. 4,91,680 and agricultural income of Rs. 45,00,000. The Assessing Officer (AO) rejected the claim of agricultural income and assessed the total income at Rs. 59,91,680, treating the agricultural income as regular income from undisclosed sources. The petitioner contended that the assessment was made arbitrarily and in a biased manner, without considering the evidence provided, such as Patta, Adangal, Sale Bills, and Pesticides Bills. The petitioner argued that the assessment was a "High Pitched Assessment," defined as an assessment where the determined income is substantially higher than the returned income, in this case, 14 times higher.

2. Applicability of CBDT Instruction No.95 dated 21.08.1969 versus CBDT Instruction No.1914 dated 02.12.1993:
The petitioner relied on CBDT Instruction No.95, which states that in cases of high pitched assessments, the assessee should be treated as "not being in default" regarding the amount in dispute in the appeal. The respondent, however, argued that this instruction had been superseded by CBDT Instruction No.1914, which requires valid reasons for staying the demand and does not automatically grant stay merely because an appeal has been filed. The court reviewed various judgments, including those from the Delhi High Court and Rajasthan High Court, which supported the continued relevance of Instruction No.95, especially in cases of high pitched assessments.

3. Discretionary Power under Sections 220(3) and 220(6) of the Income Tax Act:
Sections 220(3) and 220(6) grant the AO discretionary power to extend the time for payment or allow payment in installments and to treat the assessee as not being in default during the pendency of an appeal. The petitioner filed a petition under these sections seeking a stay of the demand pending appeal, which was rejected by the AO, who directed the petitioner to pay 50% of the demand amount. The court noted that the AO's discretion should ordinarily be exercised in favor of the assessee in cases of high pitched assessments to avoid penal interest and financial hardship.

4. Requirement for Providing an Opportunity of Being Heard:
The court emphasized that the AO should have provided an opportunity for the petitioner to be heard before disposing of the application under Sections 220(3) and 220(6). The failure to do so was against the principles laid down in various judgments and CBDT Instruction No.95. The court held that the impugned orders were liable to be set aside for not considering the instruction and not providing an opportunity to the petitioner.

Conclusion:
The court allowed the writ petition, set aside the impugned orders, and directed the respondent to reconsider the petition filed under Sections 220(3) and 220(6) in conformity with CBDT Instruction No.95, providing an opportunity of being heard to the petitioner. The court underscored the importance of exercising discretion in favor of the assessee in high pitched assessments and adhering to procedural fairness.

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