Sections 220 to 232 of the Income-tax Act deals with collection and recovery of taxes. These provisions will become active every year in the months of February and March. Probably each officer or Commissioner may have to report to the higher authority the taxes outstanding, and total collection of taxes in their charge. As the scope of this Article is very limited. I will not deal with various controversial issues of Recovery Proceedings and will restrict only to few provisions which are useful in our day-to-day practice.
Recovery proceedings under the Act can be started against a person only when he is in default or deemed to be in default in making payment of taxes. The assessee who is in default or is deemed to be in default in making payment of taxes may make an application, requesting the Assessing Officer not to treat him as the assessee in default in respect of the amount in dispute in the appeal preferred by the assessee. The Assessing Officer may in his discretion and with or without imposing any conditions pass an order, not treating the assessee as an assessee in default in respect of such disputed amount till the appeal is pending.
It may be noted that mere filing of an appeal does not suo motu stay the proceedings of recovery of the tax in demand. Therefore, it is necessary that as soon as an order raising the demand is received, assessee must make an application to stay and keep the demand in abeyance.
While filing Stay application before the Assessing Officer, the assessee will have to give the brief facts as under:
If an assessee’s application u/s. 220(6) is not replied by the Assessing Officer, even though the same was filed in time, the assessee can always contend before the Tax Recovery Officer that before taking any action against the assessee, his application for stay of demand should be disposed of. The Tax Recovery Officer can also consider the assessee’s applications u/s. 225(1) and grant time for the payment of any tax till the disposal of the assessee’s appeal by the First Appellate Authority.
In the event of Assessing Officer rejecting assessee’s application u/s. 220(6) of the Income-tax Act, the assessee can prefer an application to the Commissioner of Income-tax under whose jurisdiction assessee’s case falls for staying the demand of tax in dispute till the hearing and final disposal of the assessee’s appeal by the Commissioner of Income-tax (Appeals).
If the Commissioner fails to discharge his duty, the assessee may file a Writ Petition under Article 226 of the Constitution of India. However, when an appeal is pending before the Income Tax Appellate Tribunal, the assessee can file a Stay Petition before the Income Tax Appellate Tribunal to stay the recovery proceedings.
The Central Board of Direct taxes in its circular No.530 dated 6-3-1989 [176 ITR St. (240) and Circular No. 589 dated 16-1-1991, 187 ITR St. (79)] has laid down the guidelines for the Assessing Officer to exercise his jurisdiction u/s. 220(6) of the Act where an assessee has preferred an appeal.
The discretionary power conferred by section 220 (6) upon the Assessing Officer is coupled with a duty and if he does not exercise it when the occasion calls for it or if he exercise it in such a manner that it is no exercise of discretion at all, he can be compelled to discharge his duty by an order of the court.[Ladhuram Taparia vs. B. K. Bagchi, 20 ITR 51, (Cal.) Shivangi Steels P. Ltd. vs ACIT, 226 ITR 62, 63 (All)]
Protective recovery of tax is not permissible even though protective assessment can be validly made. [Sunil Kumar vs. CIT, 139 ITR 880 (Bom.)]
Filing of claims
The Hon’ble A. P. High Court in ITO vs. Khalid Mehdi Khan (minor) 110 ITR 79, has taken the view that the Tribunal can not only stay the recovery proceedings but can also stay the proceedings before the Assessing Officer. Therefore, in a case where order under section 263 is passed and if the appeal is pending before Tribunal and in the meantime, if the Assessing Officer starts the assessment proceedings then in such circumstances, the assessee can file stay petition before the Tribunal and the Tribunal can stay the proceedings before the Assessing Officer. Please also see Ritz Hdrs Vyas, 185 ITR 311 (Bom).
The Hon’ble Supreme Court in CIT vs. Bansi Dhar & Sons 157 ITR 665 has taken the view that the Tribunal can also stay the proceedings when the reference is pending before the High Court. Therefore, in cases where the assessee has lost before the Tribunal and the reference is pending before the High Court and if the assessee is in a position to establish that he is not in a position to make the payment of tax in dispute, in such circumstances, the Tribunal can stay the proceedings till the disposal of the reference by the High Court.
It may be noted here that, before filing the stay petition, it is necessary that the assessee should approach the Commissioner to stay the recovery proceedings. When Commissioner refuses to stay the recovery proceedings, then only the Tribunal will exercise its power. In case the Commissioner grants instalment facility but the assessee shows his inability to make payment in instalment and the Commissioner rejects the stay application then the power of Tribunal can be invoked for stay. It may be further noted that the assessee must also show that he has no liquidity to pay the tax in dispute and if stay is not granted, great hardship will be caused to the assessee.
The Finance (No.2) Act, 1998 with effect from 1-10-1998 inserted sub-section (7) in section 253 prescribing for the first time a fee of five hundred rupees whenever an application for stay of demand has to be filed before the Appellate Tribunal.
The Finance Act, 2001 inserted two new proviso to sub-section (2A) of section 254 with effect from 1-6-2001. As per the first proviso, where an order of stay is made in any proceedings relating to an appeal filed under section 253(1), the Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such stay order.
As per the second proviso if such appeal is not so disposed of within the period specified in first proviso, the stay order shall stand vacated after the expiry of the said period.
In view of the specific language of the aforesaid second proviso, it is not only desirable but imperative on the part of the assessee to file an application for extension of the stay or granting of fresh stay, well in time before the expiry of the impugned six months period.
Rule 35A of the Income Tax Appellate Tribunal Rules, prescribes the procedure for filing the Stay Petition. As per this rule, any assessee filing an appeal under taxation Laws, before the Income Tax Appellate Tribunal may prefer stay application in the following manner.
a. Every application for stay of recovery of demand of tax, interest, penalty, fine, Estate Duty or any other sum shall be presented in Triplicate by the applicant in person, or by his duly authorised agent, or sent by Registered Post to the Registrar/Deputy Registrar or the Assistant Registrar, as the case may be at the Headquarters of a Bench or Benches having jurisdiction to hear the appeals in respect of which the Stay Application arises.
b. Where the application for stay relates to demands, though for more than one assessment year but under only a single statutory enactment, then a single stay application would be sufficient in respect of the demands for which the stay is sought. However, separate applications shall be filed for stay of recovery of demands under different enactments. It may however be noted that in Wipro Ltd vs. ITO, 86 ITD 407 (Bang) the Tribunal held that reparate stay petitions should be filed seeking stay and recovery of different assessment years. But the Bombay bench of the Tribunal in Chirangilal S. Gaonkar vs. WTO, 66 TTJ 728 has held that a single afflication can be filed.
c. The application for stay should, as far as possible, be filed in the form as per specimen as at Appendix X.
2. Every application shall be neatly typed on one side of the paper and shall be in English and shall setforth concisely the following: