As per Government directions, the disputed demand should remain stayed till the disposal of first appeal [Instruction No. 96 dated August 21, 1969] and, consequent to circumstances mentioned in Circular No. 530 of March 6, 1989, the assessee should not be treated as being in default if the demand arises. .

The Karnataka High Court judgment shows how blatantly recovery proceedings, including attachment of bank accounts, are initiated against the assessees unilaterally without even giving an opportunity to the taxpayers to have their say in utter disregard of the principle of natural justice.

The Deputy Commissioner of Income-Tax (DCIT) rejected the request of the assessee (writ petitioner before the High Court) seeking stay of demand. He also issued a communication-cum-order directly to the manager of the assessee’s bank for attachment under Section 222 of the I-T Act, 1961 by a non-speaking order and without affording any opportunity of hearing to the assessee. On these facts, the High Court set aside the DCIT’s order saying:

“It is manifest from the contents of the communications and directions issued by the respondent that the respondent has committed a grave error in rejecting the prayer sought for by the petitioners and in issuing the directions to the Manager, ING Vysya Bank, unilaterally, without affording reasonable opportunity to the petitioners.

“If the respondent had afforded an opportunity to the petitioners and passed a speaking order as per the circulars issued by the competent authority as referred above, they might have substantiated their case. The respondent, being the statutory authority, has to pass an order exercising the power as envisaged under the statute and in strict compliance with the relevant provisions of the Act and Rules, and after affording reasonable opportunity to the petitioners.

The CBDT has to consider whether there should be any accountability concerning the officers who pass such orders. Attachment of bank account of a businessman, even when the demand raised is disputed and yet to be confirmed by the appellate authorities, is a serious matter affecting the reputation as well as functioning of the business and cannot be resorted to in a casual/light-hearted manner.

Discretion conferred on an AO not to treat an assessee in default under Section 220(6) of the Act is not a naked and arbitrary power, but a power coupled with a responsibility and the AO concerned has to take all the circumstances into consideration that could be urged by the assessee as to why he should not be treated as “not being in default” and only then an order, as is appropriate to the facts of the case, can be passed.

Among other relevant factors, the AO will have to take into account the tenability of the assessee’s case in appeal, else, adverse consequences can follow. Take a situation, where high disputed demand is raised against an assessee, no stay is given to him and his house property is attached and sold to realise the demand. Ultimately, the assessee succeeds in appeal, but this success would be meaningless, as the house sold cannot be restored back to him.

Should assessees be subjected to such situations because of the over-enthusiasm of tax collectors?

Assessees often suffer a lot of hardship and embarrassment because of non-application or misapplication of discretionary power relating to stay and recovery of income-tax demands.

The CBDT needs to consolidate the existing instructions/circulars and issue a master circular, which takes into account the interests of both the Revenue and the taxpayers.

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