Judgment:
Badar Durrez Ahmed, J.
1. This writ petition is directed against the notice under Section 226(3) of IT Act, 1961, (hereinafter referred as 'the said Act') issued on 25th July, 2008 by the Dy. CIT, Central Circle-X, New Delhi whereby the manager, Canara Bank, New Delhi, has been directed to attach the debt of the assessee under Section 222 of the said Act and the said bank has been directed to make the payment in pursuance to the said notice in view of the fact that the assessee holds the bank account in the said bank and the assessee/petitioner is allegedly in default of the amount mentioned in the said notice i.e., Rs. 3,57,74,685. A similar notice of the same date has also been issued to the manager Syndicate Bank, Nehru Place, New Delhi where the petitioner also holds an account.
2. The effect of these notices is that the entire banking operations of the petitioner have come to a stand-still. The notices have been issued because there is a demand outstanding against the petitioner. On 2nd Nov., 2004 a search was conducted in the business premises of the petitioner. In the course of search cash to the extent of Rs. 17.92 lacs was seized, which was later on found to be accounted for. On 29th Dec, 2006, the assessment order was passed assessing the petitioner's income at approximately Rs. 7.59 crores as against the returned income of approximately Rs. 10.16 lacs. In fact the assessment of income was approximately 74 times the returned income. A demand notice on the very same date i.e., 29th Dec, 2006 was issued in respect of demand of approximately Rs. 4.31 crores on the basis of the assessed income.
3. On 25th Jan., 2007, the petitioner filed an application for stay of the demand before the AO. During the pendency of the application for stay, out of the cash seized i.e., approximately Rs. 17.92 lacs, an amount of Rs. 17 lacs was adjusted towards the demand, by the Department. Further, a sum of approximately Rs. 2.24 lacs was recovered on the very same date i.e., 25th Jan., 2007 from the petitioner. Thereafter, on 26th Feb., 2007, the AO passed the order on the petitioner's stay application by staying 50 per cent of the outstanding demand. No further payments were made by the petitioner inasmuch as the petitioner was disputing the same.
4. The petitioner has also filed an appeal against the assessment order on 22nd Jan., 2007, which is pending before the CIT(A). On 8th June, 2007, a further sum of approximately Rs. 3.28 lacs was adjusted by the Department out of a refund due to one of the partners in the petitioner firm. Since the balance amount had not been recovered, a notice was issued on 31st Aug., 2007 for recovery of the same. On 17th Sept., 2007, a further sum of approximately Rs. 51.05 lacs was recovered by the Department by encashing the bank guarantee which had been given by the petitioner in favour of the Department. The total recovery therefore, till date comes to Rs. 73,56,661.
5. Several demand notices were issued by the Department. The petitioner filed another stay application before the AO on 22nd Jan., 2008 which was rejected on the very next day i.e., 23rd Jan., 2008. On the same date, the petitioner filed an application for stay before the jurisdictional CIT, namely, CIT, Delhi Central-II. Thereafter, the said CIT fixed the date of hearing as 14th Feb., 2008 but, according to the learned Counsel for the respondent, nobody appeared on behalf of the assessee. However, according to the learned Counsel for the petitioner, no notice of any such date of hearing had been received by the petitioner. The said application for stay before the said jurisdictional CIT is pending.
6. The issue that has been raised for the present, by the petitioner is with regard to the de-sealing of the bank accounts on account of the fact that returned income was approximately Rs. 10.16 lacs whereas the assessed income is very high pitched in the sense that it is approximately 74 times of the returned income. The learned Counsel for the petitioner submitted that in view of this fact alone, the petitioner would be entitled to a stay and, therefore, the impugned notices ought to be quashed. The learned Counsel for the petitioner placed reliance on a decision of this Court in the case of Valvoline Cummins Ltd. v. Dy. CIT and Ors. (2008) 217 CTR (Del) 292. This Court, in that case, considered Instruction No. 96 dt. 21st Aug., 1969 issued by the CBDT. The said instruction dealt with the framing of an assessment which is substantially higher than the returned income. In the said instruction it was noted that one of the points that came up for consideration in the eighth meeting of the Informal Consultative Committee was that the income 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 the specific provision in the matter in Section 220(6) of the said Act. The observations of the then Dy. Prime Minister were noted. The observations were to the effect that 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 appeals, provided there were no lapse on the part of the assessee. The CBDT, by virtue of the said Instruction No. 96, desired that the above observations of the then Dy. Prime Minister be brought to the notice of all the ITOs and that the powers of stay on recovery in such cases be exercised, upto the stage of first appeal, by the IAC/CIT. Noting the above instruction, this Court observed as under:
41. A perusal of para 2 of the aforesaid extract would show that where the income determined is substantially higher than the returned income, that is, twice the latter amount or more, then the collection of tax in dispute should be held in abeyance till the decision of 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. 96 dt. 21st Aug., 1969 would be applicable to the facts of the case....
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.
7. Mr. Jolly, who appeared on behalf of the respondent, submits that Instruction No. 96 which formed the basis of the decision of this Court in Valvoline Cummins Ltd.'s case (supra), now stands superseded by Instruction No. 1914 of 1993 dt. 2nd Dec, 1993. Mr. Jolly handed over a copy of the said instruction. The relevant portion of the said instruction reads as under:
A. Responsibility
(i) It shall be the responsibility of the AOs 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 Tribunal 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 AOs and the 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 AOs 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 AO (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 AO immediately.
(iii) The decision in the matter of stay of demand should normally be taken by AO/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
(i) 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:...
(emphasis, italicised in print, supplied)
8. 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. 96. He further submitted that para 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.
9. 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 para No. 2(A) which speaks of responsibility specifically indicates that it shall be the responsibility of the AO 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 AO/TRO only in exceptional circumstances. The 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. 96 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'.
10. In view of these circumstances, we direct that the impugned notices shall be kept in abeyance till the jurisdictional CIT decides the stay application which is pending before him in view of what has been discussed above. It is clarified that though the petitioner would be permitted to carry on day-to-day business operations and to make payments for statutory liabilities out of the said bank accounts, the petitioner shall not withdraw any money for any other purposes from the said bank accounts.
11. With these directions the writ petition stands disposed of. A copy of this order be given Dasti to both the parties.
In view of the above order, CM No. 10825 of 2008 also stands disposed of as having become infructuous.