The month of February is usually associated with love, aspirations and valentine dates. For assessees and their tax consultants also, it do culminates into dates with assessing authorities, (i leave it up to you to think them to be valentine dates or not), as it is that part of the year, when the regular assessments get concluded and the statutory time-limit of 30 days in the demand notices also gets over and the assessing authorities start putting pressure for recovery of income tax demands…..
By virtue of CBDT Office Memorandum dated 31.7.2017, the assessing authorities, as a matter of right, are demanding atleast 20% of the corresponding income tax demands, w.r.t. the regular assessment orders for the AY 2015-16, even in cases of High Pitched Assessments. An assessment is termed as high pitched if the assessed income is twice the returned income or more.
However, whether the assessing authorities, by default, are authorised to demand and collect, atleast 20% of the income tax demand, in all assessment cases? This article tries to address this burning issue having an impact on almost all the assessees and their tax consultants.
It is usual for us to take some tips from our friends before going for valentine dates. So if, you are about to have that valentine date with the assessing authority, who is pre-determined to recover and collect atleast 20% of the income-tax demand, then this article may prove helpful.
It will be in the fitness of things to consider the relevant CBDT Circulars and the related judicial pronouncements having a direct bearing on the issue of stay of grant in high pitched assessment cases.
The First CBDT Instruction addressing the issue of Grant of Stay of Demand in High Pitched Assessments was CBDT Instruction No. 95 dated 21.8.1969. It categorically provided that,
“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 assesses.”
Therefore, the said CBDT Instruction, very clearly provided that in case of high pitched assessments, the tax recovery proceedings should be kept in abeyance and the stay of grant should be provided by the assessing authorities to the assessees, till the disposal of appeal by the appellate authority.
Then CBDT had come up with another Instruction No. 1914 dated 2.12.1993, on Stay of Demand, and the Revenue Authorities contended that all previous instructions stood superseded by the said instruction, which included the supersession of the earlier CBDT Instruction No. 95 dated 21.8.1969, also.
This matter was the subject matter of consideration in the judgment of the Hon’ble Delhi High Court in the case of “Taneja Developers and Infrastracture Ltd., Vs. Assistant Commissioner of Income Tax, Delhi and Ors in W.P.(C).No.6956 of 2009, (2009) 222 CTR (Del) 521 dated 24.02.2009, wherin the Hon’ble Delhi High Court, relying upon its earlier judgment in the case of “Valvoline Cummins Ltd. v. CIT and Ors. (2008) 217 CTR (Del) 292, had categorically held as under,
“9.Having considered the arguments advanced by the learned counsel for the parties, we are of the view that although Instruction No.1914 of 1993 specifically states that it is in supersession of all earlier instructions, the position obtaining after the decision of this Court in Valvoline Cummins Ltd., (Supra) is not altered at all. This is so because paragraph No.2(A) which speaks of responsibility specifically indicates that it shall be the responsibility of the Assessing Officer and the TRO to collect every demand that has been raised except the following’, which includes: (d) demand stayed in accordance with the paras B and C below. Para B relates to stay petitions. As extracted above, Sub-clause (iii) of para B clearly indicates that a higher/superior authority could interfere with the decision of the Assessing Officer/TRO only in exceptional circumstances. The exceptional circumstances have been indicated as – “where the assessment order appears to be unreasonably high pitched or where genuine hardship is likely to be caused to the assessee…. The very question as to what would constitute the assessment order as being reasonably high pitched in consideration under the said Instruction No.96 and, there, it has been noted by way of illustration that assessment at twice the amount of the returned income would amount to being substantially higher or high pitched. In the case before this Court in Valvoline Cummins Ltd., (supra) that assessee’s income was about eight (8) times the returned income. This Court was of the view that was high pitched. In the present case, the assessed income is approximately 74 times the returned income and obviously, this would fall within the expression unreasonably high pitched. (Emphasis supplied)…
A reading of the above dictum would show that if assessment order is unreasonably high pitched or genuine hardship is likely to be caused to the assessee, then the assessee is entitled to be treated as not being in default in respect of the amount in dispute in the appeal.”
Then CBDT had again come up with CBDT Office Memorandum dated 29.2.2016, which provides that a Stay of Demand may be granted to the assessee on deposition of 15% (further increased to 20% by CBDT office memorandum dated 31.7.2017), of the total outstanding income tax demand, if the assessee’s appeal is pending before the CIT(Appeals). The assessing authorities, by virtue of the said CBDT Office Memorandums, as a matter of their inherent right, by default, are pressurizing for deposition of atleast 20% of the total income tax demand, even in cases of high pitched assessments.
However, again the fourth pillar of democracy, i.e. the Judiciary, has come to the rescue of the assessees.
In a recent judgement of the Hon’ble Karnataka High Court, in the case of M/s Flipkart India Pvt Ltd vs ACIT, Circle 3(1)(1), vide Writ Petition Nos. 1339-1342/2017 (T-IT), 23.2.2017, the Hon’ble High Court has categorically held as follows:
Para 16 “…..It is true that Instruction No.4 (B)(b) of the Circular dated 29.2.2016, gives two instances where less than 15% can be asked to be deposited. However, it is equally true that the factors, which were directed to be kept in mind both by the Assessing Officer, and by the higher superior authority, contained in Instruction No.2-B(iii) of Circular No.1914, still continue to exist. For, as noted above, the said part of Circular No.1914 has been left untouched by the Circular dated 29.2.2016. Therefore, while dealing with an application filed by an assessee, both the Assessing Officer, and the Prl. CIT, are required to see if the assessee’s case would fall under Instruction No.2-B(iii) of Circular No.1914, or not? Both the Assessing Officer, and the Prl. CIT, are required to examine whether the assessment is “unreasonably high pitched”, or whether the demand for depositing 15% of the disputed demand amount “would lead to a genuine hardship being caused to the assessee” or not?
The principal ratios emerging from the aforesaid High Court judgments clearly provide that in the cases of high pitched assessments, the stipulation of blanket deposition of atleast 20% of the income tax demand, is not applicable and stay of demand ought to be granted to the assessees, by the assessing authorities. This is because of the fact that even the deposition of 20% of the exorbitant and arbitrary income-tax demand in high pitched assessment cases, would result in a lot of financial and other hardships to the assessees and would also make the right of their appeal totally meaningless and nugatory.
Before parting, one more useful suggestion…. In case of High Pitched Assessment Cases, i.e. where assessed income is twice the returned income or more, an Application for Granting Appropriate Relief in terms of Absolute Stay of Demand and Early Fixation of Appeal, may be filed before the “High Pitched Assessment Grievance Committee” headed by the Jurisdictional Principal Chief Commissioner of Income Tax, of that region.
SO FRIENDS, NOW GO FOR THAT VALENTINE DATE WITH YOUR ASSESSING OFFICER, FOR STAY OF DEMAND, MUCH MORE CONFIDENTLY AND BACKED UP WITH LEGAL PRECEDENTS. ALL THE BEST…..
(The author can be reached at firstname.lastname@example.org)