Dear Mr. Taxman, Don’t Make Tax Recovery A Death Sentence For The Assessee

Its’ that time of the year when Tax Officers across the Country go into a frenzy to collect taxes by fair or foul means. And with the CBDT Chairman’s brazen promise to link promotions and postings to the quantum of tax recovered, it will be a no-holds barred blood fest between the assessees and the Tax department apprehends the author. The absence of an accountability mechanism to punish the Officer in case the tax demands are held to be untenable means that there is no deterrent to prevent frivolous high-pitched assessments muses the author

January, February & March of every year is very important for the tax administration as they have to meet the target of tax collection and the assesses have to face the recovery proceedings, whether the additions are justified or not. Recent paper reports says “Income tax raids to increases as tax collection falls short”. Another leading paper carried the news that “Collect more taxes to get rewarded”.

Though there is no fault of assessee they have to approach the department number of times just to get the demand rectified. One would have appreciated if the Chairman of CBDT would have given direction to all the officials to first pass the rectification orders, give credit for tax deducted with in a reasonable time and thereafter recover the tax due to Government which has became final

One of the assessee brought to our notice that the demand was wrongly raised, which was rectified, however they have received the recovery notice once again, though no demand is pending against them. Another assessee informed us, they have to receive huge refund which was recovered when the appeal was pending before the Income Tax Appellate Tribunal. However the Assessing Officer is refusing to adjust the refund and is trying to recover the tax which he has raised by reopening the earlier years assessment. This may be the fact of many assesses, though they have fair chance of succeeding in appeal before the Tribunal, they are asked to pay the entire demand. When an appeal is pending before the Tribunal assessee can approach the Tribunal for stay of demand, where as when an appeal is pending before the Commissioner (Appeals) the assessee can approach the Commissioner (Appeals) for stay the recovery. Many High Courts have held that the Commissioner (Appeals) are having the inherent jurisdiction to stay the demand, when that appeal is pending for hearing before him. As there is no Jurisdictional High Court decision on this particular issue, the Commissioner (Appeals) are not entertaining the stay application of the assessee at Mumbai. Under the circumstances assessee can only approach the Commissioner administration and if he refuses to stay the assessee has only remedy of approaching the High Court Under Article 226 of the Constitution of India by way of Writ. Small assesses cannot afford to approach the High Court due to cost factor. Many of the assesses have not been given credit for taxes deducted due to mismatch in the computer system of tax administration. Though there is no fault of assessee they have to approach the department number of times just to get the demand rectified. One would have appreciated if the Chairman of CBDT would have given direction to all the officials to first pass the rectification orders, give credit for tax deducted with in a reasonable time and thereafter recover the tax due to Government which has became final. There are few tax officials who try to recover the taxes without following the due process of law. There are instances where tax officials have recovered the taxes when the stay application is pending before the Tribunal. Our Jurisdictional High Court in KEC International Ltd. vs. B. R. Balakrishanan (2001) 251 ITR 158 (Bom.), Paramount Health Services vs. ACIT (2010) 37 DTR 377 (Bom.), and Mahindra & Mahindra Ltd. (1992) (59) ELT 505 (Bom.) has laid down the guidelines to dispose the stay applications of the assessees. In Maheswari Agro Industries v. UOI (2012) 246 CTR 113 (Raj) (High Court), the court held that when Income assessed by the Assessing Officer was 47 times of income declared by assessee, the instruction No 95 dated 21st August, 1969 holds the field. The discretion must be used by the Assessing Officer to stay the demand unless there are overriding and overwhelming reasons to reject the application. 

We hope the tax officials will follow the mandate of the Constitution of India, i.e. Article 265 of the Constitution of India which reads as under “ No tax shall be levied or collected except by authority of law”, the circulars of Board, ratio of jurisdictional High Court, Tribunal in the process of tax recovery, and change their mind set by adopting the culture of tax payer friendly tax service, by following the due process of law

In Sultan Leather Finishers Pvt. Ltd. vs. ACIT (1991) 191 ITR 179 (All), the Court held that when rectification under section 154 is pending till the disposal of rectification application no recovery will be made.

In RPG Enterprises Ltd. vs. Dy. CIT (2001) 251 ITR 20 (ITAT)(AT), the Hon’ble Tribunal has held that the Assessing officer is precluded from taking coercive action for the recovery of the disputed demand until the expiry of the period of limitation allowed for filing of the appeal against the decision of the first appellate authority and also during the pendency of stay application before any revenue authority or the Tribunal.

In DHL Express (India) P. Ltd. vs. ACIT(2011) 49 DTR 432 (Mum) (Trib.) and Honeywell Automation India Ltd v. Dy.CIT (2011) 138 TTJ 373 (Pune) (Trib), Tribunal has held that it is not mandatory that the assessee must approach the lower authorities before filing a stay petition before the Tribunal. The Tribunal held that the assessee can approach the Income tax Appellate Tribunal for stay without approaching the commissioner of Income tax. One of the great reliefs to the assesses at present as the pendency are very less the matters before the Income tax Appellate tribunal is heard within three months of filing an appeal (Except in the city of Mumbai, Pune and Ahmedabad). Hence the finality will be reached within a reasonable time, and the assesses getting the deserved reliefs in most of the cases.

How many tax officials will follow the binding precedents of High Courts, Tribunals and spirit of circulars? As there is no accountability provision in the present Income-tax Act or in the proposed Direct taxes code, 2010 honest tax payers will be the sufferers.


We hope the tax officials will follow the mandate of the Constitution of India, i.e. Article 265 of the Constitution of India which reads as under “ No tax shall be levied or collected except by authority of law”, the circulars of Board, ratio of jurisdictional High Court, Tribunal in the process of tax recovery, and change their mind set by adopting the culture of tax payer friendly tax service, by following the due process of law. It is also duty of the tax consultants to advice the assesses to pay the taxes which is rightfully due to the Government. Where the chances of success are in doubt the assessee may be requested to pay the tax, this will help the assessee to reduce the burden of interest. In case the assessee loses the matter the interest and taxes may sometimes be more than the assessed income and the payment of interest to Government is not an allowable deduction. As a good tax management advisor the assessee must be advised to the pay the tax which is rightfully due to Government at the earliest.