RECOMMENDATIONS REGARDING RECOVERY OF DISPUTED DEMAND

Under the existing regime for recovery of demand, Assessing Officers insist upon collecting disputed demands even when they are in appeal. The situation is aggravated in years when the revenue collection targets are ambitious. In practice, this is leading to serious hardship to the taxpayer particularly in cases where there is high-pitched assessment. Experience has shown that generally an application under section 220(6) for not treating the assessee as being in default is routinely rejected.

The Committee believes that the procedure for collection of disputed demand needs to be streamlined with a view to balancing the need to meet revenue targets and fair treatment to the taxpayer. Accordingly, the Committee recommends that the taxpayer should be allowed automatic stay of demand on payment of seven and one-half percent of the demand. The stay will remain in operation till the first appellate order is passed. Further, the Committee recognizes that in cases of high-pitched assessment, the payment of seven and one-half percent of the demand could be extremely onerous for the taxpayer. In this background, it is recommended that in such cases, the taxpayer should be given the liberty to approach the Commissioner (Appeals) and request for stay without mandatory payment of seven and one-half percent of the demand.

The Committee also recognises that undue hardship is caused to the taxpayer when penalty is levied and sought to be collected even when the appeal against the quantum addition is pending in the Tribunal. Recognizing this hardship, the Committee recommends that recovery of the demand arising from the levy of penalty after the order of

Commissioner (Appeals) should be stayed till one month after the disposal of the quantum appeal by the Tribunal.

Some of the members were of the view that the statutory authority i.e. the Assessing Officer, being a quasi judicial authority cannot be divested of its power to grant stay of demand. Another view was that automatic stay of demand on payment of 7.5% tax may create incentives for tax evasion.

2. Based on the aforesaid recommendation, section 220 of the Income-tax Act, 1961 should be amended as follows:-

Amendment of section 220

In section 220 of the Income-tax Act, for sub-section (6), the following sub-sections shall be substituted with effect from the 1st day of April, 2017, namely:-

“(6) Where an assessee has presented an appeal under section 246A, the Assessing Officer shall 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 if the assessee has paid seven and one-half percent of such amount within sixty days from the date of presenting the appeal.

(6A) Where an assessee has presented an appeal under section 246A, the assessee may, notwithstanding anything to the contrary contained in sub-section (6), apply to the Commissioner (Appeals) for stay in any proceedings for recovery of the amount and the Commissioner (Appeals) may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, direct, within thirty days of receipt of application, the Assessing Officer to 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.

(6B) Where the amount relates to a notice of demand in pursuance of an order under clause (c) of sub-section (1) of section 271 and the assessee is in appeal before the Tribunal in respect of the order of assessment or reassessment in which the proceedings for the levy of the said penalty were initiated, such amount shall not be recovered until one month after the receipt of the appellate order of the Tribunal by the Assessing Officer and the assessee shall not be deemed to be in default during the said period”.

Source- Draft Report of Justice R.V. Easwar (Retd) Committee to Simplify the provisions of Income-tax Act, 1961

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