IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT: INCOME TAX W.P.(C) 2511/2008 and CM No. 4729/2008 (Stay) Decided on: May 20, 2008 Valvoline Cummins Limited 52, Okhla Industrial Estate, Phase-III New Delhi. Through

..... Petitioner Mr.M.S. Syali, Sr.Advocate with Mr.Aseem Mowar, Mr.Saubhagya Aggarwal & Ms.Mallika Poswal, Advs.

versus 1.

Deputy Commissioner of Income Tax, Delhi New Delhi, Circle 17(1).

2.

Additional Commissioner of Income Tax New Delhi, Range-17.

3.

Commissioner of Income Tax-VI New Delhi.

4.

Chief Commissioner of Income Tax New Delhi. Through

..... Respondents Mr. R.D. Jolly, Adv.

Coram: HON'BLE MR. JUSTICE MADAN B. LOKUR HON'BLE MR. JUSTICE MANMOHAN SINGH

MADAN B. LOKUR, J. (ORAL) 1. Since we have heard learned counsel for the parties in detail, we propose to dispose of this writ petition as well as the application for interim relief. 2.

Rule D.B.

3. In exercise of powers conferred by Section 120(4)(b) of the Income Tax Act, 1961 (for short the Act) the Central Board of Direct Taxes (for short the CBDT) issued a Notification dated 17th September, 2001 conferring the powers and functions of an Assessing Officer on Joint Commissioners of Income Tax which by virtue of Section 2(28C) of the Act includes an Additional Commissioner of Income Tax. 4. Under these circumstances, the return of the Assessee for assessment year 2005-2006 was taken up for consideration by the Additional Commissioner of Income Tax. The returned income was Rs.7.5 crores and on 31st December, 2007 the Additional Commissioner assessed the income at Rs.58.68 crores. There was, therefore, an eight-fold increase between the returned income and the assessed income. The tax liability on the assessed income works out to about Rs.25.01 crores. 5. Feeling aggrieved by the assessment order, the Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] on 31st January, 2008. 6. On 1st February, 2008, the Assessee moved an application before the Assessing Officer (the Additional Commissioner) requesting for a stay of the enforcement of the tax demand. This application was moved under Section 220(6) of the Act which reads as follows: 220. When tax payable and when assessee deemed in default. (1) to (5) xxx xxx xxx (6) Where an assessee has presented an appeal under section 246 or section 246A 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. 7. Apparently when the Assessee went to pursue the application for stay, it was advised by the Additional Commissioner to approach the Deputy Commissioner of Income Tax who had concurrent jurisdiction in the matter. Accordingly, the Assessee moved an application on 8th February, 2008 requesting the Deputy Commissioner for staying the demand. While this request was pending, the Assessee was served with a notice under Section 221 of the Act dated 14th February, 2008 requiring it to show cause why penalty should not be levied since the demanded tax has not been deposited by the Assessee. 8. The Assessee was, therefore, prompted to move another application on 22nd February, 2008 before the Deputy Commissioner again requesting for a stay of the demand. 9. In the meanwhile, the Assessee also appears to have met the Chief Commissioner of Income Tax with a request that the demand be not enforced against the Assessee. Some discussions took place between the Assessee and the Chief Commissioner of Income Tax but there is no record of those discussions. 10. Be that as it may, on 27th February, 2008, the Deputy Commissioner passed an order with reference to the letters dated 8th February, 2008 and 22nd February, 2008. It was stated in the

order that the petition for stay was considered, and as per the request of the Assessee, it was required to pay 15% of the net demand that is Rs.3.75 crores on or before 3rd March, 2008. 11. According to learned counsel for the Assessee, no request was made by the Assessee to pay 15% of the net demand but according to learned counsel for the Revenue this is what was accepted by the Assessee in the meeting held with the Chief Commissioner of Income Tax and that is why a demand was made for only 15% of the total tax due. 12. Immediately thereafter on 3rd March, 2008, the Assessee addressed a letter to the Commissioner of Income Tax informing him that the Assessee had earlier deposited Rs.1 crore in two installments towards the tax liability. It was also pointed out that the request of the Assessee was for a stay of the demand in its entirety till the disposal of the appeal before the CIT (A). 13. The letter dated 3rd March, 2008 was followed up by another letter dated 19th March, 2008 addressed to the Deputy Commissioner in which the Assessee stated that the direction to deposit 15% of the tax liability is an ad-hoc direction and even though the Assessee was entitled to a stay, but with a view to avoid litigation, the Assessee was agreeable to pay 15% of the tax as ordered by the Deputy Commissioner, but it was requested that the Assessee may be permitted to make the deposit in installments. 14. Since there was no immediate response to its latest request, the Assessee apprehended some coercive action to recover the balance amount of tax and so it approached this Court with the present writ petition. 15. On 27th March, 2008 when the matter was taken up for preliminary hearing, it was contended by learned counsel for the Petitioner that the Assessing Officer of the Assessee is the Additional Commissioner and, therefore, the application for stay filed under Section 220(6) of the Act could have been heard and disposed of only by the Additional Commissioner. It was also contended that even though the letters dated 8th February, 2008 and 22nd February, 2008 had been responded to by the Deputy Commissioner, the original request made by the Assessee to the Additional Commissioner on 1st February, 2008 had still not been responded to. 16. On these submissions, we issued notice to the Respondents and also required them to explain why the stay application filed by the Assessee under Section 220(6) of the Act was dealt with by the Deputy Commissioner, who is subordinate to the Additional Commissioner particularly when the Additional Commissioner is the Assessing Officer. We also required the Respondents to inform us whether the stay petition dated 1st February, 2008 had been disposed of by the Additional Commissioner or not. 17. Today, learned counsel for the Assessee has very fairly pointed out that along with letter dated 8th February, 2008 the Assessee had annexed a copy of the stay petition dated 1st February, 2008 and, therefore, to that extent it must be deemed that the request dated 1st February, 2008 was not pending but was decided by the Deputy Commissioner. 18. In sum and substance, the argument of learned counsel for the Assessee today is that the Assessing Officer of the Assessee is the Additional Commissioner and it he who should exercise

his discretion to grant or refuse a stay on the application filed under Section 220(6) of the Act. It is submitted that even otherwise the order dated 27th February, 2008 passed by the Deputy Commissioner is unsustainable. 19. On the other hand, the contention of learned counsel for the Revenue is that the Deputy Commissioner has concurrent jurisdiction over the matter along with the Additional Commissioner and, therefore, he was fully competent to dispose of the stay petition filed by the Assessee. 20. Before actually hearing the present writ petition, we had thought that the matter involved the disposal of only a stay application before the departmental authorities and, therefore, some workable solution could be found out but learned counsel for the Revenue informed us that since the time granted to the Assessee for making the payment of 15% of the tax demand is over, the Revenue is now insisting that the entire tax amount of about Rs.25.01 crores be paid. The attitude of the Revenue is, its all or nothing. Faced with this situation, we are left with no alternative but to proceed to hear the writ petition on merits. 21.

An Assessing Officer is defined in Section 2(7A) of the Act as follows: -

(7A) Assessing Officer means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act. 22. A perusal of the above would show that an Assessing Officer is a person who is vested with relevant jurisdiction by virtue of an order passed under Section 120(1) or Section 120(2) of the Act. An Additional Commissioner can also be an Assessing Officer if he is directed under Section 120(4)(b) of the Act to exercise or perform all or any of the powers and functions of an Assessing Officer. 23. As we have mentioned above, the CBDT has issued a Notification dated 17th September, 2001 under Section 120(4)(b) of the Act conferring the powers of an Assessing Officer on an Additional Commissioner of Income Tax. To this extent there is no controversy. 24. Subsequent to the Notification dated 17th September, 2001 the CBDT issued an order dated 16th May, 2007 to the effect that in view of the increasing gap between the work load and scrutiny assessment, it has been decided to entrust the Range Heads with the responsibility of making assessments in top revenue potential cases of the range to be selected on the basis of the returned income. 25. Pursuant to the order dated 16th May, 2007 read with a few subsequent letters in this connection, the Commissioner of Income Tax passed a jurisdiction order dated 1st August, 2007 whereby the Additional Commissioner was entitled to exercise the powers and perform the functions of an Assessing Officer in respect of some cases (including that of the Assessee). It is

pursuant to these orders that the Additional Commissioner passed an assessment order on 31st December, 2007 in the case of the Assessee. The power of the Additional Commissioner to pass the assessment order is also not in dispute. 26. What is in dispute, therefore, is the power of the Additional Commissioner to deal with a petition filed under Section 220(6) of the Act requesting for a stay of the demand. 27. In this regard, it was submitted by learned counsel for the Assessee that the power to grant a stay under Section 220(6) of the Act is a discretionary power vested in the Assessing Officer and since the Additional Commissioner is the Assessing Officer, he alone is statutorily required to exercise his discretion, and pass an order on the stay petition filed by the Assessee on 1st February, 2008. The Additional Commissioner/Assessing Officer does not become functus officio immediately on passing an assessment order he continues to be the Assessing Officer in respect of the Assessee and therefore he must deal with the application filed by the Assessee under Section 220(6) of the Act. 28. On the issue of concurrent jurisdiction between the Additional Commissioner and the Deputy Commissioner, learned counsel for the Assessee relied upon a decision of the Calcutta High Court in Berger Paints India Limited & others vs. Assistant Commissioner of Income Tax & others, [2000] 246 ITR 133. The Calcutta High Court had explained the meaning of the expression concurrent to mean two authorities having equal powers to deal with a situation but the same work cannot be divided between them. This is what the Calcutta High Court had to say: Concurrent jurisdiction means a sub-ordinate authority can deal with the matter equally with any superior authority in its entirety so that either one of such jurisdictions can be invoked. It cannot be construed as concurrent jurisdiction when one part of the assessment will be dealt with by one superior officer and the other part will be dealt with by one subordinate officer. 29. It appears to us quite clearly that there is a distinction between concurrent exercise of power and joint exercise of power. When power has been conferred upon two authorities concurrently, either one of them can exercise that power and once a decision is taken to exercise the power by any one of those authorities, that exercise must be terminated by that authority only. It is not that one authority can start exercising a power and the other authority having concurrent jurisdiction can conclude the exercise of that power. This perhaps may be permissible in a situation where both the authorities jointly exercise power but it certainly is not permissible where both the authorities concurrently exercise power. One example that immediately comes to the mind is that of grant of anticipatory bail. Both the Sessions Judge and the High Court have concurrent power. It is not as if a part of that power can be exercised by the High Court and the balance power can be exercised by the Sessions Judge. If the High Court is seized of an application for anticipatory bail it must deal with it and similarly if the Sessions Judge is seized of an anticipatory bail, he must deal with it. There can be no joint exercise of power both by the High Court as well as by the Sessions Judge in respect of the same application for anticipatory bail. 30. In the facts of the present case, since the Additional Commissioner had exercised the power of an Assessing Officer, he was required to continue to exercise that power till his jurisdiction in the matter was over. His jurisdiction in the matter was not over merely on the passing of the

assessment order but it continued in terms of Section 220(6) of the Act in dealing with the petition for stay. What has happened in the present case is that after having passed the assessment order, the Additional Commissioner seems to have washed his hands of the matter and left it to the Deputy Commissioner to decide the stay petition filed under Section 220(6) of the Act. We are of the opinion that this was not permissible in law. 31. Learned counsel for the Revenue, however, sought to justify this by referring to an order dated 21st August, 2007 passed by the Additional Commissioner in which it is stated as follows: For the removal of doubts it is further clarified that after completion of assessment, the remaining functions in the cases specified in the Schedule, appended hereto, whether legal or administrative, shall be discharged by the DCIT, Circle-17(1), New Delhi in accordance with law. 32. In our opinion, the above paragraph relied upon by learned counsel for the Revenue goes well beyond the power conferred upon the Additional Commissioner in the sense that he has virtually abdicated the power conferred upon him by Section 220(6) of the Act. The power under Section 220(6) of the Act being a statutory power, the Additional Commissioner could not abdicate or relinquish it. That apart, we find that the Additional Commissioner had no authority in law to delegate his power to the Deputy Commissioner when he was conferred a statutory power by the CBDT. The principle of delegatus non potest delegare would clearly apply. It is only the CBDT or the Commissioner who could have divested the Additional Commissioner of the power to deal with an application under Section 220(6) of the Act. The Additional Commissioner could not suo motu divest himself of this power and confer it upon a junior functionary such as the Deputy Commissioner he had no such authority 33. Under the circumstances, we are of the opinion that learned counsel for the Assessee is right in his contention that the application filed by the Assessee on 1st February, 2008 was required to be dealt with only by the Assessing Officer, which in this case was the Additional Commissioner. 34. Learned counsel for the Revenue submitted that by addressing further letters to the Deputy Commissioner on 8th February, 2008 and 22nd February, 2008, the Assessee had acquiesced in the jurisdiction or power of the Deputy Commissioner to deal with the application for stay filed by the Assessee. We are of the opinion, and this is well settled, that mere acquiescence in the exercise of power by a person who does not have jurisdiction to exercise that power, cannot work as an estoppel against him. Consequently, the mere fact that the Assessee addressed letters dated 8th February, 2008 and 22nd February, 2008 to the Deputy Commissioner does not mean that the Deputy Commissioner had jurisdiction over the matter. The Assessee could not confer jurisdiction on the Deputy Commissioner to deal with the application filed under Section 220(6) of the Act. 35. Moreover, we also find that the Assessee had approached the Deputy Commissioner (apparently) only on the asking of the Additional Commissioner otherwise the fact still remains that the Assessee had made its first request to the Additional Commissioner on 1st February, 2008. It was only at the instance of the Additional Commissioner that the Assessee had approached the Deputy Commissioner with the letters dated 8th February, 2008 and 22nd February, 2008. Surely, this cannot be used to the disadvantage of the Assessee.

36. The second contention of learned counsel for the Assessee is that the contents of the order dated 27th February, 2008 are factually incorrect in as much as the Assessee did not agree to pay 15% of the net demand. We find from the record of the case that there was in fact no such consent given or request made by the Assessee. As we have already mentioned above, there is no record of the discussion that the Assessee had with the Chief Commissioner and, therefore, we cannot presume one way or the other that the Assessee had agreed before the Chief Commissioner that it would pay 15% of the net demand. That apart, we also find that the Assessee had been insisting through various letters that it was prepared to pay 15% of the net demand but only in installments. Therefore, even assuming that the Assessee had agreed to pay 15% of the net demand amounting to Rs.3.75 crores, that consent was only on an installment basis and not on a lump sum basis. Therefore, the Deputy Commissioner in his order dated 27th February, 2008 has completely misconstrued the stand of the Assessee. 37. On this ground also, we are of the opinion that the order dated 27th February, 2008 must be struck down. 38. Learned counsel for the Assessee submitted that the order dated 27th February, 2008 does not contain any reason and was passed without giving an opportunity of hearing to the Assessee. We need not go into this aspect because ex facie the Deputy Commissioner proceeded on the basis of consent having been given by the Assessee. If it is true that the Assessee had given consent, there is no question of giving a hearing to the Assessee nor is there any occasion for the Deputy Commissioner to give reasons but since we have found that no such consent was given by the Assessee, the very basis of the order dated 27th February, 2008 falls through, and it must be set aside on that ground. 39. Learned counsel for the Assessee also took us to the merits of the assessment order with a view to show that prima facie the demand was unreasonable in as much as the Assessee was not given a proper hearing before the assessment order was framed. We are not inclined to delve into this issue because that is a matter which has to be decided by the CIT (A) but we may note (for the purposes of only deciding this writ petition) that there is substance in the contention of the Assessee that the assessment order is extremely harsh. 40. 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. In this regard, learned counsel has drawn our attention to Instruction No. 96 dated 21st August, 1969 issued by the CBDT, 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 the 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 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. 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 Assistant Commissioner/Commissioner of Income-tax. 41. 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 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.96 dated 21st August, 1969 would be applicable to the facts of the case. 42. Learned counsel for the Assessee has drawn our attention to several decisions 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. Income Tax Officer and another, [1987] 165 ITR 650 (Kerala), Mrs. R. Mani Goyal v. Commissioner of Income Tax and another, [1996] 217 ITR 641 (Allahabad) and I.V.R. Construction Ltd. v. Assistant Commissioner of Income Tax and another, [1998] 231 ITR 519 (Andhra Pradesh). 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. 44. Finally, learned counsel for the Assessee has pointed out, and we are of the view that he is correct in his submission, that the stand of the Revenue seems to be that the petition for stay filed by the Assessee is still pending and, therefore, we should direct the Assessee to appear before the Deputy Commissioner for a hearing of the stay petition. 45. Apart from the fact that we have found that the Deputy Commissioner has no jurisdiction to hear the stay petition, we find it odd that the Revenue is seeking to enforce the demand when the petition for stay is still pending. It is rather unfortunate that instead of deciding the application under Section 220(6) of the Act, which according to the Revenue is still pending, it is seeking to enforce the demand. This is putting the cart before the horse. 46. For all these reasons, we are of the view that the prayer made by the Assessee in the writ petition for quashing the requirement of the Petitioner having to deposit 15% of the net demanded amount of about Rs.3.75 crores deserves to be quashed and we do so accordingly. We may, however, note that out of this amount of Rs.3.75 crores, the Petitioner has already paid an amount of Rs.1 crore by way of tax and the balance amount that remains to be paid is Rs.2.75 crores. 47. Learned counsel for the Assessee had fairly stated that his client is prepared to pay the remaining amount of Rs.2.75 crores provided it is given some installments.

48. We are of the view that under the circumstances, it would be appropriate if the Petitioner deposits the balance amount of Rs.2.75 crores by way of installments of Rs.75 lakhs every month over a period of three months and the balance amount of about Rs.50 lakhs at the end of the fourth month. In other words, the Assessee will pay the balance amount of tax of about Rs.2.75 crores on or before 30th September, 2008. In respect of the tax demand over and above the 15% referred to, the Revenue is restrained from recovering the demand till the disposal of the appeal by the CIT (A). 49. A considerable amount of time has been spent over an issue which should otherwise have been sorted out without arguments had the Revenue been more reasonable. We are conscious of the fact that litigation is no longer cheap particularly in Delhi and we, therefore, allow the writ petition with costs. Counsels fee is assessed at Rs.15,000/-. The Revenue will make out a cheque of Rs.15,000/- and deposit it with the Registrar General of this Court within a period of six weeks from today. 50.

Otherwise, the writ petition and pending applications are all disposed of.

51.

List for compliance on 21st July, 2008. Sd./MADAN B. LOKUR, J

MAY 20, 2008

WP (C) No.2511/2008

Sd./MANMOHAN SINGH, J

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