IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT...

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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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


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


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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