Source: http://itatonline.org/articles_new/stay-of-demand-under-the-income-tax-act/
Timestamp: 2019-04-21 18:47:20+00:00

Document:
It is well known that the Income-tax department is very aggressive these days in making additions in the assessments and also for collection of demand raised pursuant to the assessment orders. Inspite of the fact that courts have repeatedly observed that Assessing Officers are duty bound to consider the merits of the cases and also the financial hardships of the assesses, the Assessing Officers invariably do not consider the merits.
In response to application filed for stay of demand in terms of section 220(6) of the Act, reply of the Assessing Officers is either to the effect application is rejected or directing the assesses to make payment of 20% of the demand in terms of circular of CBDT dated 31.07.2017. In case the assesses do not comply with the direction of the Assessing Officers straightaway coercive measures are taken to recover the demand such as attachment of bank accounts of the assesses.
In case of company assesses not only coercive measures are being taken against the company but provisions of section 179(1) of the Act are also being invoked and even the bank accounts and other assets of the directors are being attached notwithstanding that aforesaid section specifically require that action can be taken against the director only if recovery cannot be made from the company and there is gross negligence, misfeasance or breach of duty of the director.
The cases have also come to knowledge that prosecution notices u/s 276C(2) of the Act are being issued and even authorization is being granted by the Commissioner or Pr. Commissioner for prosecution alleging that assessee is willfully attempting to evade payment of tax. In conclusion, it is stated that very harsh, unreasonable and illegal actions are being taken by the department in case of assesses for recovery of demand even when appeal is pending before CIT(A).
Though, as per the decision of Hon’ble Supreme Court in the case of ITO v. MK Mohammad Kunhi (1969) 71 ITR 815 (SC) and also number of other judgements of the High Courts, CIT(A) is empowered to stay the demand during the pendency of appeal before him, CIT(A)s are not exercising their powers to stay the demand. They, in fact, threaten the assesses that in case application for stay is filed appeal will be dismissed.
Decisions of CIT(A)s in appeals of the assesses are also not being passed, by and large, in a judicious manner in view of Instructions of CBDT providing incentive by way of extra units for passing quality orders, which means enhancing the addition, strengthening the orders of the Assessing Officers or levy of penalty. Orders of CIT(A)s are also being monitored by Chief Commissioner. Therefore, CIT(A)s are reluctant in deciding the appeals in favour of the assesses even if there is a good case of the assessee.
Accordingly, the assesses are facing serious difficulties in getting justice from the First Appellate Authority and also in regard to stay of demand. In fact, in many high demand cases CIT(A)s are reluctant in passing the orders expeditiously and they facilitate the department to recover substantial part of the demand during pendency of the appeal either by payments by the assesses or by adjustment of refunds. The aforesaid situation is basically for the reason that high targets are being fixed by the Government for collection of tax and every officer of the department is under pressure of collection.
After the appeal has been decided by CIT(A), the department becomes more aggressive and immediately insist for full payment of demand, without even waiting for the period available to the assesses for filing the appeal before ITAT. When appeal is filed before ITAT and request is made for stay of demand before the Hon’ble Bench of ITAT, department strongly resist for the stay. In most of the cases Benches of the Tribunal also adopt an approach of directing for part payment of the demand and accordingly, the assesses have to make at least a part payment of the demand notwithstanding a good case on merits and the addition made by the Assessing Officer might be finally deleted.
In this process, apart from the fact that assesses suffer financial burden they also suffer interest loss since the assesses are entitled to interest only @ 6% on the refund allowed by the department as against rate of interest of 12% charged by the department on the outstanding demand. An effort is being made herein to discuss circulars / instructions of CBDT in regard to stay of demand and also the judicial pronouncements in regard to the subject.
Discussion in regard to Instructions of CBDT on the subject of stay of demand can be started with the Instruction No. 96 dated 21.08.1969 which has been repeatedly referred to in the judgments by the courts. The aforesaid instruction was issued by CBDT on the basis of assurance given by the then Deputy Prime Minister in 8th meeting of the Informal Consultative Committee that in the cases where income on assessment determined was substantially higher than the returned income, say, twice the returned income or more, the collection of the tax in dispute should be kept in abeyance till the decision on the appeals, provided there was no lapse on the part of the assesses.
The intention of the Dy. Prime Minister was very clear that in a case where high pitched assessment has been made the demand should be kept in abeyance till the decision on the appeal. Subsequent to above Instruction the department felt that the aforesaid Instruction was not in the interest of the department from the point of view of collection of demand and, therefore, vide subsequent Circulars / Instructions CBDT issued clarifications in such a manner that full stay is not granted to assesses.
Later on vide Instruction No. 1914 dated 02.12.1993, CBDT superseded the Instruction dated 21.08.1969 in the name of streamlining recovery procedure. The aforesaid Instructions, in fact, started with the words that “The Board is of the view that, as a matter of principle, every demand should be recovered as soon as it becomes due.” For granting stay very limited situations were provided such as issue has been decided in assessee’s favour by an Appellate Authority earlier or the Assessing Officer has adopted an interpretation of law in respect of which conflicting decisions of High Courts are there.
It was further provided that even in such cases the Assessing Officer will impose the conditions such as giving a suitable security by the assessee, making reasonable part payment and also adjustment of refunds due to the assessee.
Accordingly, CBDT vide aforesaid Instructions had given a go by to earlier instructions dated 21.08.1969 and has in fact provided for recovery of demand either fully or partly in all the cases. Again vide clarification dated 01.12.2009 CBDT reiterated that Instruction No. 96 dated 21.8.1969 were superseded vide Instruction No. 1914 dated 02.12.1993.
It was also stated therein that decision of the Board had been approved by the Finance Minister. In the aforesaid clarification reference was also made to numbers of instructions / clarifications issued from time to time between 1969 to 1980 and the Instructions dated 02.12.1993. It was also stated therein that “the magnitude of addition to income returned cannot be the sole determinative in this regard”. Accordingly, the department has been insisting for part payment of demand in all the cases irrespective of the quantum and the merits of the case.
Assesses have been representing to the Government that attitude of the department has been unjustified and unreasonable in regard to the matter. After the present Government had come into power, in order to provide relief to the assesses during pendency of appeal before CIT(A), Instructions dated 29.02.2016 were issued wherein it was provided as a general rule that in the cases where outstanding demand is disputed before CIT(A), the Assessing Officer shall grant stay of demand till disposal of first appeal on payment of 15% of disputed demand.
The Assessing Officer was also given a discretion to direct for payment of higher or lower amount in deserving cases with the approval of Pr. Commissioner / Commissioner. It was also provided in the circular that in case the assessee is not satisfied with the decision of the Assessing Officer for making payment of 15% of the disputed demand, he can approach the Pr. Commissioner / Commissioner for review of the decision.
These Instructions were, however, revised after a short period vide Instructions dated 31.07.2017. It was stated that rate of 15% was found to be on the lower side. Same was modified to 20%. The aforesaid Instructions dated 31.07.2017 are in force at present. In the light of aforesaid Instructions the Assessing Officers are insisting on payment of 20% of the demand in all the cases irrespective of the merits of the case or quantum of the demand. In case assessee is not able to comply with the direction of making payment of 20%, coercive measures are being taken as stated hereinabove.
“In this regard, it is intimated that your application dated 04.05.2018 & your submission dated 26.10.2018 has been considered. Your request for keeping the demand in abeyance only till disposal of appeal by Ld.CIT(A), New Delhi cannot be accepted as you have failed to make payment of 20% of the disputed demand in accordance with CBDT OM dated 31.07.2017.
“7.The impugned order clearly makes no reference to the central issue in the pending appeal or the grievance of the Petitioner regarding the order passed by the AO. The impugned order in short is without reasons and is therefore unsustainable in law.
8. For the above reasons, the impugned order is set aside and a direction is issued that the Petitioner’s application will once again be heard by the PCIT on merits and without reference to the OM dated 31st July, 2017, which, on the face of it, appears to curtail his discretion. The PCIT will dispose of the application with a reasoned order not later than two weeks from the date of receipt of this order.
Hon’ble Karnataka High Court had also considered the issue in the case of Flipkart India Pvt. Ltd. v. ACIT & Ors, Writ Petition Nos. 1339-1342/2017 (T-IT) Judgement dated 23.02.2017. In the facts of above case also huge demands were raised by the Assessing Officer and he had directed the assessee to make payment of 15% of disputed demand. The assessee approached the Pr. Commissioner. He also confirmed the order of Asst. Commissioner and directed the assessee to deposit 15% of total disputed demand. Against the orders of ACIT as well as of Pr. CIT, writ petitions were filed before the Hon’ble High Court. Years involved in the writ petitions were A.Yrs. 2014-15, 2015-16.
On the same issue appeals for A.Yrs. 2012-13 and 2013-14 were also pending before CIT(A). The contention of the assessee company was that it was suffering losses from A.Y. 2011-12 when it had commenced business in India and, therefore, it is not in a position to make payment of huge demands raised against it. The Hon’ble High Court after referring to the Instructions of CBDT including Circular dated 29.02.2016 wherein directions have been given to the Assessing Officers to keep the demand in abeyance on making payment of 15% of demand and it was held that above Instructions also provide a discretion to the Assessing Officer and to the Pr. CIT to reduce the amount of payment in the genuine cases.
The Hon’ble High Court also referred to earlier Instructions No. 1914 dated 02.12.1993 in accordance with which the Assessing Officer and the Pr. CIT should have considered the merits of the case. Subsequent Circular dated 29.02.2016 does not override the earlier Instructions. The Hon’ble Court accordingly held that Pr. CIT had failed to consider the issue whether assessment orders suffer from being “unreasonable high pitched” or whether “any genuine hardship would be caused to the assessee” in case the assessee was required to deposit 15% of the disputed demand.
“20. Mr. K. G. Raghavan, the learned Senior Counsel for the petitioner, has also pleaded before this Court that another anxiety and the pain of the petitioner is that, despite the fact that appeals have been filed against the Assessment Order dealing with Assessment Year 2012-13, and 2013-14, they are still pending before respondent No.3; the respondent No.3 is yet to decide the appeals. The learned Senior Counsel submits that the issues in the said appeals are similar to the issues that have been raised by the petitioner in the present appeals, vis-à-vis, Assessment Year 2014-15, and 2015-16. Since the legal issues are the same, since the appeals of the subsequent assessment years can easily be decided if the appeals of the previous assessment years were to be decided, the learned Senior Counsel seeks directions from this Court to respondent No.3 to decide the appeals of the Assessment Year 2012-13, and 2013-14, within a limited time frame.
21. To this request made by the learned Senior Counsel, the learned counsel for the Revenue submits that respondent No.3 is over-burdened with large number of appeals to be decided. Therefore, a limited time frame should not be imposed upon the respondent No.3 by this Court. Therefore, the learned counsel opposes the prayer made by the learned Senior Counsel.
In regard to proceedings before ITAT in stay matters reference can be made to the recent decision of Madras High Court in the case of J. Dinakaran v. The Registrar, ITAT and Ors., W.P. No. 1392 of 2019 judgement dated 21.01.2019. In the facts of above case, search was conducted. Assessee filed returns for relevant assessment years and also paid tax of Rs.10.13 crores. The Assessing Officer determined total tax liability of Rs.57.50 crores and after adjustment of payment made by the assessee raised further demand of Rs.47.57 crores.
“9. On a reading of the common impugned order, one can understand that the Tribunal directed the assessee to pay the entire outstanding in installments of ₹ 50 lakhs in every English calendar month. In our considered view, while granting an interim order, what is required to be seen is as to whether the assessee made out a prima facie case, as to whether the balance of convenience is in favour of the assessee and as to whether the assessee will be put to irreparable hardship if the interim order is not granted. Further, the Tribunal does not record any finding that the assessee has not made out a prima facie case. So far as the aspect of hardship is concerned, the Tribunal itself was conscious of the fact that on account of attachment of the bank account, the assessee was put to hardship. The third aspect namely balance of convenience has not been adverted to by the Tribunal.
Lastly, it may be stated that Inspite of repeated observation of the Hon’ble High Court that stay applications should be considered on merits and coercive measures should not be taken aggressively, the attitude of the department is still not reasonable. The Bombay High Court has, in fact, laid down the parameters and guidelines for adjudicating the stay applications by the department. Same are also being ignored in disregard to the Hon’ble High Court.
Reference in this regard can be made to the decision in the case of KEC International Limited v. BR. Balakrishnan & Ors. (2001) 251 ITR 158 (Bom) wherein Hon’ble Mr. Justice S.H. Kapadia laid down the parameters which are to be followed while deciding the stay application. It was stated that the authority while deciding the stay application has to at least briefly set out the case of the assessee. Further, it was stated that in case assessed income far exceeds the returned income, the authority has to consider for unconditional stay or in the alternative considering the issue involved a part of the amount should be ordered to be deposited. Further it was provided that authority should also keep in mind time for filing the appeal and coercive measures should not be taken during the period provided by the statute to go in appeal.
In case the authority is taking recourse to coercive action during this period, brief reasons should be given in the order. In the case of Coca Cola India P. Ltd. v. Addl. CIT (2006) 285 ITR 419 (Bom) the Hon’ble Court, while deprecating the conduct of the revenue in ignoring the parameters laid down in KEC International Ltd. observed that the practice of attaching bank accounts even before communicating the order passed on the stay application was high handed. The court expressed hope that the revenue shall ensure that such instances do not occur in future. Again in the judgement in the case of UTI Mutual Fund v. ITO & Ors. (2012) 345 ITR 71 (Bom) the Hon’ble Court observed that the caution which was addressed by the Division Bench in the case of Coca Cola India Pvt. Ltd. has again not been followed.
(b) Disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated.
In conclusion, it may be stated that the department under the pressure of recovery to meet the collection targets is not taking into consideration well settled principles as well as parameters and guidelines prescribed by the courts in regard to recovery of demand and assesses are suffering high handedness on the part of the department.
It is necessary and desirable that the Hon’ble Courts should take a serious view in regard to violation of guidelines laid down by the Courts and appropriate action be taken against the department as and when a case of high handedness comes up before the court. Only when Tribunal and High Courts take strict view in the matter, some relief in the form of proper adjudication of stay applications by the department can be expected by the assesses.
Sir, Very well explained the provisions along with its applicability through example . Definately going to be very useful. Thanks!
This Stay of demand article should have been brought little earlier; indeed it is helpful to all the high pinched tax payer who are running door to door for getting a relief of coercive measures taken by the revenue authorities.
Thanks Sir for providing the informative article very well drafted by quoting various judicial pronouncement and CBDT circulars.
Very clear, lucid and informative article. Thank you sir. This type of high handedness of the IT department is causing a lot of misery to a large number of assessees. It is high time the Governments understand running a Government is lot more than just fixing targets to officers.
Very clear, lucid and highly informative article. Thanks sir!

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