Understanding stay application under Income tax with latest case laws:

 

Any tax, interest, penalty, fine or any other sum payable by virtue of an order passed under the Income Tax Act as specified in the Notice of Demand issued u/s 156 of the Act has to be paid within 30 days of the service of the notice. As per sec. 220(4) of the Act, on failure to pay the dues within time, the assessee is deemed to be “an assessee in default”. The assessee in default is not only liable to pay interest as per sec. 220(2) but may also be subjected to penalty u/s 221(1) to the extent of the amount of tax in arrears.  However, discretion has been provided to the assessing officer by sec. 220(6) for not treating the assessee in default provided an appeal has been preferred before the CIT(A). But before exercising such discretion in favour of the assessee he is empowered to impose such conditions as he may think fit to impose in the circumstances of the case.  In this respect it is important to understand the process of stay application under income tax which is given below.

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: The assessment history of the assessee, His conduct and co-operation with the department, Points raised in the appeal, The chances of recovery in case the appeal is dismissed and The hardship that would be caused to the assessee by persistent demand of the tax by the department.   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.         Filing of claims If any part of the property of an applicant is illegally or unjustifiably attached, an objection under rule 11(1) of the second Schedule to the Act may be filed by him before the Tax Recovery Officer who has got the jurisdiction to adjudicate upon it. Rule 58(a) of the Order XXI of C.P.C. provides that the claim should be preferred before the property so attached is sold. Where a claim or objection is made under rule 11 against attachment of a property in execution of a recovery certificate, it is the bounden duty of the Tax Recovery Officer to first dispose of the objection and then to proceed further. Investigation of a claim properly filed is essential. Even if the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it, pending such investigation. Where a claim or an objection preferred under rule 11(1) of the Second Schedule is rejected or dismissed, the party against whom an order rejecting or dismissing the claim or objection is made may institute a suit, under rule 11(6), in a Civil Court to establish the right which he claims to the property.   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. 1. 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. 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. 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: Summary of facts regarding the demand of the tax, interest, penalty, fine, Estate Duty or any other sum, the recovery of which is sought to be stayed; The result of the appeal filed before the Commissioner (Appeals) or the Deputy Commissioner (Appeals), if any; The exact amount of the tax, interest, penalty, fine, Estate Duty or any other sum demanded, as the case may be, and the amount undisputed therefrom and the amount outstanding; The date of filing of the appeal before the Tribunal and its number, if known; Whether any application for stay was made to the revenue authorities concerned and if so, the result thereof (copies of correspondence, if any, with the Revenue authorities to be attached); Reasons in brief for seeking the stay; Whether the applicant is prepared to offer any security in respect of the demand of tax in dispute and if so, in what form; Prayer to be mentioned clearly and concisely (stating exact amount sought to be stayed); The contents of the application shall be supported by an affidavit sworn by the applicant or his duly authorised agent; (Specimen application is enclosed) A specimen Stay Petition CITC Ltd. vs. Deputy Commissioner of Income Tax Index Page Nos. Stay application with Annexure giving detailed reasons for seeking stay Exhibits : Copy of stay application filed before Assessing Officer. Copy of letter rejecting the stay application passed by Assessing Officer Copy of stay application filed before Commissioner Copy of letter rejecting the stay application passed by Commissioner. Copy of the acknowledgment of appeal filed before the Tribunal. Affidavit in support Appendix - X (Specimen Form of Stay Application) IN THE INCOME TAX APPELLATE TRIBUNAL ——————— BENCH STAY APPLICATION No. ————— of ———— IN THE CASE OF ———————— FOR THE ASSESSMENT YEAR(S) ————— UNDER THE ———— ACT, ———— FOR STAY OF RECOVERY OF TAX/INTEREST/ PENALTY/FINE/OTHER ITEMS 1 Name and address of the applicant :   2 Act under which the demand is raised (i.e. Income-tax etc. for which stay application is moved) :   3 Assessment year(s) involved :   4 Date of filing of appeal before the Tribunal and its number, if known :   5 From the demand give break up :       Tax :       Interest :       Penalty :       Fine :       Others :   6 (a) Amount already paid :     (b) Amount outstanding :     (c) Amount which is not disputed out of (b) :   7 (a) Details of application for stay made to the revenue authorities. :     1. A.O. 2. C.I.T. :     (b) Result :   8 * Reasons for seeking stay :  Annexure 'A'   (a) Whether the applicant is prepared to offer security :     (b) If yes, in what form :   9 Prayer stating exact amount soughtto be stayed :   10 If stay is sought in relation to a matter pending in reference before the High Court give full particulars of R.A. No. and date etc. :             Date : Signature of applicant * Separate sheet may be used if space is not sufficient Note: The application shall be made in triplicate and shall be neatly typed on one side of the paper with copies of all the relevant document including demand notice, copies of correspondence with the Revenue Authorities for stay of demand and copies of the letter refusing stay of demand. The content of the application shall be supported by affidavit duly sworn in by the applicant or his authorised agent. The application shall be presented by the applicant in person or by his authorised agent or sent by registered post to the Bench of the Tribunal where appeal was filed or which has got jurisdiction to hear the appeal. Annexure 'A' Before the Income Tax Appellate Tribunal Bombay Stay Application No.—————— of 1999 CITC Ltd. Bombay - 400 058 .... Petitioner Versus Deputy Commissioner of Income tax, Asst. Range, IV (A), Bombay .... Respondent  The humble application of the petitioner above named most respectfully herewith: The Petitioner is a company engaged in the business of house building activities for CIDCO, PWD etc. The relevant Assessment Year is 1996-97 (previous year ending on 31-3-1996). The Petitioner Company filed the return of income on 29-7-96 showing income of Rs.2,00,000/-. The Petitioner had maintained regular books of account and shown the profit as per the books of account maintained by them. The Petitioner further states that for earlier years also, the books of account maintained by the Petitioner has been accepted by the Assessing Officer. The Deputy Commissioner of Income-tax, Asst. Range rejected the book results of the Petitioner and estimated the income of the Petitioner at 10% of the gross receipts and assessed the income of the Petitioner at Rs.10,00,000/- (Hereto marked Exhibit 'A' is the copy of the order passed by the Deputy Commissioner of Income-tax.)   Being aggrieved by the order of the Deputy Commissioner of Income-tax, the Petitioner filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), reduced the income estimated by the Deputy Commissioner of Income-tax to 5% of the gross receipts and confirmed the balance addition made by the Deputy Commissioner of Income-tax, though in the earlier years net profit shown by the Petitioner at 3% was accepted by the Income-tax authorities. [Hereto marked Exhibit 'B' is the copy of the order passed by the CIT (A)].   Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Petitioner filed an appeal before the Tribunal on 1-4-1999 and the same is pending.   The Petitioner submits that the estimate of income confirmed by the Commissioner of Income-tax (Appeals) was not correct. In the past also the book results of the Petitioner was accepted by the Income-tax authorities.   The Petitioner states that though the appeal is pending before the Tribunal, the Deputy Commissioner of Income-tax started the recovery proceedings against the Petitioner. The Petitioner vide their letter dated 1-4-99 requested the Assessing Officer to keep the demand in abeyance till the decision of the Hon'ble Tribunal. However, the Assessing Officer vide his letter dated 15-4-99 rejected the petition of the Petitioner and refused to keep the demand in abeyance, till the decision of the Hon'ble Tribunal.   Thereafter, the Petitioners vide their letter dated 16-4-99 requested the Commissioner of Income-tax to keep the demand of tax in abeyance till the decision of the Hon'ble Tribunal. However, the Hon'ble Commissioner vide his letter dated 20-4-99 rejected the application of the Petitioner to keep the demand in abeyance till the decision of the Hon'ble Tribunal. Hereto marked Exhibits 'C' 'D' 'E' and 'F' are the correspondence with the tax authorities.   The Petitioner further states that they are not having bank balance or liquidity to make the payment of tax in dispute and if the department proceeds further to recover the tax in dispute, great hardship will be caused to the Petitioner and the business of the Petitioner may be ruined. The Petitioner is also enclosing herewith the latest balance sheet of the company and the bank statement to show that, the financial status and the bank balance as of date (Hereto marked exhibit 'G' is the copy of Balance Sheet and exhibit 'H' is the copy of bank statement).   The petitioner further states that they are prepared to offer the assets of the Company as security for satisfaction of the department.   The Petitioner, therefore, prays: That the Recovery Proceedings initiated against the Petitioner may be stayed till the disposal of appeal by the Hon'ble Tribunal. The Deputy Commissioner of Income-tax, or the Commissioner of Income-tax or their subordinates or their successors may be restrained from taking any action as regards recovery of tax, interest and penalty levied or leviable for the relevant assessment year. The hearing of the Appeal may be expedited. Any other relief which the Hon'ble members may deem fit and proper in the nature and circumstances of the case may be granted. I, the Director of CITC Ltd., state that whatever is stated hereinabove in the Stay Petition is true to the best of my knowledge and information. Dated this 27th day of April, 2015 at Bombay  For CIT Ltd. Director Affidavit I, S. S. K., Director of CITC Ltd., having office at Andheri (West) Bombay - 400 058, do hereby on solomn affirmation state as under: That we have filed the return of income of the Company showing income of Rs.2,00,000. That the Deputy Commissioner of Income-tax assessed the income of the company at Rs.10,00,000. That in appeal, the Commissioner of Income-tax (Appeals) partly reduced the additions made by the Deputy Commissioner of Income-tax. That being aggrieved by the order of the Commissioner of Income Tax (Appeals), we have filed an appeal to the Tribunal and the same is pending. That we are sure that we have a fair chance of succeeding in appeal before the Tribunal. That we have no liquidity or bank balance to make the payment of tax in dispute. I say that whatever is stated hereinabove and in the Stay Petition of even date is true to the best of my knowledge and believe the same to be true. Solemnly affirmed at Bombay on the 27th day of April, 2015. Identified by me Advocate  Director  Before Me.

 

Now let us understand the stay application with latest case laws.

 

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)]  

Supreme Court is Aeltemesh Rein vs. Union of India, AIR 1988 SC 1768 has stated that every discretionary power vested even in the executive should be exercised in a just, reasonable and fair way.  

 

Protective recovery of tax is not permissible even though protective assessment can be validly made. [Sunil Kumar vs. CIT, 139 ITR 880 (Bom.)]

Where an assessee dies before the issue of the certificate, unless his legal representatives are served with a notice of demand under section 156 and they fail to comply with that notice within 30 days from the date of receipt of the notice, they cannot be said to be "assessee in default" and consequently no recovery proceedings can be taken against them. [Satya Pal Verma vs. ITO, 106 ITR 540 (All) : Bai Chandanben Jivanlal vs. I. D. Joshi, Collector, 74 ITR 448, (Guj)]  

A recovery certificate issued or drawn up by Tax Recovery Officer against a person who is already dead, is a nullity. The certificate must be against a defaulter who is alive. [Isha Beevi vs. TRO, 80 ITR 82, (Ker) on appeal 101 ITR 449, (SC)]. If an assessee in default dies before the issue of a certificate in his name, proceedings under Section 159 of the Act are necessary to bring on record the name or names of the legal representative or representatives 

In Sawai Singhai vs. Union of India (AIR) 1966 SC 1968), the Supreme Court observed that the suit brought under Order 21, rule 63 (corresponding to rule 11 (6) of the Second Schedule), concerns not only with the question of possession but also with the question of title 

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 

Further, there was an Instruction no. 96 dated 21.8.1969 which was beneficial to the assessees inasmuch as it stated that where the income determined on assessment was  substantially higher that the returned income say, twice the latter amount or more, the collection of tax in dispute should be held in abeyance upto the stage of first appeal. The aforesaid Instruction was relied upon to grant relief to the assessee in Vakram bhai Punjabhai Palkhiwala vs. S.M. Ajbanj (1990) 182 ITR 413 (Guj.) and recently also in Maharana Shri Bhagwat Singhji of Mewar vs. ITAT (1997) 223 ITR 192 (Raj.) However , the Calcutta High Court in Dunlop India Ltd. vs. ACIT (1990) 183 ITR 528 (Cal.) refused to take cognizance of the aforementioned Instruction because the counsel for the Revenue placed before the court a fresh Instruction, being no. 1362, which was issued in supersession of all the earlier instructions on the issue. The single Bench of the Calcutta High Court in the aforementioned case rejected the writ petition of the assesse for staying the Demand. 

 

Some important highlights of the aforesaid Instruction No. 1362 is available in the judgement of the Division Bench, passed on an appeal filed by the assessee against the  Single Bench  Judgement (supra), as reported in Dunlop India Ltd. vs. ACIT (1990) 183 ITR 532 (Cal.). The said Instruction states that in granting the stay, the Assessing officer may impose conditions like offer of security to safeguard the interests of the Revenue, payment towards the disputed taxes a reasonable amount in lumpsum or in instalments and requiring an undertaking from the assessee that he will cooperate in early disposal of the appeal failing which the stay order will be cancelled. Further, it gave direction to the A.O. to look into, interalia, the following aspects in exercising the discretion-

(a) Whether the points in dispute relate to facts.

(b) Whether they arise from different interpretations of law.

(c) Whether the additions have been made as a result of detailed investigation.

(d) Whether the disputed addition to income has been assessed elsewhere by way of protective assessment and the tax thereon has been paid by such person. But the Instruction No. 1362 specifically provides that the magnitude of the additions to the income returned cannot be the sole determinant in this regard.(in contrast to Instruction No. 96 (supra)). Each disputed addition will need to be considered to arrive at  the quantum of tax that may need to be stayed. However, it states that the discretion exercised should be the discretion of a reasonable man.

Recently, CBDT has issued Instruction No. 1914 on the above subject and it is stated therein that this Instruction is issued in supersession of all earlier Instructions but it reiterates the existing circulars on the subject.

 

However, in India Foils Ltd. vs. IAC (1990) 186 ITR 429 (Cal.) the Calcutta High Court dismissed the writ petition because application for stay of tax was rejected by the A.O. by giving proper reasons and there was no perversity in the order. It may, however be noted that High Court, as a rule, in proceedings under Article 226, does not grant any stay of recovery of tax except under very exceptional circumstances.  

 

 

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.  

 

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 Para 2 of the CBDT instruction No. 96, dated 21st Aug., 1969 would show that where the income determined is substantially higher than the returned income, that is, 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 (judgment pronounced on 22.2.2009) 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.

 

.

 

Authority not to initiate recovery proceedings till expiry of period of limitation for filing appeal against assessment order. Authority directed not to take any coercive steps for recovery against assessee till time  for filing appeal exhausted. Refer, Dishnet Wireless Ltd .v. ACIT, 361 ITR 449.

 

Collection and recovery-Modes of recovery-Public Provident Fund Account-Amount  remaining in account would be immune from attachment for recovery of tax due.[Public Provident Fund Act,1968,S.9,10,Code of Civil Procedure Code,1908. Refer, DineschandraBhailalbhai Gandhi .v. TRO, 362 ITR 380.

 

Coercive action should not be taken till decision of CIT(A) on assessee's stay application.[S.251] Refer, Sanjay Kumar Sahu .v. ITO, 222 Taxman 140.

 

Stay rejected without speaking order is bad in law. Refer, Madhya Pradesh Paschim Kshetra Vidyut Vitaram Company Ltd. .v. DCIT, 99 DTR 7.

 

Power of stay to be exercised  by the AO, when assessee preferred an appeal. Refer, Kanchanbag .v. UOI, 99 DTR 10 (MP)(HC). 

 

After rejecting stay application AO  must give reasonable time before taking steps for coercive recovery. Refer, Sony India Pvt. Ltd. .v. ACIT, 266 CTR 225. 

 

ITAT Mumbai in the case of KEC International Limited held that The assessee filed a stay application before the Tribunal. The department opposed the stay by relying on  the Supreme Court in ACCE vs. Dunlop India (1985) 154 ITR 172 (SC), and contended that as paucity of  funds had not been sufficiently demonstrated, for this reason alone stay should not be granted. The  Tribunal rejected the contention of Departmental representative following B. N. Co. vs. Jt. CIT (2001) 71  TTJ 153 (Kol.) and further held that Supreme Court’s observation in Dunlop cannot be interpreted to mean that the Tribunal is denuded of the powers to grant stay until case for financial stringency is  successfully made out by the applicant. Accordingly stay was granted till the disposal of appeal.

 

Kerala High court in the case of Hotel Leela ventures decided that The assessee filed appeals before the Commissioner of Income-tax (Appeals) against the assessment  orders for Asst. Years 2004-05 to 2008-09. Though the appeals were ripe for hearing and the appellate  authority had already posted for hearing on different dates, the Assessing Officer without considering the  pendency of the appeals issued demand notice and took steps for attachment of the assessee’s bank  account. The assessee filed a Writ petition to challenge the recovery action which was opposed by the department on the ground that the assessee had repeatedly sought adjournment of the hearing of appeals,  the Court allowed the petition and directed to dispose the appeals at the earliest possible after affording an  opportunity of hearing to the assessee, at any date within a period of one month from the date of receipt of a copy of the Court’s judgment and till such time orders are passed by the appellate authority, recovery  steps shall be kept in abeyance. If there is no co-operation by assessee the appellate authority is at liberty  to finalise the appeals without according any further opportunity of hearing.

 

As the Commissioner has not passed a reasoned order the order passed by the Commissioner was set a  side and Court directed to pass a speaking order. Refer, Dagny De Souza (Smt.) vs. ITO, 198 Taxman 205 (Bom.)(High Court).

The assessee was a partner of a firm and karta of a HUF. The High Court held that just because the assessee is karta of HUF, the family properties could not be subject matter of recovery proceedings in  respect of tax due from firm. Refer, ITO vs. Tippala China Appa Rao, 331 ITR 248 (AP)(High Court). 

 

Assessee was searched and articles were seized. Articles were released on bank guarantee on basis   of fixed deposits receipts of third parties. Department issued garnishee proceedings against bank  and attached the fixed deposits under section 226(3).Department passed the provisional  attachment under section 281B.Department invoking the bank guarantee en cashed the fixed  deposit. Assessee challenged the order by way of Writ, the Court held that the encashment of the  fixed deposit was unjustified. The Court held that the fixed deposits not belonging to assessee hence  attachment of fixed deposit receipts were not valid.  Refer, Gopal Das Khandewal and others v. UOI, 340 ITR 235. 

 

Stay of realization cannot be granted simply because an appeal has been preferred. Refer Gouri Shankar Awasthi v. ITO 78 ITR 784 (Cal.)

 

 

 

 

 

Circulars

 

Exercise of discretion under Section 220(6) of I.T. Act—Demands disputed under first appeal pending before A.A.Cs./CsI.T. (Appeals)—Clarification regarding

[Instruction No. 1362 dt. 15-10-80, F. No. 404/48/80 ITCC/CBDT Bulletin Vol. XXVI, Page 180.]

The instructions contained herein supersede all previous instructions on this subject.

2. Under section 220(6) of the Income-tax Act, the Income-tax Officer may, in his discretion, subject to such conditions as he may think fit to impose, treat the assessee as not being in default in respect of the amount in dispute in the appeal as long as such appeal remains undisposed of, even though the time for payment has expired.

3. It should be noted that section 220(6) does not refer to "stay of demand; it only empowers an Income-tax Officer to treat an assessee as not being in default. Though in the succeeding paragraphs of this instruction, the word "stay" has been used for the sake of brevity, whenever an Income-tax Officer passes an order under the provisions of section 220(6) [or under section 220(3) or section 220(7)] he should invariably use in such order only the expression which is found in the section viz. that he agrees to treat the assessee as not being in default in respect of the amount specified, subject to such conditions as he may deem fit to impose. He should not repeat not use the expression "stay" in any order that will be communicated by him to the assessee.

4. In exercising this discretion, the Income-tax Officer should take into account factors such as: whether the points in dispute relate to facts; whether they arise from different interpretations of law; whether the additions have been made as a result of detailed investigation; whether the additions are based on materials gathered through enquiry/survey/search and seizure operations; whether the disputed addition to income has been assessed elsewhere by way of protective assessment and the tax thereon has been paid by such person etc. The magnitude of addition to income returned cannot be the sole determinant in this regard. Each disputed addition will need to be considered to arrive at the quantum of tax that may need to be stayed.

5. However, in exercising this discretion, the ITO should decide in favour of the assessee’s application for stay in the following situations :—

  (i)  the points, in dispute have been decided in favour of the assessee in an earner order by the Appellate Assistant Commissioner/Commissioner of income-tax (Appeals) or the Income-tax Appellate Tribunal or the High Court; and

 (ii)  the disputed point arises because the ITO had adopted an interpretation of law in respect of which, there exist conflicting decisions of one or more High Courts or, the High Court jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment.

6. It needs to be pointed out that even in the situations indicated in para 6 above, what should be stayed is only the demand attributable to such disputed points.

7. When a request for stay has been considered by the income-tax Officer, his decision should always be recorded m writing and communicated to the assessee.

8. As stated in paragraph 3 above, in granting stay the income-tax Officer, may impose such conditions as he may think fit. Thus, the income-tax Officer may :

  (i)  require the assessee to offer suitable security to safeguard the interests of revenue;

 (ii)  require, during the pendency of the appeal, the assessee to pay towards the disputed taxes, a reasonable amount in lump sum or in instalments.

(iii)  require an undertaking from the assessee that he will cooperate in the early disposal of the appeal failing which the stay order will be cancelled.

(iv)  reserve a right to review the order passed by him after the expiry of a reasonable period, say upto six months, even if the appeal remains undisposed to until then, to ascertain if the assessee has fulfilled the undertaking at (iii) above as well as to consider any other development such as a pronouncement of a higher court on the points indicated in para 6 above. White the Income-tax Officer will exercise his discretion in this matter after taking note of the specific situation obtaining in each case and pass appropriate orders, conditions (iii) and (iv) should invariably be imposed.

9. In exercising discretion under this sub-section, what the Income-tax Officer has to consider is the nature of the dispute which has generated the additional demand and not the financial capacity of the assessee to pay. Thus, for example, if the disputed demand is of the nature indicated in para 6 above, in fact that the assessee is in a position to pay the disputed demand will not-prevent favourable consideration of his stay application.

10. Where additions to returned income have been made after directions of the Inspecting Assistant Commissioner under section 144A/144B, orders on application for stay will be passed by the Income-tax Officer after seeking approval of the Inspecting Assistant Commissioner.

11. Even where recovery of demand has been thus stayed, the Income-tax Officer will continue to review the situation to ensure that the conditions imposed are being fulfilled by the assessee, fairing which the stay order would need to be withdrawn.

12. The instructions contained in Instruction No. 1287 of 12th November, 1979 viz. that the Income-tax Officer has the right to adjust any refund that may fall due to the assessee in respect of any other year even against demand which has been stayed are reiterated.

13. Where the demand thus stayed by the Income-tax Officer is Rs. 25,000 or more the Income-tax Officer will intimate the relevant particulars i.e. The details of pending appeals, the quantum of demand stayed and the condition imposed of the Inspecting Assistant Commissioner of Income-tax who will request the appellate authorities for early disposal of such appeals in accordance with existing instructions on the subject.

14. These instructions apply mutatis mutandis to demands created under other Direct Taxes enactments.

15. The Income-tax Officers working in your charge may please be instructed to deal with applications under section 220(6) in accordance with these instructions. The subsisting orders passed by them under section 220(6) may also be got reviewed, in the light of these instructions after giving the assessee an opportunity of being heard.

[Instruction No. 1362 dt. 15-10-80, F. No. 404/48/80 ITCC/CBDT Bulletin Vol. XXVI, Page 180.]

 

 

There are also various Instructions and Circulars issued by CBDT which must be considered by these tax  authorities before passing/adjudicating any stay application:

1. Instruction No. 96 dated 21.08.1969;

2. Instruction No. 1914 dt. 27-8-1997;

3. Circular 530 dt. 6-3-1989;

4. Circular 589 dt. 16-1-1991

Instruction No. 96 dated August 21, 1969

It takes care of stay in cases of harsh assessment “One of the points that came up for consideration at the 8th meeting of the informal consultative committee was that income-tax assessments were arbitrarily pitched at high figures and that the collection of disputed demands, as a result of these, was also not stayed in spite of the specific provision in the matter in section 220(6) of the IT Act, 1961.

The then deputy Prime Minister (who was also the finance minister at the relevant time) had observed as

under: -

“(w)here the income determined on assessment was substantially higher than the returned income, say twice the later amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeals, provided there were no lapses on the part of the assessee. The board desires that the above observations may be brought to the notice of all the ITOs, 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 IAC/CIT.”

Instruction No. 1914 dt. 27-8-1997

It may be mentioned in this context that Instruction No. 1914 is not an instruction which has been publically issued as full text of it is not available in any published literature. Obviously, such an unpublished instruction for departmental use cannot take precedence over public instruction No. 96 (supra) and cannot supersede it.

“Para No. 2(A) of this instruction speaks of responsibility specifically indicates that it shall be the responsibility of the AO 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-cl. (iii) of Para B clearly indicates that a higher/superior authority could interfere with the decision of the AO/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 unreasonably

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 could amount to being substantially higher or high pitched.

These observations show that despite instruction No. 1914 saying that it is being issued in supersession of all previous instructions, Instruction No. 96 is still valid in the matter of grant of stay of disputed demands. That Instruction No. 96 has not been superseded by Instruction No. 1914 has again been reiterated by the Delhi High Court in the case of Taneja Developers (Supra). The CBDT has not come out with any declaration that FM‟s approval has been taken by it for superseding this Instruction No. 96. Without saying so, it is wrong to say that this Instruction gets superseded merely

by saying in Instruction No. 1914 that it is issued in supersession of all previous Circulars/Instructions. Thus the AOs in rejecting the requests for stay of demand are unjustifiably refusing to follow Instruction No. 96 which cannot be said to have been superseded by Instruction No. 1914 (supra). After the issue of the Instruction No 96 (supra), the CBDT has issued two more Circulars on the subject of stay of demands namely Circular No 530 dated March 6, 1989, and Circular No 589 dated. January 16, 1991. The stipulations of these circulars are: -

Circular No 530

This Circular provides that the AO may exercise his discretion u/s 220(6) and treat the assessee as not being in default in regard to demand payable in the following circumstances: - (a) The demand in dispute has arisen because the AO has adopted an interpretation of law on which there are conflicting decisions from the High Courts or the jurisdictional High Court has adopted an interpretation, which has not been accepted by the I-T department.

(b) The demand in dispute relates to issues that have been decided in favour of the assessee in the past.

(c) In respect of cases, which are not covered by (a) and (b), the AO has been advised to take into account all the relevant factors and communicate his decision to the assessee by a speaking order. It was said in this circular that while exercising    discretion under this provision, the financial capacity of the assessee to pay the demand would not be relevant. But applications are being rejected on the basis that the financial condition of the assessees is sound!

Circular No.589

This circular clarifies some aspect mentioned in Circular No 530 and the contents of this circular are not relevant in the context of the issue, being considered.

Summarization on circulars

The foregoing discussion concerning stay of demands clearly shows that the two circulars are only in addition to Instruction No 96 and not in supercession 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 assessees, 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 assessees 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.