Every year, the Union Budget provides for the estimated tax collection during the relevant financial year. The said tax collection targets percolate to each and every Assessing Officer in the country by the CBDT. The stiff collection targets puts tremendous pressure on the Assessing Officers and thereby affect the quality of  assessments they do. It also forces the Assessing Officers to make several high pitched assessments leading to unjust demands. This is evidenced by reversal of such assessments during the appellate proceedings.

Every year, several demand notices are issued under section 156 along with assessment orders. Most assessees, being aggrieved by the unjust demands raised in those orders, take up the issue before the appellate authorities. At the same time, they also file an application for stay of demand before the concerned Assessing Officer. In reality, Assessing Officers entertain such stay applications with minor modifications like payment of certain portion of demand say 20%/30%. It is noteworthy to mention that powers under section 220(6) are discretionary in nature. In recent times, in order to meet the stiff collection targets, quite a few Assessing Officers have initiated recovery proceeding and attached bank accounts/got the payment from assessees bank by exercising the powers under section 226 or exercising powers under section 222 read with Schedule II in case of expiry of stay application. In such a case, the assessee has no option but to file a stay application to the concerned authority where his case is pending.

The above process of initiating recovery proceedings and recovering the amount due from the assessee when his case is still pending before the concerned appellate authority and has not attained finality, puts a lot of financial strain on assessee’s resources and affects his business operations. Even stay applications are approved for specific time period (maximum 1 year by ITAT under proviso to section 254 subject to satisfaction of conditions specified therein). Liquidity issues crop up due to payment of demand and as a result assessee’s working capital is locked up.

In a country like ours, where appeals go on for several years before reaching to their logical end, the assesses end up facing undue hardship on account of their working capital remaining locked up for such a long time.


Ideally, the assessee may be required to furnish bank guarantee for the amount specified in the notice of demand which will protect the interest of the revenue, without affecting the assessee’s liquidity. Such an enabling measure would also be in line with the current government’s move to facilitate ‘ease of doing business’.

Further, the appeals in high demand cases and high pitched assessments should be taken up on priority basis.

Source-  ICAI Pre- Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021