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S.B. Civil Writ Petition No.1264/2011M/s Maheshwari Agro Industries Vs. Union of India & Ors.
Judgment dt: 15/12/2011
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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR
JUDGMENT
S.B. Civil Writ Petition No.1264/2011
M/s Maheshwari Agro Industries Vs. Union of India & Ors.
DATE OF JUDGMENT ::: 15 th December 2011
P R E S E N T
HON'BLE DR. JUSTICE VINEET KOTHARIReportable
Mr. Dinesh Mehta, for the petitioner-assessee.Mr. K.K. Bissa, for the respondent-Revenue.
---BY THE COURT (ORAL)
1. The important question which requires consideration in
the present case is as to whether the first appellate authority, namely,
Commissioner of the Income Tax (Appeals) or Deputy Commissioner
(Appeals) under Income Tax Act, 1961, (for short hereinafter referred
to as 'Act') have power to grant stay and decide the stay application
filed along-with appeal/s filed before them under Section 246/246A of
Act respectively or not. The concomitant question, which would arise
is whether the power of the Assessing Officer under Section 220 (6)
of the Act of 1961 to grant stay is there with the Assessing Authority
during the pendency of the appeal before the appellate authority; and
how such powers of `treating the assessee as not being in default in
respect of amount in dispute in the appeal', have to be exercised by
such Assessing Officer under Section 220 (6) of the Act.
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2. Before coming the provisions of the Act and
interpretation thereof, a brief look at the facts in which the present writ
petition arises would be necessary.
3. The petitioner-assessee, M/s Maheshwari Agro
Industries, Jodhpur, engaged in the business of manufacturing and
trading of oils, for assessment year 2008-09, as a partnership firm
filed its return of income through e-filing system on 30.09.2008
declaring the income of Rs.3,48,140/-. Initially, the case was
processed under Section 143 (1) of the Act on 22.04.2009 on refund,
however, the case of the assessee was selected for scrutiny, since a
survey was conducted on 18.0.3.2007 at the business place of the
petitioner under Section 133-A of the Act, his case was fixed for
assessment upon scrutiny, and accordingly, a notice under Section
143 (2) of the Act was issued to him on 24.04.2009. The assessee
produced relevant record and Books of Accounts before the
Assessing Authority and the Assessing Authority ultimately passed
the impugned assessment order Annex-1 for the said Assessment
Year 2008-09 on 20.12.2010 and making additions in the declared
income of Rs.3,48,140/-, the total income assessed by the Assessing
Authority was to the tune of Rs.1,44,42,320/-. The interest under the
provisions of Sections 234A, 234B, 234C, 244A (3) and 234D was
charged separately, and also penalty proceedings under Section 271
(1) (c) of the Act for concealment of income were initiated separately.
The nature of the additions in the declared income was briefly likely
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S.B. Civil Writ Petition No.1264/2011M/s Maheshwari Agro Industries Vs. Union of India & Ors.
Judgment dt: 15/12/2011
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this:
Income as declared in the return Rs.3,48,140/-Add: Excess stock and cash foundduring the course of survey.
Rs.14,77,127/-
Add: Trading addition . Rs.1,21,17,057/-Add: Disallowed out of P&L . Rs.5,00,000/-
Total Rs.1,44,42,324/-
Total Income round off- Rs.1,44,42,320/-
4. The main addition of Rs.1,21,17,057/- appears to be on
account of trading additions on the ground that rejecting regular
Books of Accounts of the assessee under Section 145 (3) of the Act,
the learned ITO applied the GP rate (Gross Profit Rate) of 20.20%,
which the assessee declared in the Assessment Year 2006-07 and
the same GP rate was applied for the present Assessment Year
2008-09 also; even though the assessee has declared GP rate of
only 9.79% in the present assessment year. The comparative GP
rates based on turnover of the assessee for three assessment years
was noticed by the Assessing Authority in the impugned order itself
and the same is also as under:
Assessment Year Sales Gross Profit G.P. Rate
2008-09 5,46,97,047 55,53,736 9.79%2007-08 1,89,06,992 18,72,871 9.90%2006-07 58,36,980 11,79,324 20.20%
5. As against the turnover of Rs.58,36,980/- in the
Assessment Year 2006-07, in which the GP rate of 20.20% was
declared, the assessee declared GP rate of 9.79% on the ten fold
increased turnover in Assessment Year 2008-09 on Rs.5.46 crores.
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In the middle year Assessment Year 2007-08, on the turnover of
Rs.1.89 crore, the GP rate of 9.90% was declared. It is not in dispute
that the assessee was liable to tax audit also, as per provisions of
Section 44AB of the Act, and such audit reports were also produced
before the Assessing Authority. Drawing the inference of
concealment of income on the basis of such difference in GP rates,
the learned Assessing Authority applying the higher GP rate of
20.20%, the Assessing Authority made the addition of Rs.1.21 crore
and assessed the assessee's declared of Rs.3,48,140/- at Rs.1.44
crores. This resulted in issuance of the impugned demand for
recovery to the tune of Rs.58 lacs vide Annex-5 dated 21.01.2011
after some rectification of the arithmetical errors by the Assessing
Authority.
6. The petitioner-assessee preferred first appeal under
Section 246A of the Act before the learned Commissioner of Income
Tax (Appeals) against the said assessment order dated 24.12.2010
on 31.12.2010 vide Annex-2 and shortly thereafter filed an application
before the CIT (Appeals) vide Annex-3 alleging therein that the
demand created by the learned I.T.O. is arbitrary and since he is
pressing hard for recovery and may take coercive steps for such
recovery, the appeal may be heard as early as possible. The
assessee also appears to have filed an application for rectification of
the order under Section 154 of the Act vide Annex-4 on 20.01.2011
upon which Annex-5 order for rectification was passed by the learned
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I.T.O. on 21.01.2011. The formal notice for demand vide Annex-6
was issued to the assessee on 21.01.2011 for Rs.58,48,697/-.
7. The petitioner-assessee filed also an application under
Section 220 (3) and 220 (6) of the Act for stay of entire disputed
demand before the Assessing Authority I.T.O. Ward-I (3) Jodhpur
himself on 20.01.2011 and raised various grounds for seeking the
stay of entire disputed demand in the said application relying upon
several case laws.
8. The said application came to be rejected by the
Assessing Authority vide order Annex-8 dated 28.01.2011 stating
therein that “... As the AR of the assessee himself stated in the stay petition
that the business of the assessee is already closed. As business of the
assessee is already close and to protect the interest of revenue it is not
possible to linger on recovery on demand. On examination of all the facts
and circumstances of the case I am of the opinion that the stay of demand
application deserves to be rejected and the same is hereby rejected. The
demand outstanding is to be deposited forthwith. Any failure on the part of
the assessee for payment of outstanding demand will be treated as the
assessee in default and coercive majors will be taken as provided in the
Income tax Act, 1961”.
9. It appears that the I.T.O. thereafter initiated coercive
process by undertaking garnishee proceedings under Section 226 (3)
of the Act, and in this regard, a notice was sent to bankers of the
petitioner-assessee vide Annex-9 dated 02.02.2011, addressed to
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Branch Manager, ICICI Bank Ltd. Jodhpur for attachment of bank
account of the petitioner-assessee. Similar notices were also sent to
other bankers of the petitioner-firm and also to the Rajasthan
Financial Corporation. It appears that the petitioner also approached
the learned Commissioner of Income Tax-I, Jodhpur vide Annex-14
dated 03.02.2011 in the matter on administrative side; and thereafter
the present writ petition appears to have been filed in this Court on
09.02.2011. With the additional affidavit, the petitioner has also
produced copy of order dated 17.02.2011 passed by learned CIT-I,
Jodhpur directing the assessee to pay Rs.30 lacs in three
installments (Rs.10 lacs each), payable on or before 25.02.2011,
12.03.2011 and 25.03.2011 respectively; and the demand of balance
amount of Rs.28,46,637/- was stayed till the disposal of the first
appeal or 30.09.2011, whichever is earlier.
10. The assessee appears to have failed in making this
payment of installments also and the learned counsel for the
petitioner informed the Court that in March, 2011, a sum of Rs.5 lacs
against the disputed demand was paid by the petitioner-assessee. He
further submitted that vide communication dated 22.02.2011 even the
order passed by the learned CIT (Appeals) on 17.02.2011 has been
withdrawn. The communication dated 22.02.2011 Annex-18 has been
produced along-with additional affidavit, which the petitioner filed on
01.03.2011.
11. The respondent- Income Tax Department has filed reply
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to the writ petition and has justified the impugned orders passed in
the present matter.
12. The arguments were heard at length and shorn of
unnecessary details, this Court feels persuaded to interpret the
relevant powers of the authorities under the Act to grant stay and to
interpret the scope of application under Section 220 (3)/220 (6) of the
Act and to pass consequential directions thereafter.
13. Learned counsel for the petitioner, Mr. Dinesh Mehta,
submitted that in the present case, apparently a very high pitched
assessment has been made by the learned Assessing Authority for
AY 2008-09 and high GP rate of 20.20%, which was declared by the
assessee for the AY 2006-07 could not have been applied as a
thumb rule for present AY 2008-09 also, and on a ten fold increase in
turnover, the lower GP rate of 9.79% declared by the assessee was
correct and genuine. The audited books of accounts and return of
income as filed by the assessee could not have been brushed aside
by the Assessing Authority and applying such high GP rate
mechanically, the impugned demand of Rs.58 lacs has been raised
by the Assessing Authority, which could not be recovered from the
petitioner-assessee and such recovery would frustrate the very
purpose of filing appeal before the learned C.I.T. (Appeals), which is
yet not decided.
14. Learned counsel for the petitioner further urged that even
though the provisions of Sections 246, 246A, Section 250 and 251 of
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the Act do not confer any specific power on such first appellate
authority to grant stay against the recovery of disputed demand, such
a power should be read as 'inherent powers' and the stay applications
filed before such appellate authorities should be decided on merits
touching upon the relevant factors for grant of stay like prima-facie
case, irreparable injury, balance of convenience and nature of
demand, so also, hardship likely to be caused to the assessee from
such recovery etc. He relied upon the decision of Hon'ble Supreme
Court in the case of Income Tax Officer Vs. M.K. Mohammed
Kunhi reported in (1969) 71 ITR 815 (SC) : AIR 1969 SC 430,
wherein the Hon'ble Supreme Court dealing with the powers of
Income Tax Appellate Tribunal under Section 254 of the Act, in which
provision also at that point of time, there was no specific power
available to the Income Tax Appellate Tribunal to grant any stay
against the demand of tax raised by the Assessing Authority, the
Hon'ble Apex Court held that such power to grant stay was inherent
and was liable to be read into powers deciding the appeal itself; and
therefore, such appellate Tribunal was bound to decide the stay
application on merits. He also relied upon subsequent judgments of
some of other High Courts to support his contentions that even the
first appellate authority like CIT (Appeals) or Dy. Commissioner
(Appeals) should be deemed to have such inherent powers to decide
the stay applications even though there is no specific power
conferred by the statute under Section 246 / 264A of the Act in this
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regard.
15. Secondly, he relied upon a decision of Division Bench of
Allahabad High Court in the case of Prem Prakash Tripathi Vs.
Commissioner of Income Tax & Ors. reported in (1994) 208 ITR
461 (All) : (1994) 121 CTR (All) 77 and subsequent decision of
Allahabad High Court in the case of Smita Agrawal (Ind.) Vs.
Commissioner of Income-tax reported in (2010) 230 CTR (All) 173.
He also placed reliance on the decision of Valvoline Cummins Ltd.
Vs. Deputy Commissioner of Income-tax & Ors. reported in (2008)
307 ITR 103 (Delhi) and Rajasthan High Court decision in the case of
Maharana Shri Bhagwat Singhji of Mewar (Late His Highness)
Vs. Income-Tax Appellate Tribunal, Jaipur Bench, Jaipur reported
in (1997) 223 ITR 192 (Raj.). He also referred the Instruction No.95
[F. No.1/6/69-IT(C)] dated 21.08.1969 issued by the Central Board of
Direct Taxes, New Delhi, wherein referring to observations made by
the then Dy. Prime Minister, the CBDT had issued instructions to
subordinate authorities that where the income determined on
assessment was substantially higher than the returned income viz.
twice the later amount or more, the collection of the taxes in dispute
to be held in abeyance till the decision of the appeals provided there
was no fault on the part of the assessee.
16. Learned counsel for the petitioner-assessee, therefore,
urged that entire disputed demand should be kept in abeyance till the
first appeal filed by the assessee is decided on merits, which he
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submitted that was likely to succeed in toto as the trading additions
made by the learned Assessing Authority were not justified at all. He
however, further submitted that till such appeal is decided and if no
stay is granted against such recovery, the very purpose of filing of the
appeal would be frustrated.
17. Explaining the scheme of Act in this regard contained in
the relevant provision of Sections, 220, 246, 246A, 250, 253, 254 and
255 of the Act, he submitted that while the Income Tax Appellate
Tribunal, the second appellate forum, and the highest fact finding
body created under the Income Tax Act, now has such powers to
grant stay against the recovery of the disputed demand itself though
such power is limited as far as period of operation of such stay order,
if any, granted by the ITAT is concerned; and that being of 180 days
in the first instance, extendable to 365 days as an outer limit of
period, even though the appeal filed before the ITAT can be decided
within a period of four years from the end of the financial year in
which such appeal is filed. He further submitted that no such similar
powers are conferred upon the first appellate authority, namely,
Deputy Commissioner (Appeals) or CIT (Appeals) under Sections
246 and 246A of the Act. Firstly, the learned counsel for the assessee
urged that such power to grant stay should be inferred in these
relevant appellate provisions also relying upon the Supreme Court
decision in the case of M.K. Mohammed Kunhi (supra). In the
alternative, learned counsel for the petitioner urged that the powers
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conferred upon the Assessing Authority in this regard under Section
220 (6) of the Act not to treat the assessee in default, have to be
exercised in consonance with Instruction No. 95 dated 21.08.1969,
which still holds the field and where the demand is substantially
higher, namely, twice the declared or admitted tax liability, it should
be completely stayed during the pendency of the first appeal. He also
submitted that while various other fiscal statutes like Central Excise
Act, Customs Act and various Sales Tax laws of the State, contain
the provision for pre-deposit of certain portion of disputed demand of
tax raised by the Assessing Authority, no such provision has been
made in the Income Tax Act, 1961. Therefore, by necessary
implication, the provisions of Section 220 (6) of the Act should be
construed to mean that recovery of the disputed demand during the
pendency of first appeal, shall automatically remain stayed and the
assessee cannot be treated in default entailing the consequences of
interest under Section 220(2) of the Act and penalty under Section
221 of the Act.
18. Learned counsel for the petitioner also urged that
provisions contained in Section 220 of the Act, in Chapter XXVII
bearing the heading “Collection and Recovery” of taxes in Part D of
Chapter XXVII, cannot be equated with the power to grant stay and it
is a negative power or a discretion given to the Assessing Authority in
negative terms, empowering him to not to treat the assessee in
default, subject to certain conditions, which he may impose, as long
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as such appeal remains undisposed of. Drawing the attention of the
Court towards use of word “246 or 246A only” in Section 220 (6) of
the Act and not Section 254 relating to powers of ITAT, learned
counsel for the petitioner sought to distinguish the two powers at two
different stages of the appellate forums and submitted that during
pendency of the first appeals, normally, assessee cannot be treated
in default at all unless there are over-riding reasons like assessee
having not cooperated in the assessment proceedings or is likely to
fly away from the scene etc.
19. Learned counsel for the petitioner was at pains to explain
that if high pitched assessments are made by the Assessing Authority
arbitrarily, the very purpose of filing of first appeal for redressal of
grievance, can be rendered nugatory and infructuous, if upon a
harmonious reading of various provisions in the scheme of the Act
they are not construed to mean that during the pendency of first
appeal normally demand at least under the high pitched assessment
orders should be kept in abeyance especially in view of CBDT
Instruction No.95 dated 21.08.1969. He submitted that present case
is an outstanding and glaring example of such circumstances, which
is repeated in numerous cases and, therefore a fair, reasonable and
harmonious interpretation of these provisions deserves to be made.
20. On the other hand, Mr. K.K. Bissa, learned counsel
appearing for the Revenue vehemently submitted that in the absence
of any specific provision conferring power to grant stay upon the first
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appellate authority, namely, Deputy Commissioner (Appeals) and
Commissioner of Income Tax (Appeals), such powers cannot be
inferred and in view of later amendment in Section 254 of the Act,
conferring such powers only on Income Tax Appellate Tribunal, by
necessary implication on the other hand, it should be construed that
Parliament deliberately did not want to confer any such power upon
the first appellate authority and, therefore, despite decision of the
Hon'ble Supreme Court in the case of M.K. Mohammed Kunhi
(supra) no such inherent power can be inferred from the provisions of
the Act available with the first appellate authority. He, therefore,
submitted that power under Section 220 (6) of the Act has enough
protection for the assessee in case where first appeals are pending
and for the given reasons, the Assessing Authority himself can treat
the assessee as not in default, saving him from the interest and penal
consequence subject to such conditions, as may be imposed, by the
Assessing Authority; and in the present writ petition, looking to the
huge demand, in the interest of Revenue, the learned Assessing
Authority was justified in rejecting the application of the petitioner
under Section 220 (3) and 220 (6) of the Act.
21. Learned counsel for the Revenue further submitted that
in fact the assessee has not filed any separate stay application before
the learned Commissioner of Income Tax (Appeals) in the present
matter and, therefore, there is no question for such authority to
decide any such stay application even though such power was to be
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assumed as being available with him. Learned counsel for the
Revenue also submitted that on administrative side, the higher
authority, namely, Commissioner of Income Tax-I, Jodhpur also dealt
with the matter of stay in the case of the petitioner-assessee.
Although, initially while granting stay in favour of petitioner-assessee,
the petitioner was allowed to make payment of disputed demand to
the extent of Rs.30 lacs in installments of a sum of Rs.10 lacs each
against the total demand of Rs.58 lacs, vide order Annex-15 dated
17.02.2011, since the assessee failed to comply with the said
condition, the learned C.I.T. withdrew the said order on 22.02.2011.
He, therefore, submitted that C.I.T. (Appeals) may decide the pending
appeal of the assessee in accordance with law, however, as far as
the stay application is considered, the matter stands decided at the
hands of the departmental authorities and the said orders being valid,
they cannot be interfered with in the present case. Learned counsel
for the Revenue also justified the impugned assessment order and
raising of demand on the basis of trading additions on account of GP
rate difference in the present case and tried to justify the recovery
proceedings.
22. I have heard learned counsel for the parties at length,
perused the record and judgments cited at bar and relevant
provisions.
23. The relevant provisions, referred to above, are
reproduced herein below for ready reference to the extent relevant.
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“Section 220–When tax payable and when assessee deemed
in default.
(1) Any amount, otherwise than by way of advance
tax, specified as payable in a notice of demand under Section
156 shall be paid within [thirty] days of the service of the
notice at the place and to the person mentioned in the
notice :
Provided that, where the [Assessing] Officer has any
reason to believe that it will be detrimental to revenue if the
full period of [thirty] days aforesaid is allowed, he may, with
the previous approval of the [Joint Commissioner], direct
that the sum specified in the notice of demand shall be paid
within such period being a period less than the period of
[thirty] days aforesaid, as may be specified by him in the
notice of demand.
(2) If the amount specified in any notice of demand
under section 156 is not paid within the period limited under
sub-section (1), the assessee shall be liable to pay simple
interest at [one per cent] for every month or part of a month
comprised in the period commencing from the day
immediately following the end of the period mentioned in
sub-section (1) and ending with the day on which the amount
is paid :
[Provided that, where as a result of an order under
section 154, or Section 155, or section 250, or Section 254,
or section 260, or section 262, or section 264 or an order of
the Settlement Commission under sub-section (4) of section
245D, the amount on which interest was payable under this
section had been reduced, the interest shall be reduced
accordingly and the excess interest paid, if any, shall be
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refunded :]
[Provided further that in respect of any period
commencing on or before the 31st day of March, 1989 and
ending after that date, such interest shall, in respect of so
much of such period as falls after that date, be calculated at
the rate of one and one-half per cent for every month or part
of a month.]
[(2A) Notwithstanding anything contained in sub-
section (2), [the [Chief Commissioner or Commissioner]
may] reduce or waive the amount of interest [paid or]
payable by an assessee under the said sub-section if [he is
satisfied] that–
(i) payment of such amount [has caused or] would
cause genuine hardship to the assessee ;
(ii) default in the payment of the amount on which
interest [has been paid or] was payable under the said sub-
section was due to circumstances beyond the control of the
assessee ; and
(iii) the assessee has co-operated in any inquiry
relating to the assessment or any proceeding for the recovery
of any amount due from him.]
(3) Without prejudice to the provisions contained in
sub-section (2), on an application made by the assessee
before the expiry of the due date under subsection (1), the
[Assessing] Officer may extend the time for payment or
allow payment by installments, subject to such conditions as
he may think fit to impose in the circumstances of the case.
(4) If the amount is not paid within the time limited
under sub-section (1) or extended under sub-section (3), as
the case may be, at the place and to the person mentioned in
the said notice the assessee shall be deemed to be in default.
(5) If, in a case where payment by installments is
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allowed under sub-section (3), the assessee commits default
in paying any one of the installments within the time fixed
under that sub-section, the assessee shall be deemed to be in
default as to the whole of the amount then outstanding, and
the other instalment or instalments shall be deemed to have
been due on the same date as the instalment actually in
default.
(6) Where an assessee has presented an appeal under
Section 246 1[or Section 246A,] the 2[Assessing] Officer
may, in this discretion, and subject to such conditions as he
may think fit to impose in the circumstances of the case, treat
the assessee as not being in default in respect of the amount
in dispute in the appeal, even though the time for payment
has expired, as long as such appeal remains undisposed
of.”
(7) Where an assessee has been assessed in respect of
income arising outside India in a country the laws of which
prohibit or restrict the remittance of money to India, the
[Assessing] Officer shall not treat the assessee as in default
in respect of that part of the tax which is due in respect of
that amount of his income which, by reason of such
prohibition or restriction, cannot be brought into India, and
shall continue to treat the assessee as not in default in
respect of such part of the tax until the prohibition or
restriction is removed.
Explanation: For the purposes of this section, income
shall be deemed to have been brought into India if it has
been utilised or could have been utilised for the purposes of
any expenditure actually incurred by the assessee outside
India or if the income, whether capitalised or not, has been
1 Inserted by the Finance Act, 2000 w.e.f.-1-6-20002 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.-1-4-1988
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brought into India in any form.
Section 246 - Appealable orders
(1) Subject to the provisions of sub-section (2), any
assessee aggrieved by any of the following orders of an
Assessing Officer (other than the [Joint Commissioner]) may
appeal to the Deputy Commissioner (Appeals) [before the
1st day of June, 2000] against such order –
(a) an order against the assessee, where the assessee
denies his liability to be assessed under this Act, or an
intimation under sub-section (1) or sub-section (1B) of
section 143, where the assessee objects to the making of
adjustments, or any order of assessment under sub-section
(3) of section 143 or section 144, where the assessee objects
to the amount of income assessed, or to the amount of tax
determined, or to the amount of loss computed, or to the
status under which he is assessed;
(b) an order of assessment, reassessment or
recomputation under section 147 or section 150;
Section 246A - Appealable orders before Commissioner
(Appeals)
(1) Any assessee aggrieved by any of the following
orders (whether made before or after the appointed day) may
appeal to the Commissioner (Appeals) against -
(a) [an order passed by a Joint Commissioner under
clause (ii) of sub-section (3) of section 115VP or an order
against the assessee] where the assessee denies his liability
to be assessed under this Act or an intimation under sub-
section (1) or sub-section (1B) of section 143, where the
assessee objects to the making of adjustments, or any order
of assessment [under sub-section(3) of section 143 except an
order passed in pursuance of directions of Dispute
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Resolution Panel] or section 144, to the income assessed, or
to the amount of tax determined, or to the amount of loss
computed, or to the status under which he is assessed;
[(1A) Every appeal filed by an assessee in default
against an order under section 201 on or after the 1st day of
October, 1998 but before the 1st day of June, 2000 shall be
deemed to have been filed under this section.]
[(1B) Every appeal filed by an assessee in default
against an order under subsection (6A) of section 206C on
or after the 1st day of April, 2007 but before the 1st day of
June, 2007 shall be deemed to have been filed under this
section.]
(2) Notwithstanding anything contained in sub-section
(1) of section 246 every appeal under this Act which is
pending immediately before the appointed day, before the
Deputy Commissioner (Appeals) and any matter arising out
of or connected with such appeals and which is so pending
shall stand transferred on that date to the Commissioner
(Appeals) and the Commissioner (Appeals) may proceed with
such appeal or matter from the stage at which it was on that
day:
Provided that the appellant may demand that before
proceeding further with the appeal or matter, the previous
proceeding or any part thereof be reopened or that he be re-
heard.
Explanation: For the purposes of this section,
“appointed day”means the day appointed by the Central
Government by notification in the Official Gazette.
Section 250 – Procedure in appeal
(6A)- In every appeal, the Commissioner (Appeals),
where it is possible, may hear and decide such appeal within
a period of one year from the end of the financial year in
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which such appeal is filed before him under sub-Section (1)
of Section 246-A.
Section 251 – Powers of the Commissioner (Appeals)
(1) In disposing of an appeal, the Commissioner (Appeals)
shall have the following powers -
(a) in an appeal against an order of assessment, he may
confirm, reduce, enhance or annul the assessment 3[***];
[(aa) in an appeal against the order of assessment in respect of
which the proceeding before the Settlement Commission abates
under section 245HA, he may, after taking into consideration
all the material and other information produced by the
assessee before, or the results of the inquiry held or evidence
recorded by, the Settlement Commission, in the course of the
proceeding before it and such other material as may be
brought on his record, confirm, reduce, enhance or annul the
assessment;]
(b) in an appeal against an order imposing a penalty, he may
confirm or cancel such order or vary it so as either to enhance
or to reduce the penalty;
(c) in any other case, he may pass such orders in the appeal as
he thinks fit.
(2) The Commissioner (Appeals) shall not enhance an
assessment or a penalty or reduce the amount of refund unless
the appellant has had a reasonable opportunity of showing
cause against such enhancement or reduction.
Section 253 - Appeals to the Appellate Tribunal
3 The portion beginning with the words “or he may set aside” and ending with the words “on thebasis of such fresh assessment;” omitted by the Finance Act, 2001, w.e.f.1-6-2001. Prior to itsomission, the quoted portion was amended by the Finace (No.2) Act, 1977, w.e.f.10-7-1978, theDirect Tax Laws (Amendment) Act, 1987, w.e.f.-1-4-1988 and the Finance (No.2) Acdt, 1988,w.e.f.1-10-1998.
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(1) Any assessee aggrieved by any of the following
orders may appeal to the Appellate Tribunal against such
order –
(a) an order passed by a Deputy Commissioner
(Appeals)] [before the 1st day of October, 1998] or, as the
case may be, a Commissioner (Appeals)] under section 154,
Section 250, section 271, section 271A or section 272A; or
(b) an order passed by an Assessing Officer under
clause (c) of section 158BC, in respect of search initiated
under section 132 or books of account, other documents or
any assets requisitioned under section 132A, after the 30th
day of June, 1995, but before the 1st day of January, 1997 ;
or
(ba).........
(c ).........
(d).........
(2).........
(3)..........
(4)..........
(5)..........
(6).........
Section 254 – Orders of Appellate Tribunal
(1) The Appellate Tribunal may, after giving both the
parties to the appeal an opportunity of being heard, pass
such orders thereon as it thinks fit.
(2) The Appellate Tribunal may, at any time, within four
years from the date of the order, with a view to rectifying
any mistake apparent from the record, amend any order
passed by it under sub-section (1), and shall make such
amendment if the mistake is brought to its notice by the
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assessee or the Assessing Officer:
Provided that an amendment which has the effect of
enhancing an assessment or reducing a refund or otherwise
increasing the liability of the assessee, shall not be made
under this sub-section unless the Appellate Tribunal has
given notice to the assessee of its intention to do so and has
allowed the assessee a reasonable opportunity of being
heard.4[Provided further that any application filed by the assessee
in this sub-section on or after the 1st day of October, 1998,
shall be accompanied by a fee of fifty rupees.]
5[(2A) In every appeal, the Appellate Tribunal, where it is
possible, may hear and decide such appeal within a period
of four years from the end of the financial year in which
such appeal is filed under sub-section (1) 6[or sub-section
(2)] of section 253..7[Provides that the Appellate Tribunal may, after
considering the merits of the application made by the
assessee, pass an order of stay in any proceedings relating
to an appeal filed under sub-section (1) of Section 253, for a
period not exceeding one hundred and eighty days from the
date of such order and the Appellate Tribunal shall dispose
of the appeal within the said period of stay specified in that
order:
Provided further that where such appeal is not so
4 Inserted by the Finance (No.2)Act, 1998, w.e.f.1-10-19985 Sub-sections (2A) and (2B) inserted by the Finance Act, 1999, w.e.f 1-6-19996 Inserted by the Finance Act, 2000, w.e.f.1-6-20007 Substituted by the Finance Act, 2007, w.e.f.1-6-2007. Prior to their substitution, provisos, as
inserted by the Finance Act, 2001, w.e.f.1-6-2001, reads as under: “Provided that where anorder of stay is made in any proceedings relating to an appeal filed under sub-secdtion (1) ofsection 253, the Appellate Tribunal shall dispose of the appeal within a period of one hundredand eighty days from the date of such order:Provided further that if such appeal is not so disposed of with in the period specified in the firstproviso,the stay order shall stand vacated after the expiry of the said period.”
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disposed of within the said period of stay as specified in the
order of stay, the Appellate Tribunal may, on an application
made in this behalf by the assessee and on being satisfied
that the delay in disposing of the appeal is not attributable to
the assessee, extend the period of stay, or pass an order of
stay for a further period or periods as it thinks fit; so,
however, that the aggregate of the period originally allowed
and the period or periods so extended or allowed shall not,
in any case, exceed three hundred and sixty-five days and
the Appellate Tribunal shall dispose of the appeal within the
period or periods of stay so extended or allowed:
8[Provided also that if such appeal is not so disposed
of within the period allowed under the first proviso or the
period or periods extended or allowed under the second
proviso, which shall not, in any case, exceed three hundred
and sixty-five days, the order of stay shall stand vacated
after the expiry of such period or periods, even if the delay
in disposing of the appeal is not attributable to the
assessee.]]
Section 255 - Procedure of Appellate Tribunal
(1) The powers and functions of the Appellate
Tribunal may be exercised and discharged by Benches
constituted by the President of the Appellate Tribunal from
among the members thereof.
(2) ..........
(3) ..........
(4) ..........
8 Substituted by Finance Act, 2008, w.e.f.2008, w.e.f. 1-10-2008. Prior to its substitution,provisoread as under:“Provided also that if such appeal is not so disposed of within the period allowed under the firstproviso or the period or periods extended or allowed under the second proviso, the order of stayshall stand vacated after the expiry of such period or periods.”
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(5) Subject to the provisions of this Act, the Appellate
Tribunal shall have power to regulate its own procedure
and the procedure of Benches thereof in all matters arising
out of the exercise of its power or of the discharge of its
functions, including the places at which the Benches shall
hold their sittings.
24. The relevant Circulars issued under Section 220(6) of the
Act & Instructions are also reproduced hereunder for ready
reference:-
24.1 Minutes of the 8th Meting of the Informal
Consultative Committee held on 13th May, 1969- Implementation of
Assurance given regarding stay of recovery in certain cases – Item
1 (vi)
One of the points that came up for consideration in the
8th Meeting of the Informal Consultative Committee was that
Income-tax assessments were often arbitrarily pitched at high
figures and that the collection of disputed demand as a result
thereof was also not stayed in spite of the specific provision in
the matter in section 220 (6) of the Income-tax Act, 1961.
2. The then Deputy Prime Minister had observed as
under: -
“where the income determined on assessment was
substantially higher than the returned income, say twice the
latter amount or more, the collection of the tax in dispute
should be held in abeyance till the decision on the appeal
provided there were no lapses on the part of the assessee.”
3. The Board desire that the above observations may be
brought to the notice of all the Income-tax Officers working
under you and the powers of stay of recovery in such cases up
to the stage of first appeal may be exercised by the Inspecting
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Assistant Commissioner/Commissioner of Income-tax.”
Board's F. No. 1/6/69-ITCC, dated 21 August, 1969.”
24.2. Undisputed tax-Recovery of- Instructions regarding
Under section 220 (6) of the Income-tax Act, 1961,
when an assessee has presented an appeal before the
Appellate Assistant Commissioner under section 246, the
Income-tax Officer may, in his discretion treat the assessee as
not being in default in respect of the amount in dispute in
appeal during the period of the pendency of the appeal. The
Board would like to emphasise that the discretionary powers
given by section 220 (6) are to be exercised in respect of
disputed taxes only. Similarly, the instructions contained in
the Board's letter F. No. 1/6/69-ITCC dated 21st August, 1969
(Instruction No.95) also refer to disputed demand only.
2. The Board desire that all possible steps should be
taken for the recovery of undisputed taxes by the Income-tax
Officers and the assessee should not be allowed to withhold
payment of the undisputed demand merely because they have
filed appeals before the Appellate Assistant Commissioner of
Income-tax. While reviewing the arrears of taxes, the
Commissioners of Income-tax, Inspecting Assistant
Commissioners should ensure that these instructions are
being scrupulously followed by the Income-tax Officers.
Board's Letter F. No. 404/132/70-ITCC, dated 14
September, 1970.
Source: PAC's 25th Report (Fifth Lok Sabha), Page 35.
24.3 CBDT’s clarification on instructions on Stay
of Demand
Letter [F.No. 404/10/2009-ITCC], dated 1-12-2009
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Many queries have been received regarding the applicability
of Instruction number 95 dated 21.8.1969 vis-à-vis
Instruction number 1914 dated 2.12.1993. Many assesses
are taking the plea that Instruction No. 1914 does not
supercede Instruction No. 95 dated 21.8.1969.
2. Instruction No. 95 dated 22.8.1969 was an assurance
given by the then Deputy Prime Minister during the 8th
Meeting of the Informal Consultative Committee held on
13th May, 1969. The observations made by the Deputy Prime
Minister were as under:-
“Where the income determined on assessment was
substantially higher than the returned income, say twice the
latter amount or more, the collection of the tax in dispute
should be held in abeyance till the decision on the appeal
provided there were no lapses on the part of the assesses.”
The above observations were circulated to the field
officers by the Board as Instruction number 95 dated
21.8.1969.
2. The matter has been considered by the Board and
the decision of the Board has been approved by the Finance
Minister. It is hereby clarified that subsequent to Instruction
No. 95 following Instructions/clarifications on the stay of
demand were issued till 15th October 1980:-
(i)Clarification to Instruction number 95 was issued
on 14/09/1970 stating that it relates to disputed demands
only.
(ii) Instruction number 635 was issued on 12/11/1973
stating that stay should be granted only in those cases where
demands are attributable to substantial points of dispute.
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(iii)Clarification to Instruction number 95 dated
13/07/1976 held that the Instruction becomes operative only
in cases where there are no lapses on the part of the
assessee.
(iv)Instruction number 1067 dated 21/06/1977 held
that the ITO can pass the necessary orders u/s 220 (6) in all
cases except cases under section 144A or 144B where the
approval of IAC is required.
(v) Instruction number 1158 dated 27th March 1978
held that in suitable cases the assessee may be allowed to
furnish security.
(vi) Instruction number 1282 dated 4th October 1979
held that requests should be made to CIT(A) and ITAT for
early disposal of appeals and constant watch should be kept
on progress of appeals.
(v) Instruction number 1362 was issued on
15/10/1980 in supersession of all the earlier Instructions. It
was an Instruction covering the issue in detail and in para 4
of the same there was a clear reference to the proposition
laid down in Instruction number 95 which is as follows:-
In exercising this discretion, the Income-tax Officer
should take into account factors such as: whether the points
in dispute relate to facts; whether they arise from different
interpretations of law; whether the additions have been
made as a result of detailed investigation; whether the
additions are based on materials gathered through
enquiry/survey/search and seizure operations; whether the
disputed addition to income has been assessed elsewhere by
way of protective assessment and the tax thereon has been
paid by such person etc. The magnitude of addition to
income returned cannot be the sole determinant in this
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regard. Each disputed addition will need to be considered to
arrive at the quantum of tax that may need to be stayed
3. It is clear that the substance of the assurance as
laid down in Instruction number 95 dated 21.8.1969 was
submerged in the Instruction number 1362 dated 15/10/1980
which was issued in supersession of all earlier Instructions
on the subject. Instruction No. 1914 dated 2.12.1993 was
issued subsequently in super-session of all the earlier
Instructions on the subject and the said Instruction also
covers unreasonably high pitched assessment order and
genuine hardship cases.
4. It is therefore clarified that there is no separate
existence of the Instruction number 95 dated 21.8.1969.
Instruction number 95 and all subsequent Instructions on the
issue ceased to exist from the date Instruction No. 1362
came into operation. In turn Instruction number 1362 and
all subsequent Instructions on the issue also ceased to exist
the day Instruction number 1914 came into operation i.e.
2/12/1993.The Instruction number 1914 holds the field
currently and a copy of Instruction number 1914 is enclosed
for reference.
RECOVERY OF OUTSTANDING TAX DEMANDS
[Instruction No. 1914 F. No. 404/72/93 ITCC dated 2-12-
1993 from CBDT]
(Quoted in extenso in para No.46 below)
24.4 CIRCULAR NO.119
Capital gains—Payment of tax on capital gains included inthe income-tax return claimed to be exempt within themeaning of ss. 54, 54B and 54D
26/09/1973
CAPITAL GAINS, RETURN OF INCOME, RECOVERY
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SECTIONS 54, 54B, 54D, 140A, 220,
Sec. 45 of the IT Act, 1961, provides for the taxation of capital
gains arising on the transfer of capital assets. Secs. 54,54B
and 54D grant exemption in respect of capital gains arising
on transfer of property used for self-residence, land used for
agricultural purposes and compulsory acquisition of lands
and buildings under any law, provided the conditions laid
down in the three sections are satisfied. These sections, inter
alia, provide investment of the capital gains in the house
building and land, as the case may be, within the stipulated
period, which is 2 to 3 years. If the assessee is able to do so
between the date of the transfer and that of filing the return of
income, there is no difficulty. But, if he is not able to do so but
wishes to avail of the exemption in the subsequent years, he
will have to disclose the capital gain, in the return of income
of the relevant year.
2. The question of payment of the tax on self-assessment and
regular assessment in cases where the capital gains have not
been invested before filing the return although he proposes to
do so later has been considered, and I am directed to convey
the following instructions :—
(a) in cases where the assessee has received the sale proceeds
of the capital asset transferred, the time for payment of tax
under ss. 140A and 220 need not be extended as the assessee
has the necessary funds to pay the taxes ;
(b) in cases where sale proceeds of the asset transferred have
not been received for any reason the ITO may not formally
extend time for payment under ss. 140A and 220 but may not
impose penalty for non-payment of the tax in view of the
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special circumstances due to which the assessee is prevented
from paying the tax. However, as soon as the sale proceeds
are received the collection may be enforced and failure to pay
the taxes may be visited with penalty.
SOURCE : [F.No. 207/5/73—ITA–II, reported in (1973) 92ITR (St) 4]
24.5 CIRCULAR NO. 530 DT: 6 MARCH 1989
Exercise of discretion under section 220(6) of the IncomeTax Act, 1961 to treat the assessee as not being in default inrespect of the amounts disputed in first appeal pendingbefore DC(Appeals)/CIT(Appeals).
Under section 220(6) of the Income-tax Act, 1961, where an
assessee has presented an appeal under section 246 of the Act
before the Deputy Commissioner (Appeals) or the
Commissioner (Appeals), the Assessing Officer may, in his
discretion, and subject to such conditions as he may think fit
to impose in the circumstances of the case, treat the assessee
as not being in default in respect of the amount in dispute in
the appeal, even though the time for payment has expired as
long as such appeal remains undisposed of.
2. Having regard to the proper and efficient
management of the work of collection of revenue, the Board
has considered it necessary and expedient to order that on an
application being filed by the assessee in this behalf, the
Assessing Officer will exercise his discretion under section
220(6) of the Act (subject to such conditions as he may think
fit to impose) so as to treat the assessee as not being in
default in respect of the amount in dispute in the appeal in
the following situations:
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(i) the demand in dispute has arisen because the Assessing
Officer had adopted an interpretation of law in respect of
which there exists conflicting decisions of one or more High
Courts or the High Court of jurisdiction has adopted a
contrary interpretation but the Department has not accepted
that judgment, or
(ii) the demand in dispute relates to issues that have been
decided in favour of the assessee in an earlier order by an
appellate authority or court in the assessee's own case.
3. It is clarified that in the situations mentioned in para 2
above, the assessee will be treated as not in default only in
respect of the amount attributable to such disputed points.
Further, where it is subsequently found that the assessee has
not co-operated in the early disposal of appeal or where a
subsequent pronouncement by a higher appellate authority
or court alters the situation referred to in para 2 above, the
Assessing Officer will no longer be bound by these
instructions and will exercise his discretion independently.
4. In respect of other cases not covered by para 2 above, the
Assessing Officer will take into account all the relevant
factors and communicate his decision to the assessee in the
form of a speaking order. While exercising discretion under
this provision, the financial capacity of the assessee to pay
the demand will not be relevant.
5. The Chief Commissioners and Directors-General of
Income-tax may please bring these guidelines to the notice of
all officers in their regions. The guidelines will apply, mutatis
mutandis, to the demands created under other Direct Tax
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Laws also.]
Circular No.530, dated 6 March, 1989. Para 4 wassubstituted by Circular No.589, dated 16 January, 1991.
24.6 CIRCULAR NO. 589 DATED 16/1/1991
Reference is invited to Board's Circular No. 530 (F.No.404/
82/88-ITCC) dated March 6, 1989 (see [1989] 176 ITR (St.)
240), regarding the above mentioned subject.
2. According to paragraph 2 of the said Circular, the
Assessing Officer is, in the two situations referred to in that
paragraph, bound to treat the assessee as not in default in
respect of the amount in dispute in appeal. In respect of other
cases, the Circular stated in paragraph 4-
"In respect of other cases, not covered by para 2 above, the
Assessing Officer will take into account all the relevant
factors and communicate his decision to the assessee in the
form of a speaking order. While exercising discretion under
this provision, the financial capacity of the assessee to pay the
demand will not be relevant."
3. Representations have been received by the Board that the
exclusion of financial capacity of the assessee to pay the
demand, from the factors relevant for exercise of Assessing
Officer's discretion under section 220(6) of the Income-tax
Act, is prejudicial to those assessees who are not financially
sound.
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4. The matter has been reconsidered by the Board. It has been
decided to substitute paragraph 4 of the Circular No. 530
([1989] 176 ITR (St.) 240), by the following paragraph--
"In respect of other cases not covered by paragraph 2 above,
the Assessing Officer, while considering the situation for
treating the assessee to be not in default, would consider all
relevant factors having a bearing on the demand raised and
communicate his decision to the assessee in the form of a
speaking order."
(Sd.) V.K. Mangotra,Secretary,
Central Board of Direct Taxes.”
25. The Income Tax Act, 1961 is a self-contained and
comprehensive code in itself. The direct tax, namely, income tax on
various types of assessee/s including the body corporates, is required
to be paid as per charging provisions of the Act after computing the
total income under Chapter IV of the Act, which provides for
computation of the total income under six different heads like income
from salary, income from house property, profits and gains of
business or profession, capital gains and income from other sources.
The Chapter relating to deductions to be made from the total income
in Chapter-VI (A) comprises Section 80A to 80 VV of the Act which
provide for various kinds of deductions from such income to various
classes of assessees in different circumstances. Chapter XXIII of the
Act, defines income tax authorities and their powers comprising of
Sections 116 to 136 of the Act including the powers of search and
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seizure, survey, inspection etc. The procedure for assessment
contained in Sections 139 to 158 of the Act. The Chapter XXIV of the
Act deals with procedure of filing returns, enquiry before assessment,
assessment under Section 143, best judgment assessment under
Section 144, re-assessment under Section 147 etc. The special
procedure for assessment of search cases are contained in Chapter
comprise of Sections 158 to 158 B (I) of the Act. Proceeding further,
the scheme of the Act in Chapter XXVII deals with collection of
recovery of tax, which is divided in six parts, viz. A to F. Chapter
heading of Chapter XXVII is 'collection and recovery of tax' and we
are presently concerned with Part D of the said Chapter and more
particularly Section 220 and 220 (6), reproduced above. Skipping the
provisions relating to settlement of cases under Chapter XX, which
provides for appellate forums to the assessee. Chapter XX
comprising of Sections 246 to 269 of the Act provides for appeals and
revisions at various levels including appeals to first appellate authority
like Deputy Commissioner (Appeals) under Section 246 up to
1.6.2000 and to C.I.T. (Appeals) under Section 246A, second appeal
to Appellate Tribunal under Section 250, appeals on substantial
question of law to High Courts under Section 260A of the Act,
appeals to Supreme Court under Section 261 of the Act, revision by
the Commissioner under Section 263 and 264 of the Act. The
remaining provisions afterwards are not readily relevant, hence, are
not referred. The provisions of Sections 246, 246A, 250 & 251 for first
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appellate authorities and Section 253 to 255 for Appellate Tribunal for
the second appeal being the final fact finding authority created under
the Act, are relevant for this case and they have also been quoted
above.
26. The main crux of the matter is as to whether in the
scheme of the Act specially after amendment of Section 254 of the
Act conferring powers of granting stay upon the appellate Tribunal
after insertion of sub-Section (2A) and (2B) in Section 254 of the Act
by Finance Act, 1999 with effect from 01.06.1999 and further first
proviso substituted by Finance Act, 2007 with effect from 01.06.2007
extending period of stay granted by the ITAT in the first instance for
180 days then extendable up to 365 days in second proviso, and this
amendment purportedly having been brought on the statute book in
pursuance of decision of the Hon'ble Supreme Court in the case of
M.K. Mohammed Kunhi (supra), the question is as to whether such
powers to grant stay can still be implied as inherent power of the first
appellate authority, namely, CIT (Appeals) and Dy. Commissioner
(Appeals) or not.
27. The answer to this question, in the opinion of this Court,
has to be given in affirmative. The reasons are not far to seek. The
powers of the appellate authorities are indisputably concurrent and
co-extensive with that of the Assessing Authority but wider and
superior in nature. Section 251 of the Act clearly stipulates that in
disposing of an appeal, the CIT (Appeals) can confirm, reduce,
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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.
28. The Hon'ble Supreme Court in the case of Institute of
Chartered Accountants of India Vs. L.K. Ratna & Ors. reported in
AIR 1987 SC 71 held as under:
“16. It is next pointed out on behalf of appellant that
while Regulation 15 requires the Council, when it proceeds
to act under S. 21 (4), to furnish to the member a copy of the
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report of the Disciplinary Committee, no such requirement
is incorporated in regulation 14 which prescribes what the
Council will do when it receives the report of the
Disciplinary Committee. That, it is said, envisages that the
member has no right to make a representation before the
Council against the report of the Disciplinary Committee.
The contention can be disposed of shortly. There is not in
Regulation 14 which excludes the operation of the principle
of natural justice entitling the member to be heard by the
Council when it proceeds to render its finding. The
principles of natural justice must be read into the
unoccupied interstices of the statue unless there is a clear
mandate to the contrary.”
29. As similar analogy was already applied by the Division
Bench of Allahabad High Court in the case of Prem Prakash Tripathi
(surpa) while extending the ratio of the Apex Court judgment in the
case of M.K. Mohammed Kunhi (supra) to the powers of first
appellate authority in the following terms: -
“4. This is how the petitioner has come up to this
court. It is submitted by learned counsel for the petitioner that
no power is vested in the Commissioner of Income Tax
(Appeals) to grant stay order under the Income Tax Act, 1961
(briefly, "the Act"), and, therefore, the petitioner has resorted to
Article 226 of the Constitution. It is, no doubt, true that there
is no specific provision in the Act or the Rules framed
thereunder conferring power to grant stay on the
Commissioner of Income Tax (Appeals). Ordinarily, such
power should be vested in an appellate authority. The appeal
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is nothing but a continuation of assessment proceedings. If in
the absence of power to grant stay the recovery is made
during the pendency of the appeal and if the appeal is allowed
in course of time, then that would cause avoidable
inconvenience to the assessee. For effective adjudication of
the matters and to obviate unnecessary inconvenience to the
assessees, it is nothing but appropriate to confer power of
granting stay on the appellate authorities. Not only in the
case of Commissioner of Income Tax (Appeals), power to
grant stay was not conferred even on the Appellate Tribunal
prior to February 12, 1970. However, Sub-section (6) of
Section 220 of the Act states that where an assessee has
presented an appeal under Section 246, the Assessing Officer
may, in his discretion, and subject to such conditions as he
may think fit to impose in the circumstances of the case, treat
the assessee as not being in default in respect of the amount
in dispute in the appeal, even though the time for payment has
expired as long as such appeal remains undisposed of. The
rationale of this provision is that an assessee should not be
unnecessarily inconvenienced during the pendency of the
appeal and, therefore, Sub-section (6) says that the assessee
will not be treated as in default while the appeal is pending
against the assessment orders. Law does not require that
once the assessment is made, recovery of tax should be
made immediately, notwithstanding the remedy of appeal
having been provided in the Act. Rather, Sub-section (6) of
Section 220 clearly provides that the assessee against whom
an assessment is made should not be treated as in default so
long as his appeal remains undisposed of. If such is the
intention of law, then it can hardly be said that the
Commissioner of Income Tax (Appeals) is not vested with
the powers of granting stay order, which is not only
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necessary but expedient for effective adjudication of
appeals. If an assessee establishes his, prima facie case in
appeal, then the appellate authority should be competent to
grant stay order, otherwise the assessee would be put to a
serious loss, which in certain cases may be even irreparable.
What is the use of remedy of appeal, if irreparable loss is
caused? The remedy of appeal is always provided to alleviate
the sufferings and not to augment them and if the provisions
of appeal are read in that spirit, then the only conclusion
that can be reached is that the appellate authority does
possess power to grant stay order, even if it is not
specifically conferred by any statutory provision. But the
position will be different if such power is specifically taken
away from the appellate authority by any statutory
provision. The right of appeal is not procedural, but a
substantive right and that right can be conferred by a given
statute with or without imposing limitations. Unless there is
an exclusionary provision, power to grant stay will
ordinarily be deemed to have been conferred on the
appellate authorities.
7. When the Appellate Tribunal was held to have the
power to grant stay as incidental or ancillary to its appellate
jurisdiction, we see no reason why the same legal position
should not follow in the case of the Commissioner of
Income Tax (Appeals), who is also an appellate authority
like the Appellate Tribunal. In this situation, what holds
good in the case of the Appellate Tribunal equally applies to
the Commissioner of Income Tax (Appeals). Following this
authority, we hold that the Commissioner of Income Tax
(Appeals) must be held to have the power to grant stay, which
is incidental or ancillary to its appellate jurisdiction.”
30. Following the Division Bench decision in the case of
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Prem Prakash Tripathi's case, the Allahabad High Court, Division
Bench, in the later decision in the case of Smita Agrawal (Ind.)
(surpa) actually felt constrained that the High Courts are being
flooded with avoidable litigation arising in such circumstances by not
conferring such powers upon the CIT (Appeals), and the Division
Bench in Smita Agrawal's case went on to direct the Central Board of
Direct Taxes to issue necessary circulars to all the appellate
authorities for directing them to dispose of such stay applications and
so long as the stay application is not disposed of, the Assessing
Officer must be slow or reluctant in initiating the recovery process.
The relevant extract of para 4 and 5 quoted below:
“4. ..... So far as the power of stay of CIT(A) is
concerned, in our view, the law laid down by the Apex Court
in the case of M.K. Mohammed Kunhi (supra) and a
Division Bench of this Court in Prem Prakash Tripathi's
case (supra), clinches the issue in favour of the proposition
advanced by the petitioner. We have no manner of doubt
that the stay application is maintainable and CIT(A) do
possess power to pass an interim order which he has to
consider judiciously in accordance with law. We, therefore,
dispose of the writ petition with the direction to the Appellate
Authority concerned to hear the stay application and dispose
of the same within a period of 15 days from this date.
However, it is expected that no coercive action will be taken
against the petitioner meanwhile.
5. Before parting we may observe herein that of late,
we have experienced a flood of such writ petitions, where the
petitioner having filed appeal along with the stay application
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before the authority concerned have waited for sometime but
the appellate authority has failed to pass any order
whatsoever on the stay application and in the meantime the
assessing authority had proceeded to make recovery which
causes in filing of a number of writ petitions before this
Court. This can be avoided by the authorities concerned
showing more concern to their duties and by disposing of
such stay applications expeditiously and in any case within a
reasonable time. For inaction of the authorities, this Court
is being flooded with avoidable litigation which is causing
more harm to public at large who is awaiting for
dispensation of justice within a reasonable time from the
highest Constitutional Court in the State. This Court is
already burdened with lakhs of cases awaiting their turn for
disposal The constraint in which this Court is functioning is
being added by this inaction of the authorities and is causing
delay in disposal of huge number of cases. We do not propose
to make this order an occasion to illustrate the various
reasons for delay but we will be failing in our duty if we
refrain from showing our concern to such callousness on
the part of the revenue authorities in sitting tight over the
stay application compelling the assessee to run to the High
Court by filing writ petition simply to get an order for
expeditious disposal of the application for interim order. If
they have some justification for not deciding the stay
application for sometime, it would be in the fitness of things
that in such cases, the assessing authority, if it has received
the information that the assessee has approached the
appellate authority by filing appeal along with the stay
application which is pending, must await the recovery till the
decision is taken by the appellate authority on such stay
application. We, therefore, direct the Central Board of
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Direct Taxes, New Delhi to look into this aspect of the
matter and, if necessary, to issue a circular to all the
appellate authorities directing them to dispose of stay
applications expeditiously and so long the stay application is
not disposed of the Assessing Officer must be slow or
reluctant in initiating recovery process. Let a copy of this
order be supplied to the Chairman, Central Board of Direct
Taxes, New Delhi for information and necessary action.“
31. In the land mark decision delivered on 11.03.1968, the
three Judges bench of Hon'ble Supreme Court in the case of M.K.
Mohammed Kunhi (supra), in unanimous opinion authored by
Grover, J, dealing with words “as he may think fit”, which were
available to the ITAT also while deciding appeals before it and in the
face of absence of clear provisions for grant of stay against the
disputed demand of tax, the Apex Court held that such power is
inherent in the appellate powers and the Tribunal should be deemed
to have such power under Section 254 of the Act. Quoting from
Domat's Civil Law Cushing's Edition, Vol. 1 at page 88, the
Hon'ble Supreme Court noted the following quotation: “It is the duty of
the judges to apply the laws, not only to what appears to be regulated by
their express dispositions, but to all the cases where a just application of
them may be made, and which appear to be comprehended either within
the consequences that may be gathered from it.”
Further relying on the Maxim “Cui jurisdiction date est, ea
quoque concessa essee videntur, sine quibus jurisdictio explicari non
potuit”, which means “where an inferior court is empowered to grant an
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injunction, the power of punishing disobedience to it by commitment is
impliedly conveyed by the enactment, for the power would be useless if it
could not be enforced.”
Noticing that in some of the earlier judgments, the court
expressed the difficulty that appellate tribunal did not possess the
power to stay the recovery during the pendency of the appeal, with
reference to the judgment in the case of Vetcha Sreeramamurthy
Vs. Income-tax Officer, Vizianagaram & Anr. reported in (1956) 30
ITR 252 (AP) and relying upon Halsbury's Laws of England, third
edition, volume 20, page 705, wherein it is stated that no tax is
payable while the assessment is the subject-matter of an appeal,
except such part of the tax assessed as appears to the
Commissioners seized of the appeal not to be in dispute. Ultimately,
relying upon the provision of Section 255 (5) of the Act, which
empowers the appellate Tribunal to regulate its own procedure, the
Court proceeded to hold that appellate Tribunal must be held to have
the power to grant stay as incidental or ancillary to its appellate
jurisdiction. The conclusions of the Hon'ble Supreme Court in para 13
and 14 of Mohd. Kunhi's judgment are quoted below for ready
reference: -
“13. Section 255 (5) of the Act does empower the
Appellate Tribunal to regulate its own procedure, but it is
very doubtful if the power of stay can be spelt out from that
provision. In our opinion the Appellate Tribunal must be
held to have the power to grant stay as incidental or
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ancillary to its appellate jurisdiction. This is particularly so
when section 220 (6) deals expressly with a situation when
an appeal is pending before the Appellate Assistant
Commissioner, but the Act is silent in that behalf when an
appeal is pending before the Appellate Tribunal. It could
well be said that when section 254 confers appellate
jurisdiction, it impliedly grants the power of doing all such
acts, or employing such means, as are essentially necessary
to its executions and that the statutory power carries with it
the duty in proper cases to make such orders for staying
proceeding as will prevent the appeal if successful from
being rendered nugatory.
14. A certain apprehension may legitimately arise in
the minds of the authorities administering the Act that, if the
Appellate Tribunal proceed to stay recovery of taxes or
penalties payable by or imposed on the assessee as a matter
of course, the revenue will be put to grant loss because of the
inordinate delay in the disposal of appeals by the Appellate
Tribunal. It is needless to point out that the power of stay by
the Tribunal is not likely to be exercised in a routine way or
as a matter of course in view of the special nature of
taxation and revenue laws. It will only be when a strong
prima facie case is made out that the Tribunal will consider
whether to stay the recovery proceedings and on what
conditions, and the stay will be granted in most deserving
and appropriate cases where the Tribunal is satisfied that the
entire purpose of the appeal will be frustrated or rendered
nugatory by allowing the recovery proceedings to continue
during the pendency of the appeal.”
32. A reference of few more land mark precedents on the
interpretation of statutes, specially taxing statutes is considered
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apposite here.
33. In Principles of Statutory Interpretation by Justice G.P.
Singh (12 Edn. 2010), the learned Author has stated as under:
“In selecting out of different interpretations 'the court
will adopt that which is just, reasonable and sensible rather
than that which is none of those things' ...A construction
that results in hardship, serious inconvenience, injustice,
absurdity or anomaly or which leads to inconsistency or
uncertainty and friction in the system which the statute
purports to regulate has to be rejected and preference
should be given to that construction which avoids such
results.”
34. In Directorate of Enforcement v. Deepak Mahajan – (1994)
3 SCC 440, this Court held as under:
“24. .... Though the function of the courts is only to
expound the law and not to legislate, nonetheless the
legislature cannot be asked to sit to resolve the difficulties in
the implementation of its intention and the spirit of the law. In
such circumstances, it is the duty of the court to mould or
creatively interpret the legislation by liberally interpreting
the statute.
25. In Maxwell on Interpretation of Statutes, Tenth Edn. at page 229,
the following passage is found:
'Where the language of a statute, in its ordinary meaning
and grammatical construction, leads to a manifest
contradiction of the apparent purpose of the enactment, or
to some inconvenience or absurdity, hardship or injustice,
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presumably not intended, a construction may be put upon it
which modifies the meaning of the words, and even the
structure of the sentence.'
31. .. but to winch up the legislative intent, it is
permissible for courts to take into account of the ostensible
purpose and object and the real legislative intent. Otherwise,
a bare mechanical interpretation of the words and
application of the legislative intent devoid of concept of
purpose and object will render the legislative inane.
35. Therefore, an interpretation having a social justice mandate is
required. The statutory provision is to be read in a manner so as to do
justice to all the parties. Any construction leading to confusion and
absurdity must be avoided. The Court has to find out the legislative
intent and eschew the construction which will lead to absurdity and
give rise to practical inconvenience or make the provision of the
existing law nugatory. The construction that results in hardship,
serious inconvenience or anomaly or gives unworkable and
impracticable results, should be avoided. (Vide: Corporation Bank v.
Saraswati Abharansala and Anr. (2009) 1 SCC 540; and Sonic
Surgical v. National Insurance Co. Ltd.- (2010) 1 SCC 135]
36. A reasonable construction agreeable to justice and reason is to
be preferred to an irrational construction. The Court has to prefer a
more reasonable and just interpretation for the reason that there is
always a presumption against the law maker intending injustice and
unreasonability/ irrationality, as opposed to a literal one and which
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does not fit in with the scheme of the Act. In case the natural meaning
leads to mischievous consequences, it must be avoided by accepting
the alternative construction. (Vide: Bihar State Council of
Ayurvedic and Unani Medicine v. State of Bihar - (2007) 12 SCC
728 and Mahmadhusen Abdulrahim Kalota Shaikh v. Union of
India- (2009) 2 SCC 1 ]
37. The Court has not only to take a pragmatic view while
interpreting a statutory provision, but must also consider the practical
aspect of it. (Vide: Union of India v. Ranbaxy Laboratories Ltd.-
(2008) 7 SCC 502)
38. In Narashimaha Murthy v. Susheelabai – (1996) 3 SCC 644,
the Court held as under:-
“20. ... The purpose of the law is to prevent brooding
sense of injustice. It is not the words of the law but the spirit
and eternal sense of it that makes the law meaningful.
39. In Workmen of Dimakuchi Tea Estate v. Management of
Dimakuchi Tea Estate – AIR 1958 SC 353, it has been held thus:
“9. ... the definition clause must be read in the context
of the subject matter and scheme of the Act, and consistently
with the objects and other provisions of the Act.
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40. In Sheikh Gulfan v. Sanat Kumar Ganguli – AIR 1965 SC
1839 it has been held as follows:
19. ...Often enough, in interpreting a statutory provision, it
becomes necessary to have regard to the subject matter of the
statute and the object which it is intended to achieve. That is
why in deciding the true scope and effect of the relevant words
in any statutory provision, the context in which the words
occur, the object of the statute in which the provision is
included, and the policy underlying the statute assume
relevance and become material....
41. Any interpretation which eludes or frustrates the recipient of
justice is not to be followed. Justice means justice between both the
parties. Justice is the virtue, by which the Court gives to a man what
is his due. Justice is an act of rendering what is right and equitable
towards one who has suffered a wrong. The underlying idea is of
balance. It means to give to each his right. Therefore, while
tempering the justice with mercy, the Court has to be very conscious
that it has to do justice in exact conformity with the statutory
requirements.
42. Thus, it is evident from the above referred law, that the Court
has to interpret a provision giving it a construction agreeable to
reason and justice to all parties concerned, avoiding injustice,
irrationality and mischievous consequences. The interpretation so
made must not produce unworkable and impracticable results or
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cause unnecessary hardship, serious inconvenience or anomaly. The
court also has to keep in mind the object of the legislation.
43. In a recent decision, the Division Bench of Delhi High
Court in the case of Valvoline Cummins Ltd. (supra) has held that
even the application under Section 220 (6) of the Act where two
authorities, namely, Additional Commissioner acting as Assessing
Officer directed the assessee to approach his subordinate authority-
Deputy Commissioner for stay under Section 220 (6) of the Act, the
Court disapproved of such a direction and held that even if two
authorities had concurrent jurisdiction in the matter, the first authority,
namely, Additional Commissioner ought to have decided the
application on merits and once the Additional Commissioner had
exercised jurisdiction as an Assessing Officer, he was required to
continue to exercise the power till his jurisdiction in that matter was
over. Thereafter, the Court referred to Instruction No.95 dated
21.08.1969 & the Division Bench of Delhi High Court directed the
Addl. Commissioner to decide the stay application and granted
absolute stay against the recovery, even though the Deputy
Commissioner had directed payment of 15% of the disputed demand.
In the case before the Delhi High Court, the income assessed was 8
times of the income declared by the assessee and relying upon the
Instruction No. 95, the Court held as under: -
“It may be recalled that the returned income of the
assessee was Rs.7.25 crores, but the assessed income is
Rs.58.68 crores, which is almost 8 times the returned income.
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In this regard, learned counsel has drawn our attention to
Instruction No. 95 dated August, 21, 1969 issued by the
Central Board of Direct Taxes, which deals with the framing
of an assessment which is substantially higher than the
returned income. The relevant portion of the Instruction
reads as follows:
“1222. Income determined on assessment was
substantially higher than returned income. -Whether
collection of tax in dispute is to be held in abeyance till
decision on appeal.
1. One of the points that came up for consideration in
the 8th meeting of the Informal Consultative Committee was
that income-tax assessments were arbitrarily pitched at high
figures and that the collection of disputed demands as a result
thereof was also not stayed in spite of specific provision in
the matter in Section 220 (6).
2. The then Deputy Prime Minister had observed as
under:
' ... where the income determined on assessment was
substantially higher than the returned income, say, twice the
latter amount or more, the collection of the tax in dispute
should be held in abeyance till the decision on the appeals,
provided there were no lapse on the part of the assessee'.
3. The Board desire that the above observations may
be brought to the notice of all the Income-tax Officers
working under you and the powers of stay or recovery in
such cases up to the stage of first appeal may be exercised
by the Inspecting Assistant Commissioner/Commissioner of
Income-tax.
A perusal of paragraph 2 of the aforesaid extract
would show that where the income determined is substantially
higher than the returned income, that is, twice the latter
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amount or more, then the collection of tax in dispute should
be held in abeyance till the decision on the appeal is taken. In
this case, as we have noted above, the assessment is almost 8
times the returned income. Clearly, the above extract from
Instruction No. 95 dated August 21, 1969 would be
applicable to the facts of the case.
Learned counsel for the assessee has drawn our
attention to several decision of various High Courts which
have interpreted the aforesaid Instruction in the way that we
have read it. Some of these decisions are N. Rajan Nair v.
ITO [1987] 165 ITR 650 (Ker), Mr. R. Mani Goyal v. CIT
[1996] 217 ITR 641 (All), and I.V.R. Constructions Ltd. v.
Asst. CIT [1998] 231 ITR 519 (AP).
Under the circumstances, we are of the view that the
assessee would, in the normal course, be entitled to an
absolute stay of the demand on the basis of the above
Instruction.”
44. Similarly, the learned Single Judge of Madras High Court
in the case of M.G.M. Transport (Madras) P. Ltd. Vs. Income-tax
Officer & Anr. (2008) 303 ITR 115 (Mad) again referred to
Instruction No.95 dated 21.08.1969 held as under: -
“The petitioner had filed a return for the assessment
year 2004-05 disclosing a loss. The Assessing Officer
however passed an assessment order raising a huge demand
for Rs.1,40,25,762. The petitioner applied for a stay of
demand. On a writ petition against rejection of the
application:
Held, that Central Board of Direct Taxes Instruction
No. 95, dated August 21, 1969, would squarely apply to the
case of the petitioner. The mere statement in the order
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without any factual foundation that “no valid reason has
been stated for stay of demand” by the Assessing Officer
was not sufficient. The order was not valid. The petitioner
was entitled to stay of collection till orders were passed in the
appeal, subject to making certain payment.”
45. The learned Single Judge of Rajasthan High Court in the
case of Maharana Shri Bhagwat Singhji of Mewar (Late His
Highness) Vs. Income-Tax Appellate Tribunal, Jaipur Bench,
Jaipur (1997) 223 ITR 192 (Raj.) also held in the matter relating to
estate duty and applying the same Instruction No.95 dated
21.08.1969 granted absolute stay till the appeal is decided by ITAT
and relying upon the decision of Kerala High Court and MP High
Court, directed the Tribunal to decided the appeals and till then
granting absolute stay, directed the Assessing Authority not to insist
on payment of 25% of the impugned demand. The relevant extract
from the said judgment is also quoted herein below for reference.
“.... Learned counsel for the petitioner also places
reliance on a judgment of K.P. Varghese v. ITO [1981] 131
ITR 597, in which the apex court had taken a view that
circulars of the Central Board of Direct Taxes dated July 7,
1964, and January 14, 1974, are binding on the
Department. Therefore, in view of the law laid down by the
apex court, the Kerala High Court, the Madhya Pradesh
High Court and this court, this proposition cannot be
disputed that the circulars issued by the Central Board of
Direct Taxes are binding on the authorities exercising the
powers under the taxing statute and have sufficient force of
law.
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The other question which requires determination by
this Court is whether Instruction No. 95 dated August 21,
1969, on which the petitioner places reliance is applicable in
the facts of the case. From the perusal of the aforesaid
instruction, it is clear that where the income determined on
assessment was substantially higher than the returned
income, twice the latter amount or more, the collection of
the tax in dispute should be held in abeyance till the
decision of the appeals. It cannot be disputed in the present
case that the income of the petitioner which was determined
by the authority was much more than twice the returned
income. In support of his contention, counsel placed reliance
on a judgment of the Allahabad High Court in the case of
Mrs. R. Mani Goyal v. CIT [1996] 217 ITR 641, wherein it
was held that if the income determined on assessment is
substantially greater than the returned income and if appeal
is filed, recovery should be stayed till the disposal of appeal.”
46. The Delhi High Court Division Bench again in Taneja
Developers & infrastructure Ltd. Vs. Assistant Commissioner of
Income Tax & Ors. (2010) 324 ITR 247 (Del) rejecting the contention
of the learned counsel for the Revenue that with the issuance of new
Instruction No.1914 of 1993 dated 02.12.1993, the Instruction No.95
dated 21.08.1969, quoted above, stood superseded and relying upon
the Instruction No.95 and earlier decision in the case of Valvoline
Cummins Ltd. (supra), the Division Bench held that assessment in
present case was also unreasoned, high pitched income being
assessed at 74 times that of the returned income.
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“43. Under the circumstances, we are of the view that
the Assessee would, in normal course, be entitled to an
absolute stay of the demand on the basis of the above
Instruction.”
Mr. Jolly, who appeared on behalf of the respondent,
submits that Instruction No. 95 which formed the basis of the
decision of this Court in Valvoline Cummins Ltd.'s case now
stands superseded by Instruction No. 1914 of 1993 dated
2.12.1993. Mr. Jolly handed over a copy of the said
instruction. The relevant portion of the said instruction reads
as under:
(Hon'ble Delhi High Court has quoted only relevant
portion of Instruction 1914 dt: 2/12/1993, however,
for ready reference, full text of the said Instruction
1914 is reproduced)
A. Responsibility
(i) It shall be the responsibility of the Assessing
Officers and the TRO to collect every demand that has been
raised, except the following:
(a) Demand which has not fallen due;
(b) Demand which has been stayed by a Court or ITAT
or Settlement Commission;
(c) Demand for which a proper proposal for write off
has been submitted;
(d) Demand stayed in accordance with paras B and C
below:
(ii) Where demand in respect of which a Recovery
Certificate has been issued or a statement has been drawn,
the primary responsibility for the collection of tax shall rest
with the TRO.
(iii) It would be the responsibility of the supervisory
authorities to ensure that the Assessing Officers and the
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TROs take all such measures, as are necessary to collect the
demand. It must be understood that mere issue of a show
cause notice with no follow up is not to be regarded as
adequate effort to recover taxes.
B. Stay petitions
(i) Stay petitions filed with the Assessing Officers
must be disposed of within two weeks of the filing of petition
by the taxpayer. The assessee must be intimated of the
decision without delay.
(ii) Where stay petitions are made to the authorities
higher than the Assessing Officer (DC/CIT/CC), it is the
responsibility of the higher authorities to dispose of the
petitions without any delay, and in any event within two
weeks of the receipt of the petition. Such a decision should be
communicated to the assessee and the Assessing Officer
immediately.
(iii) The decision in the matter of stay of demand
should normally be taken by Assessing Officer/TRO and his
immediate superior. A higher superior authority should
interfere with the decision of the AO/TRO only in
exceptional circumstances e.g., where the assessment order
appears to be unreasonably high-pitched or where genuine
hardship is likely to be caused to the assessee. The higher
authorities should discourage the assessee from filing review
petitions before them as a matter of routine or in a frivolous
manner to gain time for withholding payment of taxes.
C. Guidelines for staying demand
A demand will be stayed only if there are valid
reasons for doing so. Mere filing an appeal against
the assessment order will not be a sufficient reason
to stay the recovery of demand. A few illustrative
situations where stay could be granted are :
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(i) It is clarified that in these situations also, stay may
be granted only in respect of the amount attributable
to such disputed points. Further where it is
subsequently found that the assessee has not co-
operated in the early disposal of appeal or where a
subsequent pronouncement by a higher appellate
authority or court alters the above situation, the stay
order may be reviewed and modified. The above
illustrations are, of course, not exhaustive.
(ii)In granting stay, the Assessing Officer may impose
such conditions as he may think fit. Thus he may — a.
require the assessee to offer suitable security to
safeguard the interest of revenue;b. require the
assessee to pay towards the disputed taxes a
reasonable amount in lump sum or in instalments; c.
require an undertaking from the assessee that he will
co-operate in the early disposal of appeal failing
which the stay order will be cancelled; d. reserve the
right to review the order passed after expiry of a
reasonable period, say up to 6 months, or if the
assessee has not co-operated in the early disposal of
appeal, or where a subsequent pronouncement by a
higher appellate authority or court alters the above
situations;e. reserve a right to adjust refunds arising,
if any, against the demand.
(iii)Payment by instalments may be liberally allowed so
as to collect the entire demand within a reasonable
period not exceeding 18 months.
(iv)Since the phrase "stay of demand" does not occur in
section 220(6) of the Income-tax Act, the Assessing
Officer should always use in any order passed under
section 220(6) [or under section 220(3) or section
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220(7)], the expression that occurs in the section viz.,
that he agrees to treat the assessee as not being
default in respect of the amount specified, subject to
such conditions as he deems fit to impose.
(v)While considering an application under section 220
(6), the Assessing Officer should consider all relevant
factors having a bearing on the demand raised and
communicate his decision in the form of a speaking
order.
D. Miscellaneous:
(i) Even where recovery of demand has been stayed,
the Assessing Officer will continue to review the
situation to ensure that the conditions imposed are
fulfilled by the assessee failing which the stay order
would need to be withdrawn.
(ii) Where the assessee seeks stay of demand from the
Tribunal, it should be strongly opposed. If the
assessee presses his application, the CIT should
direct the departmental representative to request that
the appeal be posted within a month so that
Tribunal’s order on the appeal can be known within
two months.
(iii) Appeal effects will have to be given within 2
weeks from the receipt of the appellate order.
Similarly, rectification application should be decided
within 2 weeks of the receipt t hereof. Instances
where there is undue delay in giving effect to
appellate orders, or in deciding rectification
applications, should be dealt with very strictly by the
CCITs/CITs.
3. The Board desires that appropriate action is taken in
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the matter of recovery in accordance with the above
procedure. The Assessing Officer or the TRO, as the case may
be, and his immediate superior officer shall be held
responsible for ensuring compliance with these instructions.
4. This procedure would apply mutatis mutandis to
demands created under other Direct Taxes enactments also.”
Relying upon the said Instruction No. 1914 of 1993,
Mr. Jolly submitted that all previous instructions stood
superseded which included the supersession of said
Instruction No. 95. He further submitted that paragraph No.
2(C), which deals with guidelines for staying demand,
specifically requires that a demand be stayed only if there are
valid reasons for doing so and that a mere filing of an appeal
against the assessment order will not be a sufficient reason
for staying recovery of a demand.
Having considered the arguments advanced by the
learned Counsel for the parties, we are of the view that
although Instruction No. 1914 of 1993 specifically states
that it is in supersession of all earlier instructions, the
position obtaining after the decision of this Court in
Valvoline Cummins Ltd. (supra) is not altered at all. This is
so because paragraph No. 2(A) which speaks of responsibility
specifically indicates that it shall be the responsibility of the
Assessing Officer and the TRO to collect every demand that
has been raised "except the following", which includes "(d)
demand stayed in accordance with the paras B and C below".
Para B relates to stay petitions. As extracted above, Sub-
clause (iii) of para B clearly indicates that a higher/superior
authority could interfere with the decision of the Assessing
Officer/TRO only in exceptional circumstances. The
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exceptional circumstances have been indicated as - "where
the assessment order appears to be unreasonably high
pitched or where genuine hardship is likely to be caused to
the assessee". The very question as to what would constitute
the assessment order as being reasonably high pitched in
consideration under the said Instruction No. 95 and, there,
it has been noted by way of illustration that assessment at
twice the amount of the returned income would amount to
being substantially higher or high pitched. In the case before
this Court in Valvoline Cummins Ltd. (supra) the assessee's
income was about eight (8) times the returned income. This
Court was of the view that was high pitched. In the present
case, the assessed income is approximately 74 times the
returned income and obviously, this would fall within the
expression "unreasonably high pitched".
(emphasis supplied)
The aforesaid issue is thus no more res integra and
thus the impugned order is not sustainable. A figure of 8
times and 74 times has been classified as “unreasonably high
pitched”. In the present case it is 350 times and so falls under
the same nomenclature.
Consequently, the operation of the impugned order is
stayed till the disposal of the writ petition. The natural
consequence would be that any attachment order issued in
pursuance to the impugned order would not have any effect.
The views expressed, of course, are only prima facie in
nature.
The application stands disposed of.”
47. In the case of Bharat Heavy Electrics Ltd. Vs. State of
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Karnataka reported in (2006) 147 STC 638 (Karn) (FB), the
Karnataka High Court has held as under:
“Sub-section (6) of Section 23 does not relate to the
power of High Court to pass interim orders during the
pendency of revision. It does not bar or prohibit, granting of
stay, pending disposal of the revision petition. It only
requires the dealer to pay the tax in regard to the
assessment made irrespective of the fact that a revision
petition has been filed against the order of the Appellate
Tribunal, under Section 23 (1). The effect of it is that where
that revision is by the State, the dealer cannot postpone
payment of tax, merely on the ground that the order of the
Tribunal is challenged by the State itself. Similarly, where the
dealer has challenged the order of the Tribunal in a revision
petition, he cannot postpone the payment of tax merely on the
ground that a revision petition filed by him is pending. In
other words, the effect of sub-section (6) is that mere filing of
a revision does not act as an automatic stay of recovery of
tax. But that does not mean that sub-section (6) can be
construed as barring the High Court from granting stay. The
Legislature has not made any express provision regarding
stay. Nor is there any express prohibition regarding
granting of stay pending disposal of the revision petition. In
the absence of an express bar, the principle is that the
express grant of statutory power of revision or appeal
carries with it by necessary implication, the implied power
to make such grant of revisional/appellate power effective,
and such implied power includes the power to grant stay
pending decision.
The proviso to sub-section (3) of Section 13
specifically provides that where a dealer or other person has
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applied for revision of an order made under the Act and has
complied with the conditions of any order made by the
revising authority in regard to payment of tax, no
proceedings for recovery under section 13 (3) shall be taken
or continued until the disposal of such revision petition. It
follows that section 13 (3) impliedly recognizes the power of
the High Court to grant stay or pass other interim orders in
regard to the amount due, in proceedings under Section 23.
Thus, the inherent or incidental power of the High Court
with reference to the revisional jurisdiction under Section
23 or the appellate jurisdiction under section 24 will include
the power to grant stay pending disposal of the revision or
the appeal, as the case may be.”
48. In the case of National Thermal Power Co. Ltd. Vs.
Commissioner of Income Tax reported in (1998) 229 ITR 383, the
Hon'ble Supreme Court has held as under:
“Under Section 254 of the Income-tax Act, 1961, the
Appellate Tribunal may, after giving both the parties to the
appeal an opportunity of being heard, pass such orders
thereon as it thinks fit. The power of the Tribunal in dealing
with appeals is thus expressed in the widest possible terms.
The purpose of the assessment proceedings before the taxing
authorities is to assess correctly the tax liability of an
assessee in accordance with law. If, for example, as a result
of a judicial decision given while the appeal is pending
before the Tribunal, it is found that a non-taxable item is
taxed or a permissible deduction is denied, there is no reason
why the assessee should be prevented from raising that
question before the Tribunal for the first time, so long as the
relevant facts are on record in respect of the item. There is
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no reason to restrict the power of the Tribunal under
section 254 only to decide the grounds which arise from the
order of the Commissioner of Income-tax (Appeals). Both
the assessee as well as the Department have a right to file an
appeal/cross-objections before the Tribunal. The Tribunal
should not be prevented from considering questions of law
arising in assessment proceedings, although not raised
earlier. The view that the Tribunal is confined only ti issues
arising out of the appeal before the Commissioner (Appeals)
is too narrow a view to take of the powers of the Tribunal.”
49. In the case of Rajan Nair vs. ITO (1987) 165 ITR 650
(Ker), the Kerala High Court has held that in exercise of power under
Section 220 (6) of the Act, the ITO should not act as a mere tax
gatherer but as a quasi-judicial authority vested with the power of
mitigating hardship to the assessee. More so, in the case of
Gajanand Agencies Vs. ITO (1994) 121 CTR (Ker), it was held that
ITO directing payment of demand installments is only another mode
of recovery and cannot be treated as on order under Section 220 (6).
A prima-facie being made out, the order of ITO and CIT was set aside
and the payment of demand was stayed till decision of first appeal.
The CIT (A) was directed to dispose off the appeal within three
months.
50. The Hon'ble Supreme Court in the case of Union of India Vs.
Umesh Dhaimode reported in 1998 (98) E.L.T. 584 (SC) held as
under:-
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“2. As the order under appeal itself notes, the
aforesaid provision vested the appellate authority with
powers to pass such order as it deemed fit confirming,
modifying or annulling the decision appealed against.
An order of remand necessarily annuls the decision
which is under appeal before the appellate authority.
The appellate authority is also invested with the power
to pass such order as it deems fit. Both these portions of
the aforesaid provision, read together, necessarily imply
that the appellate authority has the power to set aside
the decision which is under appeal before it and to
remand the matter to the authority below for fresh
decision.”
51. In view of aforesaid legal position culled out from
different judgments & there being no contrary view available before
this Court cited from the side of Revenue or otherwise, this Court is
inclined to hold that first appellate authority, namely; Deputy
Commission of Income Tax (Appeals) or Commissioner of Income
Tax (Appeals) have inherent, implied and ancillary powers to grant
stay against the recovery of disputed demand of tax while seized of
the appeal filed before them in accordance with Section 246 or 246A
of the Act. There is yet another reason for holding so, and such
inherent powers have to be inferred even in the absence of any
specific statutory provision conferring the power to grant stay upon
such authorities under the Act.
52. The powers of Assessing Officer under Section 220 (6) of the
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Act, cannot be said to be power to grant stay against the recovery of
disputed demand. The said provisions as quoted above, only give
discretion to the Assessing Authority, not to treat the assessee in
default subject to such conditions as he may think fit, to impose in the
circumstances of the case, so long as such appeal filed under
Section 246 or 246A of the Act is pending, so as to save the
assessee from the consequences, which would otherwise follow, if
the assessee is to be treated as 'assessee in default', namely,
payment of interest under Section 220(2) and penalty under Section
221 of the Act. Section 220 (3) of the Act empowers the Assessing
Officer to extend the time for payment or allow payment by
installments, while Section 220 (3) of the Act gives power to Chief
Commissioner or Commissioner to reduce or waive the amount of
interest paid or payable by the assessee subject to three conditions,
as enumerated thereunder. Sub-Section (7) of Section 220 makes a
departure from sub-Section (6), and in cases where assessee has
been assessed in respect of income arising outside India in the
country, the laws of which prohibit or restrict the remittance of money
to India, the Assessing Officer shall (as against words `may' used in
S.220 (6), here it is mandatory) not treat the assessee as in default of
respect of that part of the tax which is due in respect of that amount
of his income which, by reason of such prohibition or restriction,
cannot be brought into India, and shall continue to treat the assessee
as not in default in respect of such part of the tax until the prohibition
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or restriction is removed. The words used in sub-Section (6) are
“may” whereas the words used in sub-Section (7) are “shall”.
Where on account of prohibition in law against the
remittance of money to India results in automatic protection and sub-
Section (7) mandates the Assessing Officer not to treat the assessee
in default, the mere use of word 'may' in sub-Section (6), which
normally give a discretion to the Assessing Officer, cannot be
construed to mean that except the type of cases covered under sub-
Section (7), the Assessing Officer cannot use such discretion,
normally in favour of assessee, particularly where high pitched
assessments are made and it results into situation like the demand of
tax being more than twice or still higher than the declared tax liability,
in the spirit of Instruction No.95 dated 21.08.1969 to grant such stay
or to treat the assessee not in default in all such cases. The last
words of sub-Section (6), “as long as such appeal remains
undisposed of” are not without significance. 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) of the Act. The application under
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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.
53. The tendency of making high pitched assessments by
the Assessing Officers is not unknown and it may result in serious
prejudice to the assessee and miscarriage of justice & sometimes
may even result into insolvency or closure of the business if such
power was to be exercised only in a pro revenue manner. It may be
like execution of death sentence, whereas the accused may get even
acquittal from higher appellate forums or courts. Therefore, this Court
is of the opinion that such powers under sub-Section (6) of Section
220 of the Act also have to be exercised in accordance with the letter
and spirit of Instruction No. 95 dated 21.08.1969, which even now
holds the field and its spirit survives in all subsequent CBDT Circulars
quoted above, and undoubtedly the same is binding on all the
assessing authorities created under the Act.
54. The submissions of the learned counsel for the petitioner
that Income Tax Act does not provides for any pre-deposit of portion
of disputed demand of tax unlike other enactments like, Central
Excise Act, Customs Act and Sales Tax laws of various State, is not
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really very relevant in the matter. Since, it is for the Parliament to
enact the laws and make provisions and whether such requirement is
there or not in the Income Tax Act, it is not for this Court to make any
comment upon that. However, since this Court has already held that
power to grant stay is inherent in the power to decide the appeal even
by the first appellate authority, it is not necessary to further go into
this submission.
55. Likewise, this Court would abstain from commenting
upon the conspicuous absence of provision akin to Section 254 (2A)
and (2B) conferring such powers to grant stay upon the Income Tax
Appellate Tribunal purportedly brought in pursuance of judgment of
the Hon'ble Supreme Court in the case of M.K. Mohammed Kunhi
(supra) and not conferring such powers upon first appellate
authorities also and it is for the Parliament to consider the
requirement of enacting similar provisions in this regard for first
appellate authorities under the Act, though this legal position
enunciated by various High Courts in this regard, as quoted above,
makes it an eminently a fit and deserving amendment in law.
56. However, this Court respectfully following the Division
Bench observations of Delhi High Court in the case of Valvoline
Cummins Ltd. (supra), would again urge the Central Board of Direct
Taxes to issue appropriate guidelines for grant of stay in the spirit of
Instruction No.95 dated 21.08.1969 to all the subordinate authorities
& to clarify for uniform application all over the country at department
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level that first appellate authority shall have power to entertain &
decide stay application during pendency of appeal before it upon
relevant considerations for grant of stay against recovery of disputed
demand of tax.
57. Turning back to the facts of the present case, as already
narrated above, the income assessed by the Assessing Officer is
almost 47 times of the income declared by the assessee viz.
Rs.1,44,42,320/- against the declared income of Rs.3,48,140/-. The
disputed demand of tax also would be almost the same multiples of
the declared and admitted tax liability or may be more because of
interest & penalties. The main additions are trading additions on the
basis of GP rates, the validity of which is subject matter of appeal
before the C.I.T. (Appeals). Therefore, applicability of Instruction
No.95 dated 21.08.1969, in the present case, is beyond the pale of
doubt. Against the net demand of Rs.58 lacs raised vide Annex-5
dated 21.01.2011 for AY 2008-09, the assessee has been made to
pay Rs.5 lacs already besides his admitted tax liability as already paid
by him before filing the return of income. Thus, this Court would stay
the recovery of entire balance amount from the petitioner-assessee,
while directing the C.I.T. (Appeals) to dispose of the pending appeal
of the assessee within a period of six months from today. The
attachment of bank accounts of the petitioner-assessee already
attached by the respondent- Assessing Authority are also be lifted
and the assessee will be free to operate its bank accounts.
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58. As already held, since the C.I.T. (Appeals) also has
inherent and implied powers to grant stay, the assessee-petitioner
may also file stay application before the C.I.T. (Appeals), who may
also consider such stay application on its own merits upon the
relevant factors as enumerated above viz. prima-facie case, balance
of convenience, irreparable injury, nature of demand and hardship
likely to be caused to the assessee, liquidity available to the assessee
etc. It is directed that all the first appellate authorities in the cases of
other appellant assessees within the State of Rajasthan also, would
entertain stay applications filed before them during the pendency of
appeals and would decide the same on their own merits in future
also. The assessing authorities will also decide applications under
Section 220 (6) of the Act in accordance with Instruction No.95 dated
21st August, 1969 and observations made herein before.
59. Writ petition is accordingly allowed. No order as to costs.
(DR. VINEET KOTHARI), J.
DJ/- S-80
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