M/s Maheshwari Agro Industries vs. UOI (Rajasthan High Court)

S. 220(6): In high-pitched assessments, AO must ordinarily grant stay of demand

The assessee offered Rs. 3.48 lakhs. The AO made a “high-pitched” assessment of Rs. 1.44 crores. The AO rejected the assessee’s stay application and issued s. 226(3) garnishee notices. The assessee filed a Writ Petition to challenge the rejection of the stay application. HELD by the High Court allowing the Petition:

(i) U/s 226 (6) the AO has the discretion not to treat the assessee as being in default during the pendency of the appeal. The AO has to normally use this discretion in favour of assessee particularly when high pitched assessments are made and the demand of tax is several times the declared tax liability in the spirit of Instruction No.95 dated 21.08.1969 and grant stay. The mandate of Parliament in s. 220 (6) is that the AO should normally wait for the fate of the appeal filed by the assessee. Therefore, the discretion conferred by s. 220(6) of not treating the assessee in default should ordinarily be exercised in favour of assessee unless there are overriding and overwhelming reasons to reject the assessee’s stay application. The application cannot normally be rejected by 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.

(ii) The tendency of making high pitched assessments by the AO 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, the powers u/s 220 (6) has to be exercised in accordance with the letter and spirit of Instruction No. 95 dated 21.08.1969 which holds the field and is biding on the AO.

(iii) CBDT urged 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 that CIT (A) has the power to grant stay of demand.

(iv) On facts, as the assessed income was 47 times the returned income, the applicability of Instruction No.95 dated 21.08.1969 was beyond the pale of doubt and the assessee was entitled to a stay of demand till the disposal of the appeal by the CIT (A).

(v) The CIT (A) has inherent powers to grant stay against recovery of disputed demand of tax if an appeal u/s 246A is filed. The relevant factors to be considered are 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.