Allahabad High Court holds discretionary powers of the assessing officer not absolute

Allahabad High Court holds discretionary powers of the assessing officer not absolute

Notifies the revenue department of ignoring the basic principles of law

The Allahabad High Court has held that the discretionary powers vested in the assessing officer (AO) to grant the stay of demand, are not absolute. It would be exercised within the four corners of the law.

The assessee, ALM Industries Ltd, approached the court challenging an order of the Deputy Commissioner of Income Tax. The officer had directed the assessee to deposit 20 percent of the disputed amount of tax while rejecting the stay application.

Meanwhile, the Principal Commissioner of Income Tax proceeded to consider the audit report and balance sheet. While considering the assets, he ignored the liability part and rejected the stay application. He held the financial position of the assessee to be strong and directed the petitioner to deposit the disputed amount of tax.

The revenue department contended that nowhere in the stay application the assessee said that its financial position was critical, and he was unable to deposit 20 percent of the outstanding demand.

The bench of Justice Rohit Ranjan Agarwal observed, "It is clear that once an appeal has been filed under the Income Tax Act, 1961, it is the discretion of the AO, and subject to the condition 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."

As for the petitioner's contention that the appeal was within the statutory period and should be treated as 'assessee not being in default,' the court observed that it could not be accepted. That was because it was clear that it was the AO's discretion to impose a condition in such cases, treating the assessee as not being in default.

However, the court said, "The mere pendency of an appeal will not give any benefit to the assessee. Only upon the satisfaction having been recorded by the AO and the condition being imposed by him in each such case, an assessee shall be treated to be not in default on the outstanding demand of tax. In this appeal, it is a matter of dispute."

Ruling in favor of the assessee, the bench added, "The word 'discretion', which occurs in the provision of the law, does not give a blanket power to the AO. He has to exercise his discretion within the four corners of the law. While passing an order imposing a condition, he must justify his action. We find that while passing the stay application, neither the Deputy Commissioner of Income Tax nor the Principal Commissioner of Income Tax considered the three basic principles - prima facie case; balance of convenience; and irreparable loss, as held by the Delhi High Court in the Tata Teleservices Limited case."