Hasmukhlal Bagdiya v. Assistant Commissioner Of — 1991 DIGILAW 481 (MP)

JUDGMENT R.K. Verma, J. 1. This order shall also govern the disposal of M. P. No. 1416 of 1991 (Praveen Kumar Bagadiya v. Asst. CIT). 2. By this petition under articles 226 and 227 of the Constitution of India, the petitioner-assessee has sought a suitable writ, direction or order for quashing annexure P-9 dated July 10, 1991, whereby the Assessing Officer-respondent No. 1 has rejected the assessee's application under Section 220(6) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), without hearing the petitioner-assessee and for restraining respondent No. 1 from enforcing the demand which is challenged in appeal before respondent No. 2, Commissioner of Income-tax (Appeals), vide Appeal Memo (Annexure P-2A) dated April 21, 1990. Further, the petitioner also sought an order restraining respondent No. 1 from enforcing the bank guarantees (annexures P-4 and P-5) dated March 30, 1991, and June 7, 1991, respectively, during the pendency of this petition. 3. The facts giving rise to this petition, briefly stated, are as follows: The petitioner is said to be carrying on a business in gold and silver ornaments as well as pawning and repairing old ornaments deriving income from business in gold and silver ornaments and also by making new ornaments. 4. A search under Section 132(1) of the Act was conducted from November 26, 1987, to November 30, 1987, at the residence and business premises of the assessee and, during this search, ornaments and jewellery was seized by the tax authorities which included jewellery, pawned ornaments and old ornaments which were received for repairs as well as those which were prepared. During the search, the petitioner declared an income of Rs. 12 lakhs and the tax was paid. 5. After elaborate proceedings under Section 132(5) of the Act, an order was passed on March 28, 1988, estimating the amount of tax on income so estimated, determining the amount of interest payable and the amount of penalty imposable and specifying the amount that would be recovered to satisfy the existing liability. 6. The petitioner-assessee was assessed for the assessment year 1986-87 by respondent No. 1 under Section 143(3) of the Act by order annexure P-1 dated March 21, 1990. The assessee preferred an appeal before respondent No. 2, Commissioner of Income-tax (Appeals), against the assessment order dated March 21, 1991. 7. Respondent No. 2 allowed the appeal partly. 6. The petitioner-assessee was assessed for the assessment year 1986-87 by respondent No. 1 under Section 143(3) of the Act by order annexure P-1 dated March 21, 1990. The assessee preferred an appeal before respondent No. 2, Commissioner of Income-tax (Appeals), against the assessment order dated March 21, 1991. 7. Respondent No. 2 allowed the appeal partly. Against the part of the claim rejected, the assessee has filed second appeal before the Income-tax Appellate Tribunal which is still pending for decision. 8. He was similarly assessed for the assessment year 1987-88 by order annexure P-2 dated March 23, 1990. The petitioner filed the appeal (annexure P-2A) before the Commissioner of Income-tax (Appeals), respondent No. 2, which is pending for hearing. 9. In respect of the assessment year 1988-89, no regular assessment has been made. Respondent No. 1 has, however, made under Section 132(5) of the Act, an estimate of income in a summary manner and proposed heavy tax and penalties. 10. The ornaments and jewellery seized from the petitioner continued to be retained by the Department and it was upon furnishing two bank guarantees (annexure P-4) dated March 30, 1991, and (annexure P-5) dated June 7, 1991, by the petitioner for Rs. 15,00,000 and Rs. 10,00,000, respectively, that the ornaments were released by the Department to the petitioner. The conditions of the bank guarantees P-4 and P-5 were subsequently modified by the corrigenda (annexures P-6 and P-7) issued by the bank. 11. The petitioner-assessee filed an application (annexure P-8) dated July 5, 1991, under Sub-section (6) of Section 220 of the Act for staying the demand till the decision of the appeal pending before the Commissioner of Income-tax (Appeals). But respondent No. 1, without giving any hearing to the petitioner, dismissed the application by his order (annexure P-9) dated July 10, 1991. The petitioner contended that the Assessing Officer, respondent No. 1, could not have dismissed the petitioner's application under Section 220(6) of the Act without hearing the petitioner and has placed reliance in support of his contention on a decision of this court in Seth Gopaldas Paliwal v. WTO [1983] 139 ITR 900. This decision lays down that (headnote) : "... the exercise of discretion by the Income-tax Officer under Section 220(6) is a quasi-judicial function and he has to exercise his power fairly and reasonably and not arbitrarily or capriciously. This decision lays down that (headnote) : "... the exercise of discretion by the Income-tax Officer under Section 220(6) is a quasi-judicial function and he has to exercise his power fairly and reasonably and not arbitrarily or capriciously. Therefore, the Income-tax Officer should give reasons for dismissing an application made by an assessee for invoking his discretion and should also hear the assessee." 12. The Assessing Officer, respondent No. 1, is seeking to encash the bank guarantees worth Rs. 25 lakhs even though the appeal against the demand is still not decided and in the circumstances and according to the petitioner, the amount under the guarantees cannot be claimed as due by way of loss of revenue while the assessee's appeal is still pending. 13. The petitioner has, therefore, sought quashing of the order annexure P-9 dated July 10, 1991 of respondent No. 1 rejecting the petitioner's application under Section 220(6) of the Act for stay of demand for the assessment year 1987-88 and has also prayed for restraining respondent No. 1 from enforcing the demand and the bank guarantees until decision of the appeal. 14. The petitioner also filed I. A. No. 4781 of 1991 along with this petition seeking an ad interim order for restraining respondent No. 1 from recovering the tax demand under appeal and from encashing the bank guarantees during the pendency of this petition. 15. This court upon hearing the petitioner's counsel on I. A. No. 4781 of 1991 on September 10, 1991, directed issuance of notice to the other side and meanwhile granted ex parte order of stay till bipartite hearing on I. A. No. 4781 of 1991. Counsel for the Department appeared and filed I. A. No. 4983 of 1991 for vacating the ad interim stay order. Respondent No. 1 also filed return to the petition on October 8, 1991. 16. Parties were heard on the question of admission as also on the matter of stay of recovery and encashment of bank guarantee. 17. Respondent No. 1 has, in the return filed by him, submitted that the petitioner is disentitled to invoke the extraordinary jurisdiction of this court firstly, on the ground of estoppel and secondly, on the ground of breach of undertaking and his failure to appeal against the order of undertaking within 30 days, as per Section 132(11) of the Act. 17. Respondent No. 1 has, in the return filed by him, submitted that the petitioner is disentitled to invoke the extraordinary jurisdiction of this court firstly, on the ground of estoppel and secondly, on the ground of breach of undertaking and his failure to appeal against the order of undertaking within 30 days, as per Section 132(11) of the Act. It has also been submitted that respondent No. 1 is entitled to enforce the demand which has arisen out of the assessment for the year 1987-88 as it is not stayed by any superior authority where the appeal is pending. 18. Learned counsel for the petitioner has placed reliance on a decision of the Supreme Court in A.V. Venkateswaran, Collector of Customs v. Ramchand Sabhraj Wadhwani, AIR 1961 SC 1506 , to submit that the alternative remedy can be no bar to entertainment of this petition under Article 226 of the Constitution in the circumstances of this case. It has been laid down by the Supreme Court in that case that the wide proposition that the existence of an alternative remedy is a bar to the entertainment of a petition under Article 226 of the Constitution unless (1) there was a complete lack of jurisdiction in the officer or authority to take the action impugned, or (2) where the order prejudicial to the writ petitioner has been passed in violation of the principles of natural justice and could, therefore, be treated as void or non est and that in all other cases the courts should not entertain the petitions under Article 226 of the Constitution, or in any event not grant any relief to such petitioners, cannot be accepted. The two exceptions to the normal rule as to the effect of the existence of an adequate alternative remedy are by no means exhaustive, and even beyond them discretion vests in the High Court to entertain the petition and grant the petitioner relief notwithstanding the existence of an alternative remedy. The two exceptions to the normal rule as to the effect of the existence of an adequate alternative remedy are by no means exhaustive, and even beyond them discretion vests in the High Court to entertain the petition and grant the petitioner relief notwithstanding the existence of an alternative remedy. The broad lines of the general principles on which the court should act having been clearly laid down, their application to the facts of each particular case must necessarily be dependent on a variety of individual acts which must govern the proper exercise of the discretion of the court and in a matter which is thus preeminently one of discretion, it is not possible or even if it were, it would not be desirable to lay down inflexible rules which should be applied with rigidity in every case which comes up before the court. 19. It has been submitted on behalf of the petitioner that the Assessing Officer, respondent No. 1, has acted in violation of the principles of natural justice in rejecting the assessee's application under Section 220(6) of the Act without hearing the petitioner. It has also been submitted that the petitioner having furnished the necessary bank guarantees to secure payment of the amount equivalent to the assets released to the petitioner under the second proviso to Section 132(5) of the Act, the insistence of respondent No. 1 to enforce the bank guarantees even before the determination of the tax amount due from the petitioner is unreasonable and illegal and the order, annexure P-9, rejecting the petitioner's application under Section 220(6) of the Act for stay of demand under appeal is on the face of it erroneous being in violation of the principles of natural justice and raises a question of jurisdiction making out a strong case for entertainment of this writ petition. 20. A decision of the Supreme Court cited in this connection is Champalal Binani v. CIT [1970] 76 ITR 692, in support of his submission. It has been laid down in that case that the party feeling aggrieved by an order of an authority under the Income-tax Act has an adequate alternative remedy which he may resort to against the improper action of the authority and if he does not avail himself of that remedy, the High Court will require a strong case to be made out for entertaining a writ petition. 21. 21. Another decision in this case cited is that of the Madras High Court in R. Ramachandra Naidu v. CIT [1976] 102 ITR 227, wherein it has been observed that the proceedings under Section 132(5) are concerned only with the retention of the amount seized and the regular assessment or reassessment will have to be done before the same is finally appropriated to any tax liability that may be found due from the petitioner. However, unless the order of the Income-tax Officer is found to be not honest or capricious or mala fide exercise of power, the court will not normally interfere with summary orders. 22. Annexure R-3 filed with the return by respondent No. 1 is a letter of the Deputy Commissioner of Income-tax, Ujjain, addressed to the Assistant Commissioner, Ujjain, directing the latter to obtain bank guarantees from the assessee and to return the seized assets equivalent to the amount of bank guarantees that may be furnished by the assessee and also to impose a further condition that the assessee shall, within three months of the return of assets, make payment of the amount equal to the present value of the released assets, otherwise the bank guarantees may be encashed and the amount be adjusted against the tax liability of the assessee. Accordingly, the Assistant Commissioner of Income-tax by a letter (annexure R-4) dated December 24, 1990, asked the assessee to furnish bank guarantees for such amount as may be equivalent to the value of the seized assets sought to be released by the assessee. The assessee furnished bank guarantees on March 30, 1991. By another letter (annexure R-5) dated April 5, 1991, the assessee was also asked to furnish an undertaking in writing that the amount to the extent of the value of the assets to be released would be deposited in Government account within three months from the date of release of the assets. In order to get the release of the assets, the assessee gave his consent showing his readiness to deposit the amount within three months from the date of release of the assets as per annexure R-6 dated April 8, 1991. The assets equivalent to the amount of the guarantee furnished were thus released to the assessee. In order to get the release of the assets, the assessee gave his consent showing his readiness to deposit the amount within three months from the date of release of the assets as per annexure R-6 dated April 8, 1991. The assets equivalent to the amount of the guarantee furnished were thus released to the assessee. But since the assessee has not deposited the cash amount within three months from the date of release of assets, respondent No. 1 is insisting on enforcement of the bank guarantees to realise the cash equivalent of the value of the assets released. 23. Learned counsel for the petitioner-assessee has contended that the determination of the tax amount is pending in appeal before the Commissioner of Income-tax (Appeals) in respect of the assessment year 1987-88 and, similarly, in respect of the assessment year 1986-87, final determination is pending in second appeal before the Appellate Tribunal and, in respect of the assessment year 1988-89, the regular assessment itself is to be completed. The decision of the Allahabad High Court in Bhagwat Prasad v. CIT [1983] 139 ITR 961 has been cited to illustrate that the seized assets can be utilised or applied under Section 132B of the Act only after determination of the tax liability on completion of regular assessment and as such, there is no ascertained amount of tax payable by the assessee at this stage so as to justify adjustment of any cash amount sought to be realised by the enforcement of the bank guarantee. 24. It has been urged that the bank guarantees can be enforced only after final determination of the tax amounts that may be found payable by the assessee upon decision of the appeals and, in respect of the assessment year 1988-89 upon completion of regular assessment, and that the petitioner-assessee would keep the bank guarantees alive till the decision of the appeals and completion of regular assessment in respect of the assessment year 1988-89. 25. 25. It has been submitted that the additional condition imposed upon the assessee to deposit the cash amount within three months of release of assets is in excess of what is necessary to secure the payment of the amount under Section 132(5) of the Act and the step sought to be taken by respondent No. 1 to realize the amounts under the bank guarantees even before the determination of the liability of tax by the appellate authority is to coerce the assessee to make the payment prematurely. The decision of the Supreme Court in Dabur India Ltd. v. State of Uttar Pradesh, AIR 1990 SC 1814 , is cited to say that the Government should not coerce the assessee to make payment of tax by extra legal steps. 26. Learned counsel appearing for the Department, on the other hand, has submitted that the petitioner-assessee, having agreed to deposit the cash amount within three months of furnishing the bank guarantees as an additional condition for the release of the assets of equivalent value, is not entitled to invoke the extraordinary jurisdiction of this court under Article 226 of the Constitution. He has further submitted that the bank must honour its commitment under the bank guarantee and the contractual obligation under the bank guarantee is irrevocable and the bank must pay when demand is made. The petitioner-assessee is not entitled to an order staying the enforcement of the bank guarantee. The decision of the Supreme Court in General Electric Technical Service Company Inc. v. Punj Sons (P.) Ltd. [1991] 3 JT 360 (SC) ; AIR 1991 SC 1994 , has been cited in support of this submission. 27. The bank guarantees furnished by the petitioner-assessee in the instant case provide for the banks undertaking to pay to the Government the amount named in the bank guarantee against any loss of revenue and the undertaking is in the following words : "We, Syndicate Bank, Ujjain, do hereby undertake to pay amount due, payable under this guarantee without any interest, merely on a demand from the Government stating that the amount claimed is due by way of loss of revenue." 28. It has been submitted on behalf of the petitioner-assessee that it cannot be said that the Government has suffered loss of revenue in respect of the assessment years 1986-87 and 1987-88 which are pending in appeals for decision before the respective appellate authorities and, in respect of undetermined liability for the assessment year 1988-89, the regular assessment is yet to be completed. The amount of tax payable is yet to be finalised in appeal. 29. Having heard learned counsel for the parties and in view of the fact that the petitioner has offered to keep alive the bank guarantees equivalent to the value of the assets released and the fact that the stage of utilisation of assets or encashment of bank guarantees, which is reached only upon determination of the tax liability on completion of regular assessment is yet not reached and, in any case, in respect of the assessment year 1988-89 for which the proposed liability of tax and penalties is far in excess of all earlier assessment years and the fact that no ascertained loss of revenue can be complained of at this stage and considering the contention of the respondent that the petitioner is not entitled to any relief because of his conduct in having failed to abide by the condition of replacing the bank guarantees by cash amount within a period of three months as per his consent given to that condition before the release of the assets and not having filed an appeal under Section 132(11) in case he was aggrieved by that condition and the petitioner, not having availed of the alternative remedy of appeal against the impugned order, annexure P-9, whereby respondent No. 1 rejected the petitioner's application for stay under Section 220(6) of the Act and the submission that the amounts determined on regular assessment in respect of the assessment years 1986-87 and 1987-88 are due for payment and that the Government is not run on bank guarantees, we are inclined to take a pragmatic view of the matter, taking into account the interest of the Revenue on the one side and the interest of the petitioner to continue his business on the other. Accordingly, we deem it just and proper to order and do hereby order that the amount of the bank guarantees shall be encashed only to the extent of 50% for being retained by the Department in lieu of the assets and for the balance amount of 50%, the petitioner shall furnish a fresh bank guarantee by November 20, 1991, which shall be kept alive from time to time till the entire liability of the petitioner is determined after completion of regular assessment by renewing the same fifteen days before expiry of the period of guarantee, failing which the Department shall be at liberty to encash the guarantee so furnished. 30. Annexure P-9 is quashed and respondent No. 1 is directed to hear the petitioner and decide the application under Section 220(6) of the Act afresh. 31. This petition is disposed of accordingly with no order as to costs. The petitioner shall appear before respondent No. 1 on November 15, 1991, and on such further dates as respondent No. 1 may direct.