2022 (2) TMI 1208 - HC - Income Tax

Stay of demand - waiver of 20% of the pre-deposit essentially on four grounds (i) high pitched assessment (ii) only source of income through Avani Petrochem Pvt. Ltd. (iii) stereo type order passed by the Principal Commissioner and (iv) adverse effect on the financial affairs due to the Covid-19 pandemic - HELD THAT - In the case on hand, unfortunately, the respondent No.2 has not considered anything and has just mechanically declined to grant relief as prayed for by the writ applicant. When the writ applicant pointed out to the respondent No.2 that the case on hand is one of high pitched assessment, the same came to be dismissed by the respondent No.2 by merely saying that the issue has been discussed threadbare during the assessment proceedings - finding recorded by the respondent No.2 is that the assessment order came to be passed by the Assessing Officer after granting sufficient opportunities and after due consideration of all the relevant aspects of the matter and, therefore, the issue of high pitched assessment need not be considered. The findings recorded in para-3 of the order dated 17.12.2021 are not appealing to us at all. The matter has not been considered by the respondent No.2 in its proper perspective. Many times in the over zealousness to protect the interest of the Revenue, the authorities render their discretionary orders susceptible to the complaint that those have been passed without any application of mind. We fail to understand what is so magical in the figure of 20%. To balance the equities, the authority may even consider directing the assessee to make a deposit of 5% or 10% of the assessed amount as the circumstances may demand as a pre-deposit. The High Pitched Assessment means where the income determined and assessment was substantially higher than the returned income. For example, twice the returned income or more. The exercise of discretion is essentially the discernment of what is right and proper; and such discernment is the critical and cautious judgment of what is correct and proper by differentiating between shadow and substance as also between equity and pretence. A holder of public office, when exercising discretion conferred by the statute, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The requirements of reasonableness, rationality, impartiality, fairness and equity are inherent in any exercise of discretion; such an exercise can never be according to the private opinion. It is hardly of any debate that discretion has to be exercised judiciously and, for that matter, all the facts and all the relevant surrounding factors as also the implication of exercise of discretion either way have to be properly weighed and a balanced decision is required to be taken. The mandate of Parliament in sub-section (6) seems to be that the lower Assessing Officer should abide by and being bound by the decision of the appellate authority, should normally wait for the fate of such appeal filed by the assessee. Therefore, his discretion of not treating the assessee in default, conferred under sub-section (6) should ordinarily be exercised in favour of assessee, unless the overriding and overwhelming reasons are there to reject the application of the assessee under Section 220(6) - The application under Section 220(6) of the Act cannot normally be rejected merely describing it to be against the interest of Revenue if recovery is not made, if tax demanded is twice or more of the declared tax liability. The very purpose of filing of appeal, which provides an effective remedy to the assessee is likely to be frustrated, if such a discretion was always to be exercised in favour of revenue rather than assessee. Civil application allowed - impugned orders passed by the respondent No.2 are set aside and the respondent No.2 is directed to consider the application filed by the writ applicant under Sections 220(3) and 220(6) respectively of the I.T. Act afresh in conformity with all the CBDT instructions and the parameters laid as above by providing an opportunity of being heard to the writ applicant and pass orders in accordance with law preferably within a period of two weeks from the date of the receipt of the writ of this order. Section 251 of the Act clearly stipulates that in disposing of an appeal, the CIT (Appeals) can confirm, reduce, enhance or annul the assessment. Section 251 (1) (c) of the Act further provides that in other cases, he may pass such orders in appeal as he thinks fit. These words harmoniously read, definitely mean that powers of appellate authorities under the Act are wide enough. Such powers could not be intended to be drained out or rendered meaningless, if the power to grant stay against the recovery of disputed demand is to be taken away from the first appellate authority. Such implied, necessary and inherent power must necessarily be read into these provisions conferring the powers upon the appellate authority to modify the impugned assessment order in any manner. In specific terms, the first appellate authority can even enhance the taxable income, while he has the power to reduce or completely set at naught the assessment. The words as he thinks fit in Section 251 (1) (C) are not redundant, as no such redundancy can be attributed to the Parliament. Therefore, mere absence of words power to grant stay in Section 251 of the Act cannot mean that such powers are specifically excluded from the jurisdiction of the first appellate authority.

Summary

Issues Involved:
1. High Pitched Assessment
2. Waiver of Pre-Deposit
3. Financial Stringency and Balance of Convenience
4. Discretionary Power of Assessing Officer under Section 220(6)
5. Compliance with CBDT Instructions and Circulars

Detailed Analysis:

High Pitched Assessment:
The petitioner argued that the assessment was high-pitched, approximately 100 times the returned income, leading to an astronomical demand of ?373,20,42,319/-. The court noted that the term "High Pitched Assessment" refers to assessments substantially higher than the returned income, often twice or more. The court cited various judgments, including those from the Madras and Delhi High Courts, which indicated that in cases of high-pitched assessments, the collection of disputed taxes should be held in abeyance until the appeal is decided, provided there are no lapses on the part of the assessee.

Waiver of Pre-Deposit:
The petitioner sought a waiver of the 20% pre-deposit required for the stay of the demand, arguing that the amount was unreasonably high. The court emphasized that the Assessing Officer should not mechanically insist on a 20% deposit, especially when the amount itself is astronomical. It was noted that the discretion to waive or reduce the pre-deposit should be exercised judiciously, considering the circumstances of each case.

Financial Stringency and Balance of Convenience:
The petitioner claimed financial hardship due to the COVID-19 pandemic and argued that the only source of income was from Avani Petrochem Pvt. Ltd., whose turnover was significantly lower than the assessed income. The court highlighted that financial stringency and balance of convenience are crucial factors in deciding stay applications. It was noted that the Assessing Officer should consider these factors and not act as a mere tax-gatherer but as a quasi-judicial authority.

Discretionary Power of Assessing Officer under Section 220(6):
The court analyzed the discretionary power of the Assessing Officer under Section 220(6) of the Income Tax Act, which allows the officer to treat the assessee as not being in default during the pendency of an appeal. The court emphasized that this discretion should be exercised judiciously and not arbitrarily. The officer should consider all relevant factors, including the existence of a prima facie case, balance of convenience, and irreparable injury to the assessee.

Compliance with CBDT Instructions and Circulars:
The court noted that the Assessing Officer must comply with the CBDT instructions and circulars, which provide guidelines for staying demands. The court referred to various instructions, including Instruction No.1914 and subsequent modifications, which suggest that the officer should consider the merits of the case and the financial condition of the assessee before deciding on the stay of demand. The court criticized the mechanical application of the 20% pre-deposit requirement and stressed the need for a more nuanced approach.

Conclusion:
The court allowed the writ application, setting aside the impugned orders and directing the respondent to reconsider the application for stay in conformity with the CBDT instructions and the parameters laid down by the court. The court also provided an opportunity for the petitioner to seek relief from the First Appellate Authority, emphasizing that the appellate authority has the inherent power to grant stay against the recovery of disputed demands. The court's decision underscores the importance of a fair and judicious exercise of discretion by tax authorities, particularly in cases involving high-pitched assessments and significant financial implications for the assessee.