2008 (5) TMI 20 - HC - Income Tax

Stay of demand u/s 220(6) Putting the cart before the horse. - Against the returned income of ₹ 7.5 cr, assessed income was ₹ 58.68 cr. Assessee preferred an appeal before comm.(A) and filied stay application before AO. But department initiated the proceedings for recovery of demand along with interest and penalty. HC ordered to keep the recovery proceedings in abeyance and allowed part deposit as per earlier order of DCIT.

Issues Involved:
1. Jurisdiction of the Additional Commissioner vs. Deputy Commissioner to handle a stay petition under Section 220(6) of the Income Tax Act, 1961.
2. Validity of the Deputy Commissioner's order requiring the Assessee to pay 15% of the tax demand.
3. Applicability of CBDT Instruction No. 96 regarding the stay of tax collection when assessed income is substantially higher than returned income.
4. Procedural fairness and reasonableness of the Revenue's actions.

Detailed Analysis:

1. Jurisdiction of the Additional Commissioner vs. Deputy Commissioner:
The primary issue was whether the Additional Commissioner or the Deputy Commissioner had the authority to handle the Assessee's stay petition under Section 220(6) of the Income Tax Act, 1961. The court noted that the Central Board of Direct Taxes (CBDT) had issued a Notification dated 17th September 2001, conferring the powers of an Assessing Officer on an Additional Commissioner. The Additional Commissioner had issued an assessment order on 31st December 2007. The Assessee filed a stay petition on 1st February 2008 to the Additional Commissioner, which was not responded to. The Additional Commissioner advised the Assessee to approach the Deputy Commissioner, who then required the Assessee to pay 15% of the net demand. The court held that the Additional Commissioner, having exercised the power of an Assessing Officer, was required to continue exercising that power, including dealing with the stay petition. The Additional Commissioner could not delegate this power to the Deputy Commissioner, as it was a statutory power conferred by the CBDT. The principle of "delegatus non potest delegare" (a delegate cannot further delegate) applied here.

2. Validity of the Deputy Commissioner's Order:
The Assessee contended that the order dated 27th February 2008 by the Deputy Commissioner, which required the Assessee to pay 15% of the net demand, was factually incorrect and without consent. The court found no record of the Assessee agreeing to pay 15% of the net demand. The Assessee had requested to pay in installments, which was misconstrued by the Deputy Commissioner. Consequently, the order was deemed unsustainable and was struck down. Additionally, the court noted that the order lacked reasons and was passed without giving the Assessee an opportunity to be heard, further invalidating it.

3. Applicability of CBDT Instruction No. 96:
The court considered CBDT Instruction No. 96 dated 21st August 1969, which states that if the assessed income is substantially higher than the returned income (twice or more), the collection of tax in dispute should be held in abeyance until the appeal decision. In this case, the assessed income was almost eight times the returned income, making the instruction applicable. The court referenced several High Court decisions that interpreted the instruction similarly, supporting the Assessee's entitlement to an absolute stay of the demand.

4. Procedural Fairness and Reasonableness of the Revenue's Actions:
The court criticized the Revenue for its unreasonable stance, insisting on full payment despite the pending stay petition. The court found it inappropriate for the Revenue to enforce the demand while the stay petition was still pending, highlighting procedural unfairness. The court directed the Assessee to pay the remaining amount of Rs. 2.75 crores in installments and restrained the Revenue from recovering the demand over and above 15% until the appeal's disposal by the CIT (A). The court also awarded costs to the Assessee, emphasizing the unnecessary litigation caused by the Revenue's unreasonable approach.

Conclusion:
The court concluded that the Additional Commissioner was the appropriate authority to handle the stay petition and invalidated the Deputy Commissioner's order. It applied CBDT Instruction No. 96, granting the Assessee relief from immediate tax collection due to the substantial increase in assessed income. The court directed installment payments for the remaining tax and restrained further recovery actions, emphasizing procedural fairness and awarding costs to the Assessee.

← Previous Next →