NIRMAL KUMAR PRADEEP KUMAR (HUF) THROUGH ITS KARTA PRADEEP KUMAR JAIN V. THE UNION OF INDIA THROUGH THE PRINCIPAL COMMISSIONER OF INCOME TAX

WPC/770/2023

AI Insights

The case involves Nirmal Kumar Pradeep Kumar, a Hindu Undivided Family (HUF), which challenged the orders requiring a pre-deposit of 20% of a disputed tax demand for the Assessment Year 2020-21. The petitioner argued that the orders were issued without proper application of mind and solely based on a CBDT Office Memorandum, which was contested as being inconsistent with the Income Tax Act. The High Court found that the authorities did not exercise their discretion appropriately and remitted the matter back for a fresh decision, emphasizing the need for a reasoned order considering the specifics of the case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 748057 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 07-05-2023
• Assessment Year: misc
• Other Referred Cases: Common Cause Vs. Union of India, L.G. Electronics India Pvt. Ltd. vs. Principal Commissioner of Income Tax and Ors, Principal Commissioner of Income Tax v. M/s. LG Electronics India Pvt. Ltd., Aluminium Corporation of India Ltd. v. C. Balakrishnan, Sant Raj v. O.P. Singla, Reliance Airport Developers (P) Ltd. v. Airports Authority of India, U.P. State Road Transport Corporation v. Mohd. Ismail
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R N SAHAY
• Assessee Lawyers: SUMEET GADODIA; SHILPI SANDIL GADODIA; RANJEET KUSHWAHA
• Keywords: Assessment year 2020-21; Disputed Demand; Pre-deposit; Stay of demand; Writ of Certiorari; Writ of Mandamus
• Section: 143(3); 154; 139(1); 37(1); 220(6)

Judgement Text

"1 IN THE HIGH COURT OF JHARKHAND AT RANCHI W.P. (T) No. 770 of 2023 ….. Nirmal Kumar Pradeep Kumar, (HUF), having its office at Main Road, P.O. G.P.O., P.S. Hindpiri, District Ranchi, through its Karta, namely, Pradeep Kumar Jain, aged about 64 years, son of Late Nirmal Kumar Jain, resident of Godrej Show Room, Main Road, Opposite Rospa Tower, Ranchi, P.O. G.P.O., P.S. Hindpiri, District-Ranchi (Jharkhand). ….Petitioner -VERSUS- 1. The Union of India, through the Principal Commissioner of Income Tax, Patna having its office at 2nd Floor Birchand Patel Path, Patna, P.O. G.P.O., P.S. Kotwali, District Patna, PIN-800001. 2. The Deputy Commissioner of Income Tax, Central Circle-1, having its office at 7th Floor, Mahavir Tower, Main Road, Ranchi, P.O. G.P.O., P.S. Kotwali, District Ranchi, Jharkhand, PIN-834001. 3. The Assistant Commissioner of Income Tax, Central Circle-1, having its office at 7th Floor, Mahavir Tower, Main Road, Ranchi, P.O. G.P.O., P.S. Kotwali, District Ranchi, Jharkhand, PIN-834001. 4. The Commissioner of Income Tax (Appeals)-3, having its office at Lok Nayak, Jai Prakash Bhawan, New Dak Banglow Road, P.O. G.P.O., P.S. Kotwali, District Patna, Bihar, PIN-800001. ….. Respondents ….. CORAM : Hon’ble Mr. Justice Rongon Mukhopadhyay Hon’ble Mr. Justice Deepak Roshan ….. For the Petitioner : Mr. Sumeet Gadodia, Advocate Mrs. Shilpi Sandil Gadodia, Advocate Mr. Ranjeet Kushwaha, Adavocate For the Respondents : Mr. R.N. Sahay, Sr. S.C. ….. 07/02.05.2023 Per Deepak Roshan, J: The instant writ application was initially preferred by the Petitioner primarily praying therein for the following reliefs:- (i) For issuance of an appropriate writ/order/direction, including Writ of Certiorari, for quashing/setting aside the order dated 31.01.2023 passed by Respondent No. 3 [Annexure-8], wherein an order has been passed directing Petitioner to make payment of 20% of disputed amount pertaining to the Assessment Year 2020-21 in terms of Office Memorandum dated 31.07.2017 issued by Central Board of Direct Taxes (CBDT) and, further, it has been stated that recovery letter dated 25.01.2023 has been issued for compliance of payment on or before 31.01.2023. 2 (ii) For issuance of an appropriate writ/order/direction, including Writ of Mandamus, directing Respondent No. 2 not to enforce and realize the outstanding demand pursuant to assessment order dated 30.09.2022 [Annexure-2] passed in respect of Assessment Year 2020-21 during the pendency and adjudication of the Appeal filed by Petitioner before Respondent No. 4. (iii) For issuance of an appropriate writ/order/direction, including Writ of Mandamus, directing the Respondent No. 4 to hear and expeditiously dispose of the Appeal filed by the Petitioner vide Acknowledgment No. 194608230081122 dated 08.11.2022 [Annexure-3] pertaining to Assessment Year 2020-21. (iv) For issuance of any other appropriate writ(s)/order(s)/ direction(s) as Your Lordships may deem fit and proper in the facts and circumstances of the case. 2. Petitioner, in the writ application, has specifically pleaded that against the order passed by the Assessing Officer directing the Petitioner to make payment of 20% of the disputed demand, Petitioner has preferred an application before the Principal Commissioner of Income Tax, Patna (Respondent No.1) (for short ‘PCIT’) on 08.02.2022 for reviewing the said order, but no response was received by the Petitioner from Respondent No.1. In view of the said pleadings made by the Petitioner in the writ application, this Court, vide order dated 16.02.2023, directed the counsel for the Revenue Mr. R.N. Sahay to seek instructions as to the timeline by which application filed by the Petitioner before Respondent No.1 would be decided. Further, since the Petitioner also preferred an Appeal before Respondent No.4, the Commissioner of Income-Tax (Appeal)-3, instructions were directed to be obtained as to the timeline by which Appeal would be decided by Respondent No.4. 3. Consequently, vide order dated 21.02.2023, the statement of the counsel for Revenue Mr. R.N. Sahay was recorded and it was informed to this Court that learned PCIT has fixed the date of hearing on stay application. Further, it was also recorded that DGIT, Investigation, Patna fixed an outer limit of six months for deciding the said Appeal subject to cooperation of the Petitioner. Thereafter, an order was passed by PCIT (Respondent No.1) dated 24.02.2023, wherein Respondent No.1 directed the Petitioner to make payment of pre-deposit of Rs. 5.00 crores as well as Rs. 10.00 lakhs per month from the month commencing from April, 2023 till the month of disposal of the Appeal. 4. The said order was challenged by the Petitioner by filing a separate Interlocutory application seeking amendment of the writ application which was allowed by this Court vide order dated 03.04.2023 and following prayer was inserted in the amended writ application:- “(v) For issuance of an appropriate writ/order/direction for quashing /setting aside the order passed vide bearing no. 4655 dated 24.02.2023 by 3 Respondent No.1, wherein pursuant to stay application dated 08.02.2023 filed by Petitioner, Respondent No.1 has directed Petitioner to make payment of pre-deposit of Rs. 5 crores as well as 10 Lacs per month from the month commencing from April, 2023 till the month of disposal of the Appeal’. 5. In view of the aforesaid background, facts giving rise to this litigation may be summarized as under. 6. Petitioner is involved in the business of Mining and Quarrying and is having two merchant mines of iron ore, namely (i) Ghatkuri Iron Ore Mines and (ii) Bihar Iron Ore Mines. Both the mines are situated in the District of West Singhbhum, at Chaibasa. 7. Pursuant to the order passed by the Hon’ble Apex Court in the case of Common Cause Vs. Union of India, reported in (2017) 9 SCC 499, the District Mining Officer directed the Petitioner to make payment of compensation towards damage to environment to the tune of Rs. 182,63,48,630/- with respect to Ghatkuri Mines, and, an amount of compensation of Rs. 19,55,12,041 pertaining to Bihar Iron Ore Mines. Since Petitioner maintained its books of account under the Mercantile System of accounting and, therefore, in its books of account for the Financial Year 2019-20 pertaining to Assessment Year 2020-21, the Petitioner claimed the aforesaid compensation amount of Rs. 202,18,60,671/- as allowable expenses under Section 37(1) of the Income Tax Act, 1961 and, accordingly, reflected a net loss of Rs. 129,26,59,785/- in its Return under Section 139(1) of the Act for the Assessment Year 2020-21. 8. The case of the Petitioner was selected for scrutiny under Section 143(3) of the Act and show cause notices were issued to the Petitioner to show cause as to why the amount of Rs. 202,18,60,671/- be not disallowed as expenditure and added to the income of the Petitioner for the Assessment Year 2020-21. Petitioner filed its reply precisely contending, inter alia, that the charges paid by the Petitioner to the Department of Mines and Geology, Government of Jharkhand is in the nature of compensation and is, thus, allowable expenditure under Section 37(1) of the Act and Explanation-1 of the aforesaid Section 37(1) would not get attracted. However, the Assessing Officer, vide order dated 30.09.2022, disallowed the claim of expenditure of the Petitioner of an amount of Rs. 202,27,28,081/- and determined the tax liability of the Petitioner for an amount of Rs. 96,99,29,760/-. The Petitioner, against the aforesaid order, preferred an Appeal in the online portal 4 vide Acknowledgment No. 194608230081122 dated 08.11.2022, which is pending before Respondent No.4 i.e., the Commissioner of Income Tax (Appeals)-3. 9. Petitioner even filed a Rectification Petition under Section 154 of the Act for rectification of the mistake in the Assessment Order on the ground of excess determination of tax liability, and, pursuant to the said Rectification Petition filed by the Petitioner, a Rectification Order dated 15.12.2022 was passed by the Assessing Authority, wherein original tax liability determined of Rs. 96,99,29,760/- was reduced to an amount of Rs. 35,28,39,450/-. Since the Petitioner already preferred an Appeal against the scrutiny Assessment Order dated 30.09.2022; the Petitioner filed an application in terms of Section 220(6) of the Act before Respondent No.2-Deputy Commissioner of Income Tax, Central Circle-1 (for short ‘DCIT’) for stay of the demand primarily on the ground that said demand is a very high-pitched demand and also on the ground that denial of the claim of expenditure under Section 37(1) is contrary to the ratio laid down by the Judgment of the Hon’ble Apex Court in the case of Common Cause (supra). However, Respondent No.3-Assistant Commissioner of Income Tax, Central Circle-1 passed order dated 25.01.2023, wherein it was recorded, inter alia, that as per the Office Memorandum of C.B.D.T. dated 31.07.2017, Petitioner is required to pay at least 20% of the outstanding demand and since the Petitioner has not paid the said amount of 20%, Stay Petition of the Petitioner was rejected vide order dated 31.01.2023. The Petitioner even filed a Review application before Respondent No.1- Principal Commissioner of Income Tax and, in the Review application, Petitioner raised several grounds for assailing the order of conditional stay passed by the Assessing Officer. Reliance was also placed by the Petitioner in its Review application to several judicial pronouncements. 10. The Reviewing Authority, vide order dated 24.02.2023, passed an order directing the Petitioner to pay Rs. 5.00 crores by 15.03.2023 and further issued direction for payment of Rs. 10.00 lakh from April, 2023 till disposal of the Appeal and it was further ordered that if the said amount is paid by the Petitioner, no coercive action shall be taken for recovery by the Assessing Officer. It is in the backdrop of the said fact that present writ application has been filed challenging the order dated 31.01.2023 passed by the Assessing Officer under Section 220(6) of the Act and the order dated 24.02.2023 passed by Respondent No.1-PCIT. 5 11. Mr. Sumeet Gadodia, Advocate, assisted by Mr. Ranjeet Kushwaha, Advocate has assailed the impugned order and has contended, inter alia, that the impugned order dated 31.01.2023 passed by the Assessing Officer clearly reflects that the Assessing Officer has not exercised the discretion vested in it in terms of Section 220(6) of the Act and merely relied upon Office Memorandum dated 31.07.2017 issued by CBDT, which is not sustainable in the eye of law. Reliance has also been placed by the Petitioner upon the provisions of Section 220(6) of the Act as well as the decision rendered by the High Court of Delhi dated 08.08.2017 passed in W.P.(C) No. 6778 of 2017 to contend, inter alia, that Office Memorandum issued by CBDT cannot curtail the discretion available to an Assessing Authority under the provisions of the Act for grant of stay. Further reliance was also placed upon the order of the Hon’ble Supreme Court of India, being Order dated 20th July, 2017 passed in Civil Appeal No. 6850 of 2018, wherein Hon’ble Apex Court, while considering the aforesaid Office Memorandum, clarified that aforesaid Circular issued by CBDT would not act as a fetter on the Assessing Authority who is a quasi-judicial authority to grant deposit orders of a lesser amount than 20% pending Appeal, by the assessee. 12. It has been contended that in the present case the Assessing Officer has acted on external dictate without independent application of mind, and, only relying upon the Office Memorandum dated 31.07.2017, has passed order rejecting the stay petition on the sole ground that 20% of the amount of the disputed demand has not been deposited by the Petitioner. It has been further submitted that, under the Act, there is no condition towards pre-deposit for preferring an Appeal before the Appellate Authority under Section 246 of the Act and such condition cannot be incorporated by virtue of Office Memorandum dated 31.07.2017 and/or such condition cannot be imposed by the Assessing Officer by placing reliance upon the aforesaid Office Memorandum. It has been further submitted that the order passed by the Reviewing Authority i.e., PCIT, Patna dated 24.02.2023 is a complete non-speaking order without due application of mind, which is evident from bare reading of the order itself. It has been submitted that before Reviewing Authority, Petitioner specifically pleaded its prima facie case, balance of convenience and undue hardship which Petitioner would suffer if it is required to make pre-deposit of 20% of the disputed demand, but Reviewing Authority, by cryptic and unreasoned 6 order, has directed the Petitioner to make payment of an amount of Rs. 5.00 Crores by 15.03.2023 and Rs. 10.00 Lakhs per month from April, 2023 till disposal of the Appeal. 13. The Petitioner, during the course of argument, also invited our attention to the prima facie merit of the case of the Petitioner by placing reliance upon the provisions of Section 37(1) of the Act and the Judgment of the Hon’ble Apex Court in the case of Common Cause (supra). The Petitioner, while referring to the provisions of Section 37(1) of the Act, including Explanation-1 thereof, has contended inter alia that expenditure towards compensation amount claimed by the Petitioner in its Return for the Assessment Year 2020-21 has been wrongly denied by the Assessing Officer by placing reliance upon Explanation-1 of Section-37. It has been submitted that Explanation-1 of Section 37 disallows the deduction or allowance towards expenditure if the said expenditure is incurred by the assessee for any purpose which is an offence or which is prohibited by law. Section 37(1) of the Act, for ready reference, is quoted herein-under:- 37. General.— (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assesse), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head – Profits and gains of business or profession. [Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assesse for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.] [Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of subsection (1), any expenditure incurred by an assesse on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (8 of 2013) shall not be deemed to be an expenditure incurred by the assesse for the purposes of the business or profession.] 14. Mr. Gadodia, further referred the decision in the case of Common Cause (supra), particularly, paragraphs 149 to 154, 186 and 188 of the said Judgment to contend, inter alia, that the Apex Court, in the said Judgment, while interpreting the provisions of Section 21(5) of the Mines and Minerals (Development and Regulation) Act, 1957, in clear terms has held that recovery of the price of minerals which has been illegally, unlawfully or unauthorizedly raised, is only with an intent to compensate the State for loss of minerals owned by it and there is no element of penalty involved in this, and, recovery of the mineral and/or its price is not a penal action but is merely compensatory in nature. 7 Relying upon the aforesaid judgment, learned counsel contended that the amount of compensation of Rs. 202 Crores determined by the District Mining Officer was duly deductible as expenditure by the Petitioner in terms of Section 37 of the Act and this aspect of the matter has not been appreciated at all by the Assessing Officer while passing the Assessment Order dated 30.09.2022. 15. Mr. R. N. Sahay, learned counsel for the revenue, on the other hand, has tried to defend the action of the Assessing Authority and Reviewing Authority by contending, inter alia, that they are bound by the Office Memorandum issued by CBDT and rightly the Assessing Authority has passed order stipulating, inter alia, that 20% of the amount is required to be paid as a pre-condition for stay. It has been further submitted by learned counsel for revenue that the Petitioner has already preferred an Appeal before the Appellate Court and the issue raised by the Petitioner in the instant writ application touching the merits of the Assessment Order may not be looked into by this Court in view of pendency of the Appeal of the Petitioner. However, he fairly submitted before the Court that the order passed by Reviewing Authority dated 24.02.2023 is not a defendable order as no reason has been assigned in the said order. 16. We have heard the learned Counsels for the parties and have carefully gone through the materials on record. For the purpose of determination of the instant writ application, provision of Section 220 of the Income Tax Act is relevant which is quoted hereinafter for ready reference:- 220. When tax payable and when assessee deemed in default. (1)Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice: Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Deputy Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand. [(1A) Where any notice of demand has been served upon an assesse and any appeal or other proceeding, as the case may be, is filed or initiated in respect of the amount specified in the said notice of demand, then, such demand shall be deemed to be valid till the disposal of the appeal by the last appellate authority or disposal of the proceedings, as the case may be, and any such notice of demand shall have the effect as specified in section 3 of the Taxation Laws (Constitution and Validation of Recovery Proceedings) Act, 1964 (11 of 1964). 8 (2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub- section (1), the assessee shall be liable to pay simple interest at one and one- half per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub- section (1) and ending with the day on which the amount is paid:] Provided that, where as a result of an order under section 154, or section 155, or section 250, or section 254, or section 260, or section 262, or section 264 or an order of the Settlement Commission under sub- section (4) of section 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded:] Provided further that where as a result of an order under sections specified in the first proviso, the amount on which interest was payable under this section has been reduced and subsequently as a result of an order under said sections or section 263, the amount on which interest was payable under this section is increased, the assesse shall be liable to pay interest under sub-section 2 from the day immediately following the end of the period mentioned in the first notice of demand, referred to in sub-section (1) and ending with the day on which the amount is paid. Provided also that in respect of any period commencing on or before the 31st day of March, 1989 , and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.] (2A) Notwithstanding anything contained in sub- section (2), the Chief Commissioner or Commissioner] may] reduce or waive the amount of interest paid or payable by an assessee under the said sub- section if he is satisfied that- (i) payment of such amount has caused or would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and (iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. Provided that the order accepting or rejecting the application of the assesse, either in full of in part, shall be passed within a period of twelve months from the end of the month in which the application is received; Provided further that no order rejecting the application, either in full or in part, shall be passed unless the assesse has been given an opportunity of being heard; Provident also that where any application is pending as on the first day of June, 2016, the order shall be passed on or before the 31st day of May, 2017. [2(B) Notwithstanding anything contend in sub-section (2), where interest is charged under sub-section (1A) of section 201 on the amount of tax specified in the intimation issued under sub-section (1) of section 200A for any period, then, no interest shall be charged under sub-section (2) on the same amount for the same period.] 9 [2(C) Notwithstanding anything contend in sub-section (2), where interest is charged under sub-section (7) of section 206C on the amount of tax specified in the intimation issued under sub-section(1) of section 206CB for any period, then, no interest shall be charged under sub-section (2) on the same amount for the same period.] (3)Without prejudice to the provisions contained in sub- section (2), on an application made by the assessee before the expiry of the due date under sub- section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case. (4) If the amount is not paid within the time limited under sub- section (1) or extended under sub- section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default. (5) If, in a case where payment by instalments is allowed under subsection (3), the assessee commits default in paying any one of the instalments within the time fixed under that sub- section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other instalment or instalments shall be deemed to have been due on the same date as the instalment actually in default. (6) Where an assessee has presented an appeal under section 246, the 2 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) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the Assessing Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed. Explanation.- For the purposes of this section, income shall be deemed to have been brought into India if it has been utilised or could have been utilised for the purposes of any expenditure actually incurred by the assessee outside India or if the income, whether capitalised or not, has been brought into India in any form. 17. A plain reading of the provisions of sub-section (4) of Section 220 would indicate that if the amount is not paid within the time limit under Sub-section (1) or within the extended time under Sub-section (3), as the case may be, assessee would be deemed to be in default. The legal fiction of ‘deemed to be in default’ has been provided in the Statute. 18. Further, plain reading of Sub-section (6) of Section 220 would indicate that if the assessee has presented an appeal against the final order of assessment under Section 246 of the Act, it would be within the discretion of the Assessing Officer subject to such conditions that he may deem fit to impose in the circumstances of 10 the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal so long as the appeal remains undisposed of. What is discernible from the aforesaid is that once the final order of assessment is passed, determining the liability of the assessee to pay a particular amount and such amount is not paid within the time limit as prescribed under sub- section (1) to Section 220 or during the extended time period under sub-section (3) as the case may be, then the assessee, because of the deeming fiction, would be deemed to be in default. Therefore, even if the assessee prefers an appeal challenging the assessment order before the Commissioner of Appeals as the First Appellate Authority, he would still be treated as an assessee deemed to be in default because mere filing of an appeal would not automatically lead to stay of the demand as raised in the assessment order. It is in such circumstances that the assessee has to make a request before the authority concerned for appropriate relief for grant of stay against such demand pending the final disposal of the appeal. This relief which the assessee seeks is within the discretion of the authority. In other words, the authority may grant such stay conditionally or unconditionally or may even decline to grant any stay. However, the exercise of such discretion has to be in a judicious manner. Such exercise of discretion cannot be in an arbitrary or mechanical manner. 19. When it comes to grant of a discretionary relief like stay of demand, it is but obvious that the four basic parameters need to be kept in mind (i) prima facie case (ii) balance of convenience (iii) irreparable injury that may be caused to the assessee which cannot be compensated in terms of money and (iv) whether the assessee has come before the authority with clean hands. 20. The power under Clause (6) of Section 220 is indeed a discretionary power. However, it is one coupled with a duty to be exercised judiciously and reasonably (as every power should be), based on relevant grounds. It should not be exercised arbitrarily or capriciously or based on matters extraneous or irrelevant. The Income-tax Officer should apply his mind to the facts and circumstances of the case relevant to the exercise of the discretion, in all its aspects. He has also to remember that he is not the final arbiter of the disputes involved but only the first amongst the statutory authorities. Questions of fact and of law are open for decision before the two appellate authorities, both of whom possess plenary powers. 11 Thus, in exercising his power, the Income-tax Officer should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee. The Income-tax Officer should divorce himself from his position as the authority who made the assessment and consider the matter in all its facets, from the point of view of the assessee without at the same time sacrificing the interests of the Revenue. 21. The question as to what are the matters relevant and what should go into the making of the decision by the Income-tax Officer in such circumstances has been explained in the case of Aluminium Corporation of India Ltd. v. C. Balakrishnan, (1959) 37 ITR 267 (Cal) in the context of the corresponding provisions of the Wealth-tax Act. It has been held as under: “A judicial exercise of discretion involves a consideration of the facts and circumstances of the case in all its aspects. The difficulties involved in the issues raised in the case and the prospects of the appeal being successful is one such aspect. The position and economic circumstances of the assessee is another. If the officer feels that the stay would put the realisation of the amount in jeopardy, that would be a cogent factor to be taken into consideration. The amount involved is also a relevant factor. If it is a heavy amount, it should be presumed that immediate payment, pending an appeal in which there may be a reasonable chance of success, would constitute a hardship. If any point is involved which requires an authoritative decision, that is to say, a precedent, that is a point in favour of granting a stay. Quick realisation of tax may be an administrative expediency, but by itself it constitutes no ground for refusing a stay While determining such an application, the authority exercising discretion should not act in the role of a mere tax-gatherer.” 22. In the case of Sant Raj v. O.P. Singla : (1985) 2 SCC 349, Hon’ble the Supreme Court dealt with the matter as regards the discretion of the Labour Court to award compensation in lieu of reinstatement and observed as under; “4…..Whenever, it is said that something has to be done within the discretion of the authority then that something has to be done according to the rules of reason and justice and not according to private opinion, according to law and not humor. It is to be not arbitrary, vague and fanciful but legal and regular and it must be exercised within the limit to which an honest man to the discharge of his office ought to find himself…..Discretion means sound discretion guided by law. It must be governed by rule, not by humor, it must not be arbitrary, vague and fanciful…..” 23. Further, in the case of Reliance Airport Developers (P) Ltd. v. Airports Authority of India. (2006) 10 SCC 1, Hon’ble the Supreme Court, with reference to various pronouncements pertaining to the legal connotations of ‘discretion’ and governing principles for exercise of discretion observed, inter alia, as under:— “30. Discretion, in general, is the discernment of what is right and proper. It denotes knowledge and prudence, that discernment which enables a person to 12 judge critically of what is correct and proper united with caution; nice discernment, and judgment directed by circumspection : deliberate judgment; soundness of judgment; a science or understanding to discern between falsity and truth, between wrong and right, between shadow and substance, between equity and colourable glosses and pretences, and not to do according to the will and private affections of persons.” 24. In the case of U.P. State Road Transport Corporation v. Mohd. Ismail : (1991) 3 SCC 239, while dealing with the case of non-exercise of discretion by the authority, Hon’ble Apex Court expounded on the contours of discretion as also on limitations on the powers of the Courts when the matter is of the discretion of the competent authority, in the following terms:- “12. The High Court was equally in error in directing the Corporation to offer alternative job to drivers who are found to be medically unfit before dispensing with their services. The court cannot dictate the decision of the statutory authority that ought to be made in the exercise of discretion in a given case. The court cannot direct the statutory authority to exercise the discretion in a particular manner not expressly required by law. The court could only command the statutory authority by a writ of mandamus to perform its duty by exercising the discretion according to law. Whether alternative job is to be offered or not is a matter left to the discretion of the competent authority of the Corporation and the Corporation has to exercise the discretion in individual cases. The court cannot command the Corporation to exercise discretion in a particular manner and in favour of a particular person. That would be beyond the jurisdiction of the court. 13. In the instant case, the Corporation has denied itself the discretion to offer an alternative job which the regulation requires it to exercise in individual cases of retrenchment ……It may be stated that the statutory discretion cannot be fettered by self-created rules or policy. Although it is open to an authority to which discretion has been entrusted to lay down the norms or rules to regulate exercise of discretion it cannot, however, deny itself the discretion which the statute requires it to exercise in individual cases. xxx xxx xxx “15.……Every discretion conferred by statute on a holder of public office must be exercised in furtherance of accomplishment of purpose of the power. The purpose of discretionary decision making under Regulation 17(3) was intended to rehabilitate the disabled drivers to the extent possible and within the abovesaid constraints. The Corporation therefore, cannot act mechanically. The discretion should not be exercised according to whim, caprice or ritual. The discretion should be exercised reasonably and rationally. It should be exercised faithfully and impartially. There should be proper value judgment with fairness and equity…..” 25. By going through the above-mentioned judgments, we can hold that when it comes to discretion, the exercise thereof has to be guided by law; has to be according to the rules of reason and justice; and has to be based on the relevant considerations. The exercise of discretion is essentially the discernment of what is right and proper; and such discernment is the critical and cautious judgment of what is correct and proper by differentiating between shadow and substance as 13 also between equity and pretense. A holder of public office, when exercising discretion conferred by the statute, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The requirements of reasonableness, rationality, impartiality, fairness and equity are inherent in any exercise of discretion; such an exercise can never be according to the private opinion. 26. We are of the view that the authorities should keep in mind the following parameters while deciding a stay application preferred by an assessee pending appeal to the First Appellate Authority which has been elaborately laid down by the Bombay High Court in the case of Kec International Ltd. v. B.R. Balakrishnan, (2001) 251 ITR 158/119 Taxman 974; (a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee. (b) In cases where the assessed income under the impugned order far exceeds the returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order. (c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit. (d) The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order. 27. In the present case at hand, unfortunately, Respondent No.3 has not considered anything and has just mechanically declined to grant stay by placing reliance upon Office Memorandum dated 31.07.2017 by recording, inter alia, that since the assessee has not deposited 20% of disputed demand as stipulated in the said Office Memorandum, stay is liable to be rejected. It may be noted here that under Section 246 of the Act, which provides remedy of preferring an Appeal against the Assessment Order, there is no pre-deposit stipulated therein. The Assessing Officer has read the Office Memorandum dated 31st July, 2017, to mean that in each and every case, where an Assessment Order is passed and its appeal is preferred, 20% of pre-deposit is required for granting stay of the balance demand. This understanding is completely contrary to the provisions of Section 220(6) of the Act, itself. 14 28. At this stage it is pertinent to mention here that the Office Memorandum dated 31.07.2017 was subject matter of interpretation by Hon’ble Delhi High Court in the case of ‘L.G. Electronics India Pvt. Ltd. vs, Principal Commissioner of Income Tax and Ors, being W.P.(C) No. 6778 of 2017 and the Hon’ble Delhi High Court, vide its order dated 08.08.2017, noted that Revenue Authority, by placing reliance upon the Office Memorandum, merely directed the assesse to pay 20% of the disputed demand. The Hon’ble Delhi High Court, in its order, has held as under:- “7. The impugned order clearly makes no reference to the central issue in the pending appeal or the grievance of the Petitioner regarding the order passed by the A.O. The impugned order in short is without reasons and is therefore unsustainable in law. 8. For the above reasons, the impugned order is set aside and a direction is issued that the Petitioner’s application will once again be heard by the PCIT on merits and without reference to the O.M dated 31st July, 2017, which, on the face of it, appears to curtail his discretion. The PCIT will dispose of the application with a reasoned order not later than two weeks from the date of receipt of this order. 9. The CIT (A) shall also consider the request of the Petitioner for an expeditious disposal of the appeal.” The aforesaid order was challenged before the Hon’ble Apex Court in Civil Appeal No. 6850 of 2018 (Principal Commissioner of Income Tax v. M/s. LG Electronics India Pvt. Ltd.) and the Hon’ble Apex Court vide order dated 20th July, 2018 held as under:- “Having heard Shri Vikramjit Banerjee, learned ASG appearing on behalf of the appellant, and giving credence to the fact that he has argued before us that the administrative Circular will not operate as a fetter on the commissioner since it is a quasi judicial authority, we only need to clarify that in all cases like the present, it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal.” 29. Thus, a bare reading of the aforesaid Judgment would reveal that, in fact, the Union of India before the Hon’ble Apex Court itself stated that the administrative Circular would not operate as a fetter upon the Assessing Authority who is quasi-judicial authority to grant stay, and, it is in the said background, Hon’ble Supreme Court clarified that it is open to the authorities on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal. 30. Interestingly, even the order passed by Reviewing Authority i.e., PCIT dated 24.02.2023 does not reveal any application of mind while deciding the 15 application for stay of the Petitioner. The order of the Reviewing Authority, for the sake of ready reference, is quoted herein-under:- “2. As stated by the petitioner the demand has been reduced to 35.18 crores after rectification u/s 154 dated 25.10.2022. 3. Notice dated 17.02.2023 was issued requesting the assesse to submit the details of sources of funds for payment of Rs. 202.18 crores to DMO, Chaibasa in FY 2019-20 and also details of income and assets of the applicant HUF and its constituent members. Vide letter dated 28.02.2023, Shri P.S. Paul, FCA & AR appeared and submitted copy of reply dated 18.02.2023 the asssessee sought extension of time for hearing from 22.02.2023 to 24,02,.2023. On 24.02.2023, Shri P.S. Paul, FCA & AR appeared and submitted copy of reply dated 20.02.2023. It has been submitted that the payment of Rs. 202.18 crores has been made through internal re-sources i.e. retained earnings over the years, revenue from mining and unsecured borrowings from relatives and others. It is further submitted that after expiry of mining leases in March,2020, no new mining lease has been obtained by the assesse applicant. The assesse has further submitted that the assessment is high-pitches and suffers from incorrect interpretation of the judgments by the Assessing Officer. 4. Having considered all the submissions in writing and by the Learned AR of the applicant, assesse is directed to pay Rs. 5.00 crores by 15.03.2023 and Rs. 10.00 lakhs from April, 2023 (payable by 7th of each month) till disposal of appeal. The Assessing Officer shall not initiate any coercive action of recovery if the taxes are paid as above.” 31. A bare reading of the said order would clearly reveal that there is no independent application of mind and no discussions whatsoever on the prima facie case of the petitioner, balance of convenience and undue hardships including the fact as to whether Petitioner has come with clean hands. In fact, learned Counsel for Revenue Mr. R.N. Sahay has conceded during arguments that the order passed by PCIT is not defendable. 32. We are of the opinion that the discretion to be exercised under Section 220(6) of the Act is to be exercised in a fair and judicious manner and in accordance with the principles laid down by us in preceding paragraphs. Admittedly, in the present case, neither the Assessing Authority nor the Reviewing Authority has exercised its discretion in a judicial manner and, hence, orders passed by the said authorities are liable to be set aside. 33. Accordingly, the order dated 31.01.2023 passed by Assistant Commissioner of Income Tax, Ranchi (Respondent No.3) and the order bearing No. 4655 dated 24.02.2023 passed by PCIT, Patna, are hereby, quashed and set aside. The matter is remitted back to Respondent No.3 to pass a fresh order on the application for stay of the Petitioner in view of the principles laid down above, after granting due opportunity of hearing to the Petitioner. 16 34. At this stage, we may note that Respondent-Department stated that the Appeal filed by the petitioner would be decided by Respondent No.4 by an outer time line of six months subject to cooperation of the petitioner. Said fact has been recorded in the order dated 21.02.2023. Accordingly, we direct that Appeal of the petitioner should also be decided by Respondent No.4 preferably within a period of six months from the date of passing of the instant order. It goes without saying that the petitioner shall fully cooperate in the appellate proceedings and no unnecessary adjournments shall be granted to the Assessee. 35. With the aforesaid observations and directions, the instant writ Petition stands allowed. Pending I.A. if any also stand disposed of. (Rongon Mukhopadhyay, J) (Deepak Roshan, J) Amardeep/- "