2009 (2) TMI 410 - HC - Income Tax

Refund - The return for the year 2005-06 filed by the petitioner declared total income of Rs. 46,41,070 while the assessment order in respect of the year assessed the income at Rs. 1,67,02,35,990 which was almost 350 times the returned income. On a writ petition stating that the order dated January 7, 2009, by the Commissioner directing the deposits of 50 percent. of the outstanding demand as per schedule laid down in the order was contrary to the circulars of the Department. Held that- CBDT Instruction No. 1222 specifically higher than the returned income, that is, twice the latter amount or more, then the collection of tax in dispute should be held in abeyance till the decision on appeal is taken. It was held in Soul v. Deputy CIT 2008 -TMI - 76546 - DELHI HIGH COURT) consequently, the operation of the order was to be stayed till the disposal of the writ petition. The natural consequence would be that any attachment order issued in pursuance of the order would not have any effect.

Summary

Issues:
Assessment of income substantially higher than returned income, applicability of circulars in tax disputes, interpretation of Instructions No. 96 and 1914, stay of demand, impact of previous judgments on current procedure.

Analysis:
The judgment dealt with a case where the assessed income was significantly higher than the returned income, leading to a dispute over the demand raised by the Commissioner of Income-tax. The petitioner argued that the order directing the deposit of 50% of the outstanding demand was contrary to circulars of the Department, specifically referring to Instruction No. 96 dated August 21, 1969. This instruction provided guidelines for staying tax collection in cases where the assessed income was substantially higher than the returned income, emphasizing the need for valid reasons to stay the demand.

The petitioner relied on previous High Court decisions, such as Valvoline Cummins Ltd. v. Deputy CIT, which interpreted Instruction No. 96 in favor of granting a stay on demand in cases of significantly higher assessed income. The court noted that the current circular, Instruction No. 1914 of 1993, superseded earlier instructions but did not alter the principles established in previous judgments. It emphasized that a demand should be stayed only in exceptional circumstances, such as when the assessment order is unreasonably high-pitched or causes genuine hardship to the assessee.

In analyzing the impact of the previous judgments on the current case, the court referenced a subsequent case, Soul v. Deputy CIT, which considered the implications of Instruction No. 1914 in relation to Valvoline Cummins Ltd. The court reiterated that an assessment significantly higher than the returned income, such as 74 times in the present case, fell under the category of "unreasonably high-pitched." Therefore, the impugned order directing the deposit of 50% of the outstanding demand was deemed unsustainable.

Consequently, the court stayed the operation of the impugned order until the disposal of the writ petition, rendering any attachment order issued in pursuance of the impugned order ineffective. The judgment clarified that the views expressed were prima facie in nature, and the application was disposed of accordingly. The decision highlighted the importance of following established guidelines and judicial interpretations in tax disputes involving substantially higher assessed incomes compared to returned incomes.