Applications seeking of stay of demand during the pendency of first appeal before CIT (Appeals) are generally rejected in a casual manner causing considerable hardships to the assessee. The assessing officers insist to deposit 20% deposit of tax demand as per July 2017 revised guidelines as precondition to grant a stay. However, the same is also not feasible as generally assessing officers raise high–pitched income tax demands or raise the demands through the assessment order framed u/s 144 as best judgement order. AO is the first statutory authority and for no reason, he is not the final referee of the disputes involved. Furthermore, a request for the exercise of the power under section 220(6) cannot be merely summarily rejected on the basis that power is there with the officer but that he is not bound to exercise it.
Section 220(6) of the Act gives discretionary power to the AO to stay the demand and reads as under: “Where an assessee has presented an appeal under section 246A of the Income Tax Act, the 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 of.” The said provision was inserted by the Finance Act, 2000; w.e.f. 1-6-2000.There is no time limit within which Stay application is to be made u/s 220(6). A petition can be filed for this purpose within 30 days of the receipt of demand notice, setting out the grounds for staying the demand. AO will be able to treat the assessee as assessee in default only after the expiry of 30 days. Further, the AO can consider an Application for Stay of demand even if it is filed beyond 30 days from the date of receipt of the notice.
AN UNEVEN PATH TO SECURE STAYS ON DEMAND
The Stay Application u/s 220(6) can be made only before the AO and the AO only has a right to stay the demand. However, the CIT (Administration) being the administrative head of the particular charge where the jurisdiction of the assessee lies, the CIT (Administration) can consider the Stay Application. In fact, the CIT (Administration) exercises the power and considers the Stay Application where the AO rejects the Stay Application of the assessee. The Income Tax Appellate Tribunal also insists for the rejection of the Stay of demand by CIT (Administration) before considering the Stay Application in cases where is pending before ITAT. Further, Section 254 of the Income-Tax Act, 1961 relates to appeals before the Income Tax Appellate Tribunal (ITAT) by and the tax department. It also deals with the law relating to grant of of demand on assessee petitions. This section was amended w.e.f. June 1, 2001, to provide that an appeal filed by the assessee, the Tribunal passes an order granting stay of demand, it shall hear and decide such appeal within 180 days from the date of passing of stay order, failing which, the stay granted shall stand vacated on the expiry of this period.
In case of demand is under dispute and subject to appellate proceedings, then, the right of appeal vested in the assessee by virtue of the statute should not be rendered illusory and nugatory. The requirement of depositing 20% tax of demand through the circular 31/07/2017 does not qualify to be implemented in manner. The same has been strengthened by the Bombay High Court order which prescribes the way to avail the relief. Bhupendra Murji Shah Vs. DCIT (Bombay High Court); Writ Petition No. 2157 of 2018 and 2160 of 2018; 11/09/2018 “In the circumstances, we dispose both these petitions with directions that the Appellate Authority shall conclude the hearing of the Appeals as expeditiously as possible and during pendency of these Appeals, the petitioner/appellant shall not be called upon to make payment of any sum, much less to the extent of 20% under the Assessment Order/Confirmed Demand or claim to be outstanding by the Revenue.”
THE CBDT CIRCULARS
The disposal of the request for stay by the petitioner should not be rejected in casual way. The assessing officer ought to have taken note of the conditions precedent for the grant of stay as well as the Circulars issued by the CBDT while passing a speaking order as noted by the Supreme Court in the case of Commissioner of Income tax vs Mahindra Mills, ((2008) 296 ITR 85 (Mad)) in the context of grant of depreciation, the Circular of the Central Board of Revenue (No. 14 (SL- 35) of 1955 dated April 11, 1955) requires the officers of the department ‘to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs. The AO should give attention to refunds or reliefs to which the assessee appears to be clearly entitled. All the three parameters invoked herewith for the grant of stay, it is incumbent upon AO to examine the existence of a prima facie case as well as call upon the assessee to demonstrate financial stringency, if any and arrive at the balance of convenience in the matter.
The Circulars and Instructions issued by the CBDT are in the nature of guidelines issued to assist the assessing authorities in the matter of grant of stay and cannot substitute or override the basic tenets to be followed in the consideration and disposal of stay petitions. The existence of a prima facie case for which some illustrations have been provided in the Circulars themselves the financial stringency faced by an assessee and the balance of convenience in the matter constitute the ‘trinity’, so to say, and are indispensable in consideration of a stay petition by the authority. The Board has, while stating generally that the assessee shall be called upon to remit 20% of the disputed demand, granted ample discretion to the authority to either increase or decrease the quantum demanded based on the three vital factors to be taken into consideration.
1969 CBDT Guidelines
Periodic Instructions/Circulars in regard to the manner of adjudication of stay petitions are issued by the Central Board of Direct Taxes (CBDT) for the guidance of the Departmental authorities. The one oft-quoted by the assessee is Office Memorandum F.No.1/6/69/-ITCC, dated 21.08.1969 that states as follows:
‘1. One of the points that came up for consideration in the 8th Meeting of the Informal Consultative Committee was that income-tax assessments were often arbitrarily pitched at higher figures and that the collection of disputed demand as a result thereof was also not stayed in spite of the specific provision in the matter in s. 220(6) of the IT Act, 1961.
2. The then Deputy Prime Minister had observed as under:
“………Where the income determined on assessment was substantially higher than the returned income, say twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeal provided there were no lapses on the part of the assessee.”
3. The Board desire that the above observations may be brought to the notice of all the Income-tax Officers working under you and the powers of stay of recovery in such cases up to the stage of first appeal may be exercised by the Inspecting Assistant Commissioner/Commissioner of Income-tax.
1996 CBDT INSTRUCTIONS
Thereafter, Instruction No.1914 was issued by the CBDT on 21.03.1996 from CBDT/ and states as follows:
1. The Board has felt the need for a comprehensive instruction on the subject of recovery of tax demand in order to streamline recovery procedures. This instruction is accordingly being issued in supersession of all earlier instructions on the subject and reiterates the existing Circulars on the subject.
2. The Board is of the view that, as a matter of principle, every demand should be recovered as soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with the guidelines given below:
i. It shall be the responsibility of the Assessing Officer and the TRO to collect every demand that has been raised, except the following:
(a) Demand which has not fallen due;
(b) Demand which has been stayed by a Court or ITAT or Settlement Commission;
(c) Demand for which a proper proposal for write-off has been submitted;
(d) Demand stayed in accordance with Para B & C below.
ii. Where demand in respect of which a recovery certificate has been issued or a statement has been drawn, the primary responsibility for the collection of tax shall rest with the TRO.
iii. It would be the responsibility of the supervisory authorities to ensure that the Assessing Officers and the TROs take all such measures as are necessary to collect the demand. It must be understood that mere issue of a show cause notice with no follow up is not to be regarded as adequate effort to recover taxes.
B. Stay Petitions:
i. Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the tax- payer. The assessee must be intimated of the decision without delay.
ii. Where stay petitions are made to the authorities higher than the Assessing Officer (DC/CIT/CC), it is the responsibility of the higher authorities to dispose of the petitions without any delay, and in any event within two weeks of the receipt of the petition. Such a decision should be communicated to the assessee and the Assessing Officer immediately.
iii. The decision in the matter of stay of demand should normally be taken by Assessing Officer/TRO and his immediate superior. A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances; e.g., where the assessment order appears to be unreasonably high-pitched or where genuine hardship is likely to be caused to the assessee. The higher authorities should discourage the assessee from filing review petitions before them as a matter of routine or in a frivolous manner to gain time for withholding payment of taxes.
C. Guidelines for staying demand:
i. A demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand. A few illustrative situations where stay could be granted are: It is clarified that in these situations also, stay may be granted 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 above situation, the stay order may be reviewed and modified. The above illustrations are, of course, not exhaustive.
ii. In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may —
a. require the assessee to offer suitable security to safeguard the interest of revenue;
b. require the assessee to pay towards the disputed taxes a reasonable amount in lump sum or in instalments;
c. require an undertaking from the assessee that he will co-operate in the early disposal of appeal failing which the stay order will be cancelled.
d. reserve the right to review the order passed after expiry of a reasonable period, say up to 6 months, or if 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 above situations;
e. reserve a right to adjust refunds arising, if any, against the demand.
iii. Payment by instalments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
iv. Since the phrase “stay of demand” does not occur in section 220(6) of the Income-tax Act, the Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) or section 220(7)], the expression that occurs in the section viz., that he agrees to treat the assessee as not being default in respect of the amount specified, subject to such conditions as he deems fit to impose.
v. While considering an application under section 220(6), the Assessing Officer should consider all relevant factors having a bearing on the demand raised and communicate his decision in the form of a speaking order.
i. Even where recovery of demand has been stayed, the Assessing Officer will continue to review the situation to ensure that the conditions imposed are fulfilled by the assessee failing which the stay order would need to be withdrawn.
ii. Where the assessee seeks stay of demand from the Tribunal, it should be strongly opposed. If the assessee presses his application, the CIT should direct the departmental representative to request that the appeal be posted within a month so that Tribunal’s order on the appeal can be known within two months.
iii. Appeal effects will have to be given within 2 weeks from the receipt of the appellate order. Similarly, rectification application should be decided within 2 weeks of the receipt t hereof. Instances where there is undue delay in giving effect to appellate orders, or in deciding rectification applications, should be dealt with very strictly by the CCITs/CITs.
3. The Board desires that appropriate action is taken in the matter of recovery in accordance with the above procedure. The Assessing Officer or the TRO, as the case may be, and his immediate superior officer shall be held responsible for ensuring compliance with these instructions.
4. This procedure would apply mutatis mutandis to demands created under other Direct Taxes enactments also.’
2016 – INSTRUCTION 1914 PARTIAL MODIFIED
Instruction 1914 was partially modified by Office Memorandum dated 29.02.2016 taking into account the fact that Assessing Officers insisted on payment of significant portions of the disputed demand prior to grant of stay resulting in extreme hardship for tax payers. Thus, in order to streamline the grant of stay and standardize the procedure, modified guidelines were issued which are as follows:
(A) In a case where the outstanding demand is disputed before CIT (A), the assessing officer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category discussed in pars (B) here under.
(B) In a situation where,
(a) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court /or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.) or,
(b) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.), the assessing officer shall refer the matter to the administrative Pr. CIT/ CIT, who after considering all relevant facts shall decide the quantum/ proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand.’
2017 – INSTRUCTION 1914 FURTHER MODIFIED
Instruction 1914 was further modified by Office Memorandum bearing number F.No.404/72/93 – ITCC dated 31.07 2017 as follows: ‘OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated 31.07.2017
Subject: Partial modification of Instruction No. 1914 dated 21.3.1996 to provide for guidelines for stay of demand at the first appeal stage.
Reference: Board’s O.M. of even number dated 29.2.2016
-Instruction No. 1914 dated 21.3.1996 contains guidelines issued by the Board regarding procedure to be followed for recovery of outstanding demand, including procedure for grant of stay of demand.Vide O.M. N0.404/72/93-ITCC dated 29.2.2016 revised guidelines were issued in partial modification of instruction No 1914, wherein, inter alia, vide para 4(A) it had been laid down that in a case where the outstanding demand is disputed before CIT(A), the Assessing Officer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand unless the case falls in the category discussed in para (B) thereunder. Similar references to the standard rate of 15% have also been made in succeeding paragraphs therein.
2. The matter has been reviewed by the Board in the light of feedback received from field authorities. In view of the Board’s efforts to contain over pitched assessments through several measures resulting in fairer and more reasonable assessment orders, the standard rate of 15% of the disputed demand is found to be on the lower side. Accordingly, it has been decided that the standard rate prescribed in O.M. dated 29.2.2016 be revised to 20% of the disputed demand, where the demand is contested before CIT (A). Thus all references to 15% of the disputed demand in the aforesaid O.M dated 29.2.2016 hereby stand modified to 20% of the disputed demand. Other guidelines contained in the O.M. dated 29.2.2016 shall remain unchanged.
These modifications may be immediately brought to the notice of all officers working in your jurisdiction for proper compliance.
The foregoing discussion concerning stay of demands clearly shows that the two circulars are only in addition to Instruction No 96 and not in super cession of what has been approved by the ‘Informal Consultative Committee of Parliament’ and the then deputy Prime Minister/finance minister. That instruction is still valid and has not been withdrawn so far. Hence, where income assessed is twice the income returned or more, the demand attributable to such high-pitched assessments, on applications made by the assessee, has to be stayed until the disposal of appeals by the CIT (A). There is no escape from this situation and the AOs, who are not adhering to this Instruction and are compelling the assessee to pay the demand, which is more than the income returned, on the basis of criterion in Instruction No 96, could be held to be guilty of not following the decision of a Committee of Parliament and could said to be committing contempt of Parliament. The two Circulars of the CBDT cannot be said to change this situation, as the CBDT cannot unilaterally issue Circulars, which are contrary to Instruction No 96 (supra) issued with the approval of Informal Consultative Committee of Parliament.
THE LEGAL JUDGEMENTS
The Supreme Court, in the case of Asst CCE v. Dunlop (154 ITR 172) has held that the discretionary power granted to the AO to stay the demand, are required to be exercised judiciously and reasonably, on relevant grounds such as: prima facie case; balance of convenience; possibility of irreparable injury; and safeguarding public interest. This article portrays the present legal position and calls for CBDT’s intervention by issuing suitable clarifications on certain points raised herein. Assessing Officer (AO)who may be while passing assessment order under Income Tax Act’ 1961 may disallow/add back certain items of expenses or reduce deduction claimed in the returned Income on one reason or the other.
In Soul v. Dy. CIT(2008) 220 CTR (Del) 211, the Delhi High Court found that the assessment was ‘high-pitched’ –74 times of returned income. The Court therefore observed that demand raised needs to be stayed in view of the CBDT’s circular no. 96 dated 21st August, 1961 and Instruction No. 1914 dated 2nd December, 1993. Hence garnishee order passed under Section 226(3) was ordered to be kept in abeyance by the HIGH COURT.
In the case of Valvoline Cummins Ltd. v. CIT and Ors. (2008) 217 CTR (Del) 292 had granted an absolute stay of demand because the assessment made was eight times of the returned income saying that a perusal of Para2 of the CBDT instruction No. 96, dated 21st Aug., 1969 would show that where the income determined is substantially higher than the returned income, thatis, twice the latter amount or more, then the collection of tax in dispute should be held in abeyance till the decision on the appeal is taken. In this case, the assessment is almost 8 times the returned income. Clearly, Instruction No. 96, dt. 21st Aug.,1969 would be applicable to the facts of the case.Under the circumstances, the assessee would, in normal course, be entitled to an absolute stay of the demand on the basis of the above instruction.
The Delhi High Court has considered the issue relating to stay of disputed demands once again in Taneja Developers and Infrastructure Ltd. v. Asstt. CIT (Del) (2009) 222 CTR (Del) 521 and has decided that assessment at a figure 350 times the returned income is unreasonably high-pitched. Hence recovery needs to be stayed in view of CBDT Instruction No. 96 dated 21st August, 1969.The Courts have held that it is wrong to assume that the exercise of discretion is only a naked arbitrary power to reject the application for stay of recovery of disputed amount of tax pending the appeal. The statute has conferred upon the Assessing Officer the power to grant stay, and it is his duty to examine and scrutinize the grounds on which the stay is asked for. The foregoing discussion clearly brings out the gravity of the situation and the chaos and the confusion that is prevailing in the matter of decision making on stay applications. A consolidated view should be taken of the existing Instructions/Circulars on the subject of stay of demand and a master circular on the subject should be issued by the CBDT covering all relevant aspects indicating the actions to be taken where deviation is made from such guidelines without justification.
In the case of LG Electronics that the administrative Circular (31/07/2017) will not operate as a fetter on the Commissioner since it is a quasi-judicial authority and rejected the SLP of PCIT to go ahead with the lesser 20% deposit. In the case LG Electronics then approached the Delhi High Court. In an order on 8 August 2017, the HC set aside the order passed by the PCIT and directed the PCIT to hear the matter again without referring to the 31 July 2017 circular. The PCIT, however, decided to approach the Supreme Court. In its judgement, the apex court (CIVIL APPEAL NO. 6850 OF 2018) clarified that irrespective of the OMs from CBDT, the tax authorities, depending on facts of individual cases, can grant deposit orders for an amount less than 20% of the tax demand.
In the case of Mrs. Kannammal vs Income Tax Officer , Ward 1(1) Tirupur WP No. 3849 of 2019 and WMP No 4278 of 2019 , the honourable high court has described the stay circulasr in detail and ordered the AO to pass on the speaking order on the merits of the case after considering all the circulars in the matter .
Pradeep Ratanshi vs. Asst. CIT (1996) 221 ITR 502 (Ker.)(c) The stay of demands clearly shows that the two circulars are only in addition to Instruction No 96 and not in supersession of what has been approved by the ‘Informal Consultative Committee of Parliament’ and the then deputy Prime Minister/finance minister. That instruction is still valid and has not been withdrawn so far. Hence, where income assessed is twice the income returned or more, the demand attributable to such high-pitched assessments, on applications made by the assessee, has to be stayed until the disposal of appeals by the CIT (A). The recovery proceedings initiated against the assessee shall remain stayed till the disposal of stay petition filed by him.
In Soul v. Dy. CIT(2008) 220 CTR (Del) 211, the court found that the assessment was ‘high-pitched’ –74 times of returned income. The Court therefore observed that demand raised needs to be stayed in view of the CBDT’s circular no. 96 dated 21st August, 1961 and Instruction No. 1914 dated 2nd December, 1993. Hence garnishee order passed under Section 226(3) was ordered to be kept in abeyance by the HIGH COURT.
So far, the considerable points for staying of demand of income tax have been of aforementioned circulars and various judgements on the issue.