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Judgment
RAJESH BALIA, J. :
Rule. Mr. Shelat, waives services of rule on behalf of the respondent.
Petitioner, which is a company, has taken over the business of M/s. Madhu Chemicals. The said Madhu Chemicals, which was a partnership firm had acquired new plant and machinery. In the accounts relating to the asst. yr. 1987-88, which according to the said firm, resulted in the substantial expansion of the capacity of its factory and on that basis, it claimed benefit of deduction under ss. 80HH and 88-I of the IT Act. Such deductions, though were disallowed by the AO for the asst. yrs. 1987-88 and 1988-89, were ultimately allowed by the Tribunal. For the asst. yrs. 1989-90, 1990-91 and 1991-92 the assessees claim for deduction under s. 80HH and 80-I of the IT Act as a successor to Madhu Chemicals was denied by the AO but the claim of the assessee was upheld by the CIT(A) by his order dt. 28th March, 1994. Thereafter for the asst. yrs. 1992-93 and 1993-94 and AO continued to deny the benefit to the petitioner in respect of s. 80HH and s. 80-I of the Act. The petitioner assessee preferred an appeal before the CIT(A). When proceedings of recovery under s. 220 of the Act were taken against the petitioner-assessee, the petitioner applied before the AO that for non-payment of demand in respect of the claim under ss. 80HH and 80-I which has been accepted in his own case during the earlier assessment year, he may not be treated as assessee in default to the extent tax demand is referable to their claim. The AO passed the impugned order Annexure-A dt. 18th April, 1995, by which it was informed that the CIT, Rajkot has approved the stay of 80 per cent of the demand subject to paying 20 per cent of the balance amount immediately and also subject to the filing of adequate securities and charging of interest under s. 220(2) of the Act in respect of the asst. yrs. 1992-93 and 1993-94.
The learned counsel of the petitioner contends that in respect of the amount of tax demand for the asst. yrs. 1992-93 and 1993-94 to the extent the same has resulted in disallowing deductions under ss. 80HH and 80-I are concerned, the assessee cannot be deemed to be assessee in default for the purpose of invoking the provisions of s. 220 of the IT Act for recovering the same and levying the interest etc. The petitioner relies on the provisions of s. 220(6) read with circular issued by the Board in respect of laying down guidelines regarding s. 220(6) of the IT Act.
The learned counsel for the Revenue urged that the provisions of sub-s. (6) of s. 220 of the Act vests discretionary power in the AO in the circumstances of the case to treat the assessee as not being in default in respect of the amount in dispute. Exercise of power being discretionary, cannot ordinarily be subjected to judicial review under Art. 226 of the Constitution of India. The Department also contended that the assessee may be entitled to the benefit under s. 220(6) only in respect of the demand referable to the deduction claimed under ss. 80HH and 80-I of the Act, but not in respect of other income assessed to the tax.
We have carefully considered rival contentions urged before us and we are of the opinion that the petition must succeed in respect of tax demand that is related to disallowance of the claim of deductions under ss. 80HH and 80-I of the IT Act. Sub-s. (6) of s. 220 reads as under :
"220(6) Where an assessee has presented an appeal under s. 246 the AO 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".
Under s. 119 of the IT Act, the Board may, from time to time, issue such orders, instructions and directions to other IT authorities as it may deem fit for the proper administration of the IT Act and such authorities and all other persons employed in the execution of this Act are to observe and follow such order, instructions and directions, subject to the conditions that no such direction can be issued to require any IT authority to make a particular assessment or to dispose of a particular case in a particular manner; or to interfere with the discretion of the Dy. CIT(A) or the CIT(A) in the exercise of his appellate functions.
In exercise of that power the Board has issued Circular No. 530 dt. 6th March 1989 76 CTR (St) 102]. Paras 2 and 3 of the Circular read as under :
"2. Having regard to the proper and efficient management of the work of collection of revenue, the Board has considered it necessary and expedient to order that on an application being filed by the assessee in this behalf, the AO will exercise his discretion under s. 220(6) of the Act (subject to such conditions as he may think fit to impose) so as to treat the assessee as not being in default in respect of the amount in dispute in the appeal in the following situations.
(i) the demand in dispute has arisen because the AO had adopted an interpretation of law in respect of which there exists conflicting decisions of one or more High Courts or the High Court of jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment, or
(ii) the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or Court in the assessees own case.
It is clarified that in the situations mentioned in para 2 above, the assessee will be treated as not in default only in respect of the amount attributable to such disputed points. Further, where it is subsequently found that the assessee has not co-operated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or Court alters the situation referred to in para 2 above, the AO will no longer be bound by these instructions and will exercise his discretion independently".
From the aforesaid provision of the Act and circular issued by the CBDT, it is apparent that in the case where the assessee has preferred an appeal under s. 246, the AO has been vested with the discretion to treat the assessee as not being a default in respect of the amount in dispute in appeal as long as the appeal remains undisposed of even though time for payment of demand under the assessment has expired. The power being discretionary, general guidelines laying down the circumstances in which the assessee may be treated not being in default, was issued by the Board in exercise of its power under s. 119 of the Act which has been reproduced hereinabove. As per the instructions contained in cl. 2 of the circular it is obvious that where the demand in dispute relates to issue that have been decided in favour of the assessee in an earlier order by an appellate authority or Court in the assessees own case, the assessee is not to be treated being in default in respect of that amount in dispute in appeal. While laying down that guidelines it has been further clarified that in such situation the assessee will be treated as not in default only in respect of the amount attributable to such disputed points, namely, which have been decided in favour of the assessee in earlier order by the appellate authority. We also notice that another Circular No. 589 dt. 16th Jan. 1991 91 CTR (St) 49] had been issued by the Board wherein the Board clarified under cl. (2) of its instruction contained in the circular that according to para 2 of the Circular No. 530, the AO in two situations referred to in that para 2 was bound to treat the assessee not in default in respect of the amount in dispute in appeal.
It is not in dispute that the aforesaid circular being in the nature of laying down general guidelines for proper administration of the Act for those who are employed in the execution of the Act are bound to observe such instruction particularly ones which are beneficial to the assessee.
From the narration of the facts and the provisions noticed above, it is obvious that the conditions necessary for the exercise of the discretion in favour of the assessee under s. 220(6) of the Act apparently exists in favour of the assessee in the present case.
The issue relating to the eligibility of deduction claimed under ss. 80HH and 80-I has been decided in favour of the assessee by appellate authority in respect of the earlier years. The assessee has presented appeal in respect of two assessment years in question against the order of AO. For uniform exercise of discretion in the situation like the present the instructions by the Board are contained in Circular No. 530 referred to above which are binding on the AO. The instructions are not in respect of any particular assessment or a particular case nor discretion under s. 220(6) is to be exercised by the Dy. CIT(A) or CIT(A), or by any other appellate authority but it is to be exercised by the AO himself while invoking provisions of s. 220(6).
Law is well settled that though investing of power is couched in a manner as to vesting a discretion in the authority invested, to exercise that power, in reality when it is shown that conditions for exercise of such power exist, the authority is bound to exercise discretion in that manner. Therefore, in our opinion there is no escape from the conclusion that in the present case the assessee could not be treated an assessee in default in respect of the demand of the tax for the asst. yr. 1993-94 to the extent such demand is referable to the dispute relating to non-allowance of the deduction claimed by the assessee under ss. 80HH and 80-I of the Act. Therefore, to that extent the question of compelling the assessee to make payment of such demand could not arise. Obviously to the extent demand is not related to the issue in dispute decided in favour of the assessee in the earlier occasion, the conclusion reached by us would not apply.
Accordingly, the order Annexure-A dt. 18th April, 1995 is hereby quashed and set aside and it is directed that the assessee shall not be treated in default in respect of the demand in dispute relating to the claim or deduction under ss. 80HH and 80-I which have been decided in favour of the assessee in an earlier order by the appellate authority in assessees own case and keeping that in view the assessing authority shall pass order under s. 220(6) afresh in accordance with law. Rule made absolute with no order as to costs.
Before we part with the case, we may note that the learned counsel for the Revenue stated that the Department has not accepted the order passed by the Tribunal in the case of M/s. Madhu Chemicals, Bhavnagar for the asst. yr. 1987-88 and though an application under s. 256(1) has been rejected by the Tribunal, the Department is taking steps to make application under s. 256(2). As the controversy about the merits of allowance of the claim under ss. 80HH and 80-I is not subject-matter of the petition before us, we may make it clear that this decision has no bearing whatsoever on the merit of the claim of the assessee.