2022 (2) TMI 1208 - HC - Income Tax

Court sets aside orders, directs reconsideration in line with CBDT instructions. Petitioner granted opportunity for relief.

Harsh Dipak Shah Versus Union of India

Harsh Dipak Shah Versus Union of India - [2022] 444 ITR 184 (Guj) Issues Involved:1. High Pitched Assessment2. Waiver of Pre-Deposit3. Financial Stringency and Balance of Convenience4. Discretionary Power of Assessing Officer under Section 220(6)5. Compliance with CBDT Instructions and CircularsDetailed Analysis:High Pitched Assessment:The petitioner argued that the assessment was high-pitched, approximately 100 times the returned income, leading to an astronomical demand of Rs. 373,20,42,319/-. The court noted that the term 'High Pitched Assessment' refers to assessments substantially higher than the returned income, often twice or more. The court cited various judgments, including those from the Madras and Delhi High Courts, which indicated that in cases of high-pitched assessments, the collection of disputed taxes should be held in abeyance until the appeal is decided, provided there are no lapses on the part of the assessee.Waiver of Pre-Deposit:The petitioner sought a waiver of the 20% pre-deposit required for the stay of the demand, arguing that the amount was unreasonably high. The court emphasized that the Assessing Officer should not mechanically insist on a 20% deposit, especially when the amount itself is astronomical. It was noted that the discretion to waive or reduce the pre-deposit should be exercised judiciously, considering the circumstances of each case.Financial Stringency and Balance of Convenience:The petitioner claimed financial hardship due to the COVID-19 pandemic and argued that the only source of income was from Avani Petrochem Pvt. Ltd., whose turnover was significantly lower than the assessed income. The court highlighted that financial stringency and balance of convenience are crucial factors in deciding stay applications. It was noted that the Assessing Officer should consider these factors and not act as a mere tax-gatherer but as a quasi-judicial authority.Discretionary Power of Assessing Officer under Section 220(6):The court analyzed the discretionary power of the Assessing Officer under Section 220(6) of the Income Tax Act, which allows the officer to treat the assessee as not being in default during the pendency of an appeal. The court emphasized that this discretion should be exercised judiciously and not arbitrarily. The officer should consider all relevant factors, including the existence of a prima facie case, balance of convenience, and irreparable injury to the assessee.Compliance with CBDT Instructions and Circulars:The court noted that the Assessing Officer must comply with the CBDT instructions and circulars, which provide guidelines for staying demands. The court referred to various instructions, including Instruction No.1914 and subsequent modifications, which suggest that the officer should consider the merits of the case and the financial condition of the assessee before deciding on the stay of demand. The court criticized the mechanical application of the 20% pre-deposit requirement and stressed the need for a more nuanced approach.Conclusion:The court allowed the writ application, setting aside the impugned orders and directing the respondent to reconsider the application for stay in conformity with the CBDT instructions and the parameters laid down by the court. The court also provided an opportunity for the petitioner to seek relief from the First Appellate Authority, emphasizing that the appellate authority has the inherent power to grant stay against the recovery of disputed demands. The court's decision underscores the importance of a fair and judicious exercise of discretion by tax authorities, particularly in cases involving high-pitched assessments and significant financial implications for the assessee.