2006 (3) TMI 100 - HC - Income Tax

Notice of demand u/s 156 - CIT initiated proceedings under section 263 on the ground that the assessment made by the first respondent (assessing authority) is erroneous in so far as he had granted relief to the petitioner u/s 80-IB - an order of the first respondent was made determining the revised total income of the petitioner and tax thereon along with a notice of demand u/s 156 was also served on the petitioner. - As per the contention of the petitioner the order made by the first respondent constitutes a fresh assessment of the total income of the petitioner and it has been made in gross violation of the Act and the principles of natural justice u/s 156. - The first respondent instead of justifying the grounds based on which he has reached the reason to believe has wrongly cast the burden on the assessee to show as to how the interests of the Revenue would not suffer in terms of the provisions of section 220(1) if it is allowed full time for payment. - reasons stated by the first respondent in the impugned proceedings for coming to the conclusion that if the full period of 30 days time is allowed to the petitioner it will be detrimental to the Revenue are not material or relevant to the belief required by the section. - impugned proceedings issued by the respondents are unsustainable and liable to be quashed.

Summary

Issues Involved:
1. Validity of the proceedings initiated under section 263 of the Income-tax Act by the Commissioner of Income-tax.
2. Legitimacy of the reduced time period for payment of tax demand under section 220(1) of the Income-tax Act.
3. Compliance with principles of natural justice by the assessing authority.

Detailed Analysis:

1. Validity of the Proceedings Under Section 263:
The Commissioner of Income-tax initiated proceedings under section 263 of the Income-tax Act, revising the assessment order on the grounds that the initial assessment granting relief under section 80-IB was erroneous. The Commissioner concluded that the petitioner was not engaged in manufacturing activities and directed the reassessment of total income, leading to a revised tax demand. The petitioner contended that this revision was in violation of the Act and principles of natural justice. However, the court did not directly address the validity of the section 263 proceedings in the judgment.

2. Legitimacy of the Reduced Time Period for Payment of Tax Demand:
The primary issue was the reduction of the statutory 30-day period for payment of tax demand to 2 days by the assessing officer under section 220(1) of the Act. The petitioner argued that the reduction was arbitrary and lacked valid reasons. The court examined the reasons provided by the assessing officer, which included the binding nature of a Special Bench decision and public policy considerations. The court found these reasons insufficient and not material or relevant to justify the reduction of the payment period. The court emphasized that the reasons must be compelling and based on reasonable grounds, which were absent in this case. Consequently, the court held that the reduction of the 30-day period was unjustified and set aside the impugned proceedings.

3. Compliance with Principles of Natural Justice:
The petitioner argued that the revised assessment and demand notices were issued without providing an opportunity to be heard, violating principles of natural justice. The court noted that the initial 30-day period granted by the assessing officer was subsequently reduced without any new material facts justifying such action. The court held that the assessing officer's decision to reduce the period was not based on any compelling circumstances and was therefore arbitrary. The court reiterated that the discretion to reduce the payment period must be exercised judiciously and not in an uncanalised manner. The court set aside the impugned orders, reinforcing the need for adherence to principles of natural justice.

Conclusion:
The court allowed the writ petitions, setting aside the impugned proceedings that reduced the 30-day period for payment of tax demand. The court upheld the original 30-day period granted in the notice of demand dated March 2, 2006, for the assessment year 2001-02 and extended the same period for the assessment years 2003-04 and 2004-05. The court emphasized the necessity for valid and compelling reasons to reduce the statutory payment period and the importance of compliance with principles of natural justice.