HC provides relief in 'high-pitched' tax assessment cases

In the case of an unreasonably ‘high-pitched’ assessment and tax demand, the assessee would be entitled to a stay on the tax demand, the Delhi High Court has said in a recent ruling.

The court also held that Instruction No 96 of August 21, 1969, which permits stay in ‘high-pitched’ assessment cases, would still hold good, despite the fact that it has been superseded by another instruction later.

A tax demand is called ‘high-pitched’ if the income-tax officer estimates the income to be at least more than twice the amount declared by the taxpayer.

The Delhi High Court gave its ruling in a case where a search was conducted in the business premises of the petitioner (assessee) and an order was passed, assessing the assessee’s income at approximately 74 times higher than the income filed in the tax return.

The assessing officer (AO) sent a demand notice of Rs 3.57 crore and a part of the demand was adjusted against the cash seized during the search. During appeal, the AO granted stay on some part of the demand.

The assessee also filed an appeal before the Commissioner of Income Tax (CIT). Even as this appeal was pending, the assessee filed a writ petition against the demand notices before the Delhi High Court, requesting to quash the demand notices and stay the balance demand in view of the Instruction No 96.

The revenue department contended that Instruction No 96 stood superseded by the subsequent Instruction No 1914.

According to the high court ruling, under Instruction No 1914, a demand could be stayed in exceptional circumstances where the assessment order appeared to be unreasonably high-pitched or where genuine hardship was likely to be caused to the assessee. The court added that Instruction No 96 had the illustration that an assessment at twice the amount of the returned income would be a high-pitched case.

The assessed income in the case in question was approximately 74 times of the returned income and hence would fall within the expression “unreasonably high-pitched”, the court held.

The court directed that the impugned notices be kept in abeyance until the jurisdictional CIT decided the stay application.