Court directs reconsideration of tax petition under CBDT Instruction, emphasizes procedural fairness

The court allowed the writ petition, set aside the impugned orders, and directed the respondent to reconsider the petition filed under Sections 220(3) and 220(6) in conformity with CBDT Instruction No.95, providing an opportunity of being heard to the petitioner. The court emphasized the importance of exercising discretion in favor of the assessee in high pitched assessments and adhering to procedural fairness.

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Issues Involved:
1. High Pitched Assessment
2. Applicability of CBDT Instruction No.95 dated 21.08.1969 versus CBDT Instruction No.1914 dated 02.12.1993
3. Discretionary power under Sections 220(3) and 220(6) of the Income Tax Act
4. Requirement for providing an opportunity of being heard

Detailed Analysis:

1. High Pitched Assessment:
The petitioner, an income tax assessee, filed a return for the assessment year 2012-2013, declaring a total income of Rs. 4,91,680 and agricultural income of Rs. 45,00,000. The Assessing Officer (AO) rejected the claim of agricultural income and assessed the total income at Rs. 59,91,680, treating the agricultural income as regular income from undisclosed sources. The petitioner contended that the assessment was made arbitrarily and in a biased manner, without considering the evidence provided, such as Patta, Adangal, Sale Bills, and Pesticides Bills. The petitioner argued that the assessment was a "High Pitched Assessment," defined as an assessment where the determined income is substantially higher than the returned income, in this case, 14 times higher.

2. Applicability of CBDT Instruction No.95 dated 21.08.1969 versus CBDT Instruction No.1914 dated 02.12.1993:
The petitioner relied on CBDT Instruction No.95, which states that in cases of high pitched assessments, the assessee should be treated as "not being in default" regarding the amount in dispute in the appeal. The respondent, however, argued that this instruction had been superseded by CBDT Instruction No.1914, which requires valid reasons for staying the demand and does not automatically grant stay merely because an appeal has been filed. The court reviewed various judgments, including those from the Delhi High Court and Rajasthan High Court, which supported the continued relevance of Instruction No.95, especially in cases of high pitched assessments.

3. Discretionary Power under Sections 220(3) and 220(6) of the Income Tax Act:
Sections 220(3) and 220(6) grant the AO discretionary power to extend the time for payment or allow payment in installments and to treat the assessee as not being in default during the pendency of an appeal. The petitioner filed a petition under these sections seeking a stay of the demand pending appeal, which was rejected by the AO, who directed the petitioner to pay 50% of the demand amount. The court noted that the AO's discretion should ordinarily be exercised in favor of the assessee in cases of high pitched assessments to avoid penal interest and financial hardship.

4. Requirement for Providing an Opportunity of Being Heard:
The court emphasized that the AO should have provided an opportunity for the petitioner to be heard before disposing of the application under Sections 220(3) and 220(6). The failure to do so was against the principles laid down in various judgments and CBDT Instruction No.95. The court held that the impugned orders were liable to be set aside for not considering the instruction and not providing an opportunity to the petitioner.

Conclusion:
The court allowed the writ petition, set aside the impugned orders, and directed the respondent to reconsider the petition filed under Sections 220(3) and 220(6) in conformity with CBDT Instruction No.95, providing an opportunity of being heard to the petitioner. The court underscored the importance of exercising discretion in favor of the assessee in high pitched assessments and adhering to procedural fairness.

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