Under the provisions of Income Tax Act 1961, when an assessment is made and demand is raised against the assessee, the assessee usually prefers first appeal before the CIT(A) and files application for stay of the demand in dispute before the AO within thirty days from the date of receipt of the assessment order.
But under the Indirect Tax Laws, the assessee being aggrieved with the order of assessment prefers Appeal before the First Appellate Authority along with an application for stay of the demand in dispute. The latter seems to be very much reasonable. Because, the authority, who would dispose of the first appeal would certainly apply his mind while disposing of the stay application filed before him.
Since the year 1961 the Income Tax Law came in to existence, it was never thought of that the AO who had passed the order of assessment would never act in a fair manner to grant stay on the demand in dispute. It is also not expected in common paralance that the AO, who has raised demand would grant stay on the demand to the assessee. Because if the AO will grant stay of the demand in dispute, he will mean that he is challenging his own order.
Section 220(6) of the Act provides that where an assessee has presented an appeal under section 246 or section 246A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains un-disposed.
Besides that the First Appellate Authority i.e. the CIT(A) was not given with the power under the statute to hear and dispose of the stay application during the pendency of appeal. A few Hon’ble High Court(s) have taken view that the CIT(A) has inherent, implied and ancillary power to hear and dispose of the stay application although it is not expressly mentioned in the Statute. Some of citations are reproduced hereunder:-
(a) ITO v. M.K. Mohammed Kunhi (1969) 71-ITR-815(SC).
(b) V. N. Purushothaman v. Agricultural ITO (1984) 149-ITR-120 (Kerala).
(c) Prem Prakash Tripathi v. CIT (1994) 208-ITR-461 (All.).
(d) Debashis Moulik v. CIT (1998) 231-ITR-737 (Cal.).
(e) Smita Agarwal v. CIT (2010) 321-ITR-491 (All.),
(f) Jagdish N.Hinduja v. CIT (2011) 59-DTR-333 (Karn.).
(g) UTI Mutual Fund v. ITO (2012) 345-ITR-71 (Bom.),
(h) Maheswari Agro Industries v. Union of India (2012) 346-ITR-375 (Raj.),
In the above judgment [ITO v. M.K. Mohammed Kunhi (1969) 71-ITR-815 (SC)], the Hon’ble Supreme Court of India has discussed about the power of the CIT(A) to grant stay as under.:—
“In our opinion, the Appellate Tribunal must be held to have the power to grant stay as incidental or ancillary to its appellate jurisdiction. This is particularly so when section 220(6) deals expressly with a situation when an appeal is pending before the Appellate Assistant Commissioner, but the Act is silent in that behalf, when an appeal is pending before the Appellate Tribunal. It could well be said that when section 254 confers appellate jurisdiction, it impliedly grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution and that the statutory power carries with it the duty in proper cases to make such orders for staying proceeding as will prevent the appeal if successful from being rendered nugatory.”
Similarly, in the judgment [Maheswari Agro Industries v. Union of India (2012) 346-ITR-375(Raj.)], cited supra the Hon’ble Rajasthan High Court has held the same as under:—
“In view of aforesaid legal position culled out from different judgments and there being no contrary view available before this Court cited from the side of Revenue or otherwise, this Court is inclined to hold that First Appellate Authority, namely, Dy. CIT(A) or CIT(A) have inherent, implied and ancillary powers to grant stay against the recovery of disputed demand of tax while seized of the appeal filed before them in accordance with s. 246 or 246A of the Act. There is yet another reason for holding so, and such inherent powers have to be inferred even in the absence of any specific statutory provision conferring the power to grant stay upon such authorities under the Act.”
Although the legal position is very much clear but the CIT(A) is quite reluctant to exercise this power. On the other hand, they are not exercising this power at all. Such is the attitude on the part of CIT(A) to stay the demand during the pendency of an appeal. But the Parliament of India has not considered this aspect till this date and amended the law to that effect.
Against the stay order of the AO the assessee has to approach the Joint/Additional Commissioner and against the order of JCIT/Addl. CIT’s order, the CIT. These are all administrative orders. Being aggrieved with the stay order of the CIT the assessee may prefer Writ Application before the Hon’ble High Court.
In a number of cases where high pitch assessment is done by the AO and stay application is not considered by him, the assessee suffers a lot due to coercive measures taken by AO for realisation of the demand in dispute by way of attachment of bank accounts for recovery of the demand.
Further, it is generally understood that instructions of CBDT are binding on the AO. CBDT’s clarification on Instructions on Stay of Demand issued vide Letter [F. No. 404/10/2009-ITCC], dated 1-12-2009 is discussed below for better appreciation of the facts.
Many queries have been received by the Board regarding the applicability of Instruction number 95 dated 21-8-1969 vis-à-vis Instruction number 1914 dated 2-12-1993. Many assessees are taking the plea that Instruction No. 1914 does not supersede Instruction No. 95 dated 21-8-1969.
1. Instruction No. 95 dated 22-8-1969 was an assurance given by the then Deputy Prime Minister during the 8th Meeting of the Informal Consultative Committee held on 13th May, 1969. The observations made by the Deputy Prime Minister were as under:-
“Where the income determined on assessment was substantially higher than the returned income, say twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeal provided there were no lapses on the part of the assessee.”
The above observations were circulated to the field officers by the Board as Instruction number 95 dated- 21-8-1969.
2. The matter has been considered by the Board and the decision of the Board has been approved by the Finance Minister. It is hereby clarified that subsequent to Instruction No. 95 following Instructions/clarifications on the stay of demand were issued till 15th October, 1980:-
(i) Clarification to Instruction number 95 was issued on 14-9-1970 stating that it relates to disputed demands only.
(ii) Instruction number 635 was issued on 12-11-1973 stating that stay should be granted only in those cases where demands are attributable to substantial points of dispute.
(iii) Clarification to Instruction number 95 dated 13-7-1976 held that the Instruction becomes operative only in cases where there are no lapses on the part of the assessee.
(iv) Instruction number 1067 dated 21-6-1977 held that the ITO can pass the necessary orders u/s. 220 (6) in all cases except cases under section 144A or 144B where the approval of IAC is required.
(v) Instruction number 1158 dated 27th March. 1978 held that in suitable cases the assessee may be allowed to furnish security.
(vi) Instruction number 1282 dated 4th October 1979 held that requests should be made to CIT(A) and ITAT for early disposal of appeals and constant watch should be kept on progress of appeals.
(vii) Instruction number 1362 was issued on 15-10-1980 in supersession of all the earlier Instructions. It was an Instruction covering the issue in detail and in para 4 of the same there was a clear reference to the proposition laid down in Instruction number 95 which is as follows:- 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.
3. It is clear that the substance of the assurance as laid down in Instruction number 95 dated 21-8-1969 was submerged in the Instruction number 1362 dated 15-10-1980 which was issued in supersession of all earlier Instructions on the subject. Instruction No. 1914 dated 2-12-1993 was issued subsequently in super-session of all the earlier Instructions on the subject and the said Instruction also covers unreasonably high pitched assessment order and genuine hardship cases.
4. It is therefore clarified that there is no separate existence of the Instruction No. 95 dated 21-8-1969. Instruction No. 95 and all subsequent Instructions on the issue ceased to exist from the date Instruction No. 1362 came into operation. In turn Instruction No. 1362 and all subsequent Instructions on the issue also ceased to exist the day Instruction No. 1914 came into operation i.e. 2-12-1993.The Instruction No. 1914 holds the field currently and a copy of Instruction No. 1914 is enclosed for reference.
Similarly, Instructions for Recovery of Outstanding Tax Demands have been issued by CBDT vide No. 1914 F. No. 404/72/93 ITCC dated 2-12-1993.
1. The Board has felt the need for a comprehensive instruction on the subject of recovery of tax demand in order to streamline recovery procedures. This instruction is accordingly being issued in supersession of all earlier instructions on the subject and reiterates the existing Circulars on the subject.
2. The Board is of the view that, as a matter of principle, every demand should be recovered as soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with the guidelines given below:
i. It shall be the responsibility of the Assessing Officer and the TRO to collect every demand that has been raised, except the following:
(a) Demand which has not fallen due;
(b) Demand which has been stayed by a Court or ITAT or Settlement Commission;
(c) Demand for which a proper proposal for write-off has been submitted;
(d) Demand stayed in accordance with paras B & C below.
ii. Where demand in respect of which a recovery certificate has been issued or a statement has been drawn, the primary responsibility for the collection of tax shall rest with the TRO.
iii. It would be the responsibility of the supervisory authorities to ensure that the Assessing Officers and the TROs take all such measures as are necessary to collect the demand. It must be understood that mere issue of a show cause notice with no follow-up is not to be regarded as adequate effort to recover taxes.
B. Stay Petitions
i. Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the tax- payer. The assessee must be intimated of the decision without delay.
ii. Where stay petitions are made to the authorities higher than the Assessing Officer (DC/CIT/CC), it is the responsibility of the higher authorities to dispose of the petitions without any delay, and in any event within two weeks of the receipt of the petition. Such a decision should be communicated to the assessee and the Assessing Officer immediately.
iii. The decision in the matter of stay of demand should normally be taken by Assessing Officer/ TRO and his immediate superior. A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances; e.g., where the assessment order appears to be unreasonably high-pitched or where genuine hardship is likely to be caused to the assessee. The higher authorities should discourage the assessee from filing review petitions before them as a matter of routine or in a frivolous manner to gain time for withholding payment of taxes.
C. Guidelines for staying demand
i. A demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand. A few illustrative situations where stay could be granted are: It is clarified that in these situations also, stay may be granted only in respect of the amount attributable to such disputed points. Further, where it is subsequently found that the assessee has not co-operated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or court alters the above situation, the stay order may be reviewed and modified. The above illustrations are, of course, not exhaustive.
ii. In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may-
a. Require the assessee to offer suitable security to safeguard the interest of revenues,
b. Require the assessee to pay towards the disputed taxes a reasonable amount in lump sum or in installments,
c. Require an undertaking from the assessee that he will co-operate in the early disposal of appeal failing which the stay order will be cancelled.
d. Reserve the right to review the order passed after expiry of a reasonable period, say up to 6 months, or if the assessee has not co-operated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the above situations;
e. Reserve a right to adjust refunds arising, if any, against the demand.
iii. Payment by installments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
iv. Since the phrase “stay of demand” does not occur in section 220(6) of the Income-tax Act, the Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) or section 220(7)], the expression that occurs in the section viz., that he agrees to treat the assessee as not being default in respect of the amount specified, subject to such conditions as he deems fit to impose.
v. While considering an application under section 220(6), the Assessing Officer should consider all relevant factors having a bearing on the demand raised and communicate his decision in the form of a speaking order.
i. Even where recovery of demand has been stayed, the Assessing Officer will continue to review the situation to ensure that the conditions imposed are fulfilled by the assessee failing which the stay order would need to be withdrawn.
ii. Where the assessee seeks stay of demand from the Tribunal, it should be strongly opposed. If the assessee presses his application, the CIT should direct the departmental representative to request that the appeal be posted within a month so that Tribunal’s order on the appeal can be known within two months.
iii. Appeal effects will have to be given within 2 weeks from the receipt of the appellate order. Similarly, rectification application should be decided within 2 weeks of the receipt thereof. Instances where there is undue delay in giving effect to appellate orders, or in deciding rectification applications, should be dealt with very strictly by the CCITs/CITs.
3. The Board desires that appropriate action is taken in the matter of recovery in accordance with the above procedure. The Assessing Officer or the TRO, as the case may be, and his immediate Superior Officer shall be held responsible for ensuring compliance with these instructions.
4. This procedure would apply mutatis mutandis to demands created under other Direct Taxes enactments also.
It is also observed by the Hon’ble High Court(s) that when the assessed income of the assessee is twice the returned figure, the demand raised in the assessment is stayed in full till disposal of appeal. A few case laws are cited hereunder for better appreciation of the facts:—
(a) KEC International Ltd. vs. B. R. Balakrishnan & Others (2001) 251-ITR-158 (Bom.),
(b) RPG Enterprises Ltd. vs. DCIT (2001) 251-ITR-(AT) 20 (Mum.),
(c) Cocacola (P) Ltd. vs. CIT (2006) 285-ITR-419 (Bom.),
(d) Mahindra and Mahindra Ltd. vs. AO (2007) 295-ITR-42 (Bom.),
(e) Taneja Developers and Infrastructure Ltd. vs. ACIT (2010) 324-ITR-247 (Del.),
(f) Soul vs. DCIT (2010) 323-ITR-305 (Del.),
(g) UTI Mutual Fund vs. ITO (2012) 345-ITR-71 (Bom.),
But Hon’ble Kerala High Court in the judgment dated:-26/02/1996 in the case of Pradip Ratan Shi-Vrs.-CIT reported in 221-ITR-502(Kerala) held as under:—
“A reading of sub-section 6 of 220 will show that the discretion to be exercised under the said sub-section can only be exercised by the Assessing Officer and not by the Commissioner. As the order was passed by the Commissioner of Income Tax is without jurisdiction the order has to be set-aside and accordingly it is set-aside.”
It is thus understood from the above judgment that the CIT has no jurisdiction under the statute to grant stay on the demand in dispute. It is the AO, who has got only power as per provisions of section 220(6) of the Act to grant stay of the demand. It is not out of place to mention here that referring the judgment of the Hon’ble Kerala High Court some of the CIT(s) are not taking up stay application for hearing or rejecting the same being not maintainable before them.
It is thus pointed out here that merely writing an article in a souvenir or journal would not solve the purpose. Further, an assessee’s representation to the Government of India may not help in bring an amendment to the present law, which is beinging followed for years together. It is only All India Federation of Tax Practitioners, which may represent the FINMIN/CBDT to make an amendment in the Income Tax Law incorporating a clear provision so as grant of stay by the CIT(A) is concerned and modify the earlier instructions with a new one. It is not known whether the Direct Tax Code would come in to force and the same shall contain provisions as discussed above. However, the above aspect needs attention and every effort should be made to bring the above little change in the statute.
(Source: Article published in souvenir of National Tax Conference held at Varanasi on 10 & 11 October 2015)