2022 (2) TMI 442 - HC - Income Tax

Validity of order u/s 264 read with Section 260 of the Income Tax Act - interest earned on fixed deposits as revenue receipt - subsequent assessment years, the assessee has changed its stand and has claimed the interest income as capital receipt which was not accepted by the AO and addition to the income was made treating the same as revenue receipt also confirmed by the CIT (A) - ITAT has deleted the addition made by AO for A.Y. 2012-13 to 2015-16 the Department has not accepted the decision of ITAT and has preferred appeal before Hon ble High Court as Various Courts have held that interest earned on the circumstances similar to the facts and circumstances of the cased of present assessee, as discussed above, to be revenue in nature chargeable to tax - HELD THAT - The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department and is the subject matter of an appeal cannot be a ground for not following it unless its operation has been suspended by a competent Court. See KAMLAKSHI FINANCE CORPORATION LTD. 1991 (9) TMI 72 - SUPREME COURT. It is not respondents case that the order of ITAT or the operation of the said order has been suspended by any Court. In the circumstances, we set aside the order dated 16th January 2020 impugned in the petition and remand the matter for denovo consideration.Unless there is a stay by a competent Court of the operation of the order of ITAT, respondent no.1 shall give effect to the same and pass an order in accordance with law. Respondent shall grant personal hearing to petitioner and communicate the date of personal hearing atleast one week in advance. If respondent wishes to rely on any judgments or order passed by any Court or Tribunal, he shall provide a copy thereof to petitioner and give them an opportunity to deal with those judgments or distinguish those judgments and those submissions of petitioner shall also be dealt with in the assessment order.

Summary

Issues:
Impugning order under Section 264 of the Income Tax Act, 1961 - Change in treatment of interest income from revenue to capital receipt - Non-acceptance of ITAT decision by the Department - Principles of judicial discipline - Operation of ITAT order not suspended - Remand for denovo consideration - Requirement of personal hearing and provision of relevant judgments or orders.

Analysis:
The petitioner challenged an order passed by respondent no.1 under Section 264 of the Income Tax Act, 1961, regarding the treatment of interest income earned on fixed deposits. The petitioner initially declared the interest as a revenue receipt but later claimed it as a capital receipt in subsequent assessment years. The Assessing Officer (AO) rejected this change, treating it as a revenue receipt and making additions to the income. The Commissioner of Income Tax (CIT) upheld this decision for relevant assessment years. Although the Income Tax Appellate Tribunal (ITAT) deleted the addition for certain years, the Department did not accept this decision and appealed to the High Court. Various courts have held interest income in similar circumstances to be revenue in nature. The court found that the petitioner's case under Section 264 of the IT Act lacked merit and rejected the petition on its merits.

The judgment emphasized the principles of judicial discipline, stating that orders of higher appellate authorities should be followed unless suspended by a competent court. The court cited a case where revenue officers were criticized for not adhering to higher appellate orders, causing harassment to the assessee. It stressed that revenue officers must abide by decisions of appellate authorities, with the order of the Appellate Collector binding on subordinate authorities within the jurisdiction and the Tribunal's order binding on those under its jurisdiction. Failure to follow this rule leads to undue harassment to taxpayers and chaos in tax administration.

As the operation of the ITAT order was not suspended by any court, the court set aside the impugned order and remanded the matter for denovo consideration. It directed respondent no.1 to give effect to the ITAT order unless stayed by a competent court. The respondent was instructed to grant the petitioner a personal hearing and provide relevant judgments or orders relied upon. The petitioner should be given an opportunity to address or distinguish these judgments, with their submissions reflected in the assessment order. The petition was disposed of accordingly, ensuring procedural fairness and adherence to legal principles.