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DEMAND AND STAY OF DEMAND UNDER INCOME TAX  ACT, 1961                                        BY N.S.SUGANTHAN, ADVOCATE, HIGH COURT OF MADRAS Introduction: In this article, I am going to discuss with the readers about a simple but important topic in Income Tax Law called “Demand and Stay of Demand”. First of all, I’m going to discuss the concept of Demand, thereafter, on what occasions demand can be made and how to stay the demand if our clients’ claim is genuine and need interpretation by quasi judicial or judicial authority.

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DEMAND AND STAY OF DEMAND UNDER INCOME TAX  ACT, 1961

                                       BY N.S.SUGANTHAN, ADVOCATE, HIGH COURT OF MADRAS

Introduction:

In this article, I am going to discuss with the readers about a simple but important topic in Income Tax Law called “Demand and Stay of Demand”. First of all, I’m going to discuss the concept of Demand, thereafter, on what occasions demand can be made and how to stay the demand if our clients’ claim is genuine and need interpretation by quasi judicial or judicial authority.

Demand:

The Income Tax Act has not defined the term “Demand”. The term demand which in practice used to claim one’s due; to require; to ask relief; to summon; to call in court. Black’s Law Dictionary has discovered meanings for ‘Demand’ from various Judgments, in which I have selected three explanations, are as follows:

  • An imperative request preferred by one person to another, under a claim of right, requiring the latter to do or yield something or to abstain from some act. Zimmerman v. Hicks, C.C.A., 7 F.2d 443, 445;
  • A peremptory claim to think of right, differing from claim, in that it presupposes that there is no defense or doubt upon question of right, Golden v. Golden, 155 Oki. 10, 8 P.2d 42, 45; Anderson v. Commercial Credit Co., 110 Mont. 333, 101 P.2d 367, 369; National Life & Accident Ins. Co. v. Dove, 141 Tex. 464, 174 S.W.2d 245, 247.
  • The assertion of a legal right; a legal obligation asserted in the courts; a word of art of an extent greater in its signification than any other word except “claim.” Nunn v. Titche-Goettinger Co., Tex.Civ.App., 196 S.W. 890, 892.

Thus, we now came to an understanding that practically Demand means a right to claim through summon or notice. Then, the question arises how demand can be made under Income Tax Act? The very clear answer enumerated in Section 156 of the Income Tax Act, 1961 is as follows:

  1. Notice of demand.- When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the [Assessing Officer] shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable:

[Provided that where any sum is determined to be payable by the assessee under sub-section (1) Section 143, the intimation under that sub-section shall be deemed to be a notice of demand for the purposes of this Section.]

Therefore, it is made clear that any tax, interest, penalty, fine or any other sum is to be paid by the assessee, the Assessing Officer shall demand the payment by serving notice on him.

Stay of Demand:

Now, if a notice for demand is served under Section 156 or intimation under Section 143 (1) is served to the assessee, then, the assessee who is having genuine reason to challenge the notice of demand can apply for stay of demand. Hereunder, how can an assessee can apply for stay and under what circumstances it can be applied is explained.

The CBDT Circulars

The assessing officer ought to have taken note of the conditions precedent for the grant of stay as well as the Circulars issued by the CBDT while passing a speaking order as noted by the Supreme Court in the case of Commissioner of Income tax vs Mahindra Mills, (2008) 296 ITR 85 (Mad) in the context of grant of depreciation, the Circular of the Central Board of Revenue (No. 14 (SL- 35) of 1955 dated April 11, 1955) requires the officers of the department ‘to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs. The AO should give attention to refunds or reliefs to which the assessee appears to be clearly entitled. All the three parameters invoked herewith for the grant of stay, it is incumbent upon AO to examine the existence of a prima facie case as well as call upon the assessee to demonstrate financial stringency, if any and arrive at the balance of convenience in the matter.

The Circulars and Instructions issued by the CBDT are in the nature of guidelines issued to assist the assessing authorities in the matter of grant of stay and cannot substitute or override the basic tenets to be followed in the consideration and disposal of stay petitions. The Board has, while stating generally that the assessee shall be called upon to remit 20% of the disputed demand, granted ample discretion to the authority to either increase or decrease the quantum demanded based on the three vital factors to be taken into consideration.

1969 CBDT Guidelines

Periodic Instructions/Circulars in regard to the manner of adjudication of stay petitions are issued by the Central Board of Direct Taxes (CBDT) for the guidance of the Departmental authorities. The one oft-quoted by the assessee is Office Memorandum F.No.1/6/69/-ITCC, dated 21.08.1969 that states as follows:

‘1. One of the points that came up for consideration in the 8th Meeting of the Informal Consultative Committee was that income-tax assessments were often arbitrarily pitched at higher figures and that the collection of disputed demand as a result thereof was also not Stayed in spite of the specific provision in the matter in s. 220(6) of the IT Act, 1961.

  1. The then Deputy Prime Minister had observed 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.”

  1. The Board desire that the above observations may be brought to the notice of all theIncome-tax Officers 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 Inspecting Assistant Commissioner/Commissioner of Income-tax.

1996 CBDT Instructions

Thereafter, Instruction No.1914 was issued by the CBDT on 21.03.1996 from CBDT/ and states as follows:

  1. The Board has felt the need for a comprehensive instruction on the subject of recovery oftax 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 recoveredas soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with the guidelines given below:
  3. Responsibility:
  4. 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;
    1. Demand which has been stayed by a Court or ITAT or Settlement

Commission;

  1. Demand for which a proper proposal for write-off has been submitted;
  2. Demand stayed in accordance with Para B & C below.
  1. 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.
  • 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.
  1. Stay Petitions:
  2. Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the taxpayer. The assessee must be intimated of the decision without delay.
  3. 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.
  • 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 highpitched 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. Guidelines for staying demand:
  1. 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.

  1. In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may —
    1. require the assessee to offer suitable security to safeguard the interest of revenue;
    2. require the assessee to pay towards the disputed taxes a reasonable amount in lump sum or in instalments;
    3. 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.
    4. 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;
    5. reserve a right to adjust refunds arising, if any, against the demand.
  • Payment by instalments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
  1. 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.
  2. 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.
  3. Miscellaneous:
  1. 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.
  2. 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 t hereof. 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 accordancewith 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 Taxesenactments also.
  • – Instruction 1914 was partially modified

Instruction 1914 was partially modified by Office Memorandum dated 29.02.2016 taking into account the fact that Assessing Officers insisted on payment of significant portions of the disputed demand prior to grant of stay resulting in extreme hardship for tax payers. Thus, in order to streamline the grant of stay and standardize the procedure, modified guidelines were issued which are as follows:

  • In a case where the outstanding demand is disputed before CIT (A), the assessingofficer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category discussed in pars (B) here under.
  • In a situation where,
  • the assessing officer is of the view that the nature of addition resulting in thedisputed demand is such that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court /or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.) or,
  • the assessing officer is of the view that the nature of addition resulting in thedisputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.), the assessing officer shall refer the matter to the administrative Pr. CIT/ CIT, who after considering all relevant facts shall decide the quantum/ proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand.
  • – Instruction 1914 was further modified

Instruction 1914 was further modified by Office Memorandum bearing number F.No.404/72/93 – ITCC dated 31.07 2017 as follows:

OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated 31.07.2017

Subject: Partial modification of Instruction No. 1914 dated 21.3.1996 to provide for guidelines for stay of demand at the first appeal stage.

Reference: Board’s O.M. of even number dated 29.2.2016 -Instruction No. 1914 dated 21.3.1996 contains guidelines issued by the Board regarding procedure to be followed for recovery of outstanding demand, including procedure for grant of stay of demand.Vide O.M. N0.404/72/93-ITCC dated 29.2.2016 revised guidelines were issued in partial modification of instruction No 1914, wherein, inter alia, vide para 4(A) it had been laid down that in a case where the 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 the disputed demand unless the case falls in the category discussed in para (B) thereunder. Similar references to the standard rate of 15% have also been made in succeeding paragraphs therein.

  1. The matter has been reviewed by the Board in the light of feedback received from field authorities. In view of the Board’s efforts to contain over pitched assessments through several measures resulting in fairer and more reasonable assessment orders, the standard rate of 15% of the disputed demand is found to be on the lower side. Accordingly, it has been decided that the standard rate prescribed in O.M. dated 29.2.2016 be revised to 20% of the disputed demand, where the demand is contested before CIT (A). Thus all references to 15% of the disputed demand in the aforesaid O.M dated 29.2.2016 hereby stand modified to 20% of the disputed demand. Other guidelines contained in the O.M. dated 29.2.2016 shall remain unchanged.

These modifications may be immediately brought to the notice of all officers working in your jurisdiction for proper compliance. The foregoing discussion concerning stay of demands clearly shows that the two circulars are only in addition to Instruction No 96 and not in super cession 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 assessee, 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 assessee 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.

Section 220 (6): This section gives discretionary power to the Assessing Officer (AO) to stay the demand. No time limit for application to stay.

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.

Section 246: This Section deals regarding Appeal before the Deputy Commissioner (Appeals).

Section 246 A: This Section deals regarding Appeal before the Commissioner (Appeals).

The Stay Application U/s. 220(6) can be made only before Assessing Officer (AO) and the AO only has a right to stay the demand. However, the Commissioner of Income Tax (CIT -Admin) being the administrative head of the particular charge where the jurisdiction of the assessee lies, CIT (Admn) can consider the Stay Application.

Section 254: Appeal before Income Tax Appellate Tribunal (ITAT). ITAT can consider Stay Application and if stay granted, ITAT should decide the case (Appeal) within 180 days from granting stay.

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.
  2. 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.

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.

Case laws regarding stay of demand:

  • The powers of the A.O. to stay the demand are valid only upto the disposal of Appeal by Ld. CIT (A). Maruti Suzuki India Ltd v. Dy. CIT (2012) 347 ITR 43 (Delhi).
  • Commissioner of Income Tax is also competent to grant stay – C. Roy v. TRO [1993] 204 ITR 511 (KER.).

 

Merely because no financial hardship would be caused to assessee would not itself justify the deposit of demand where a prima facie case was made out. Vodafone India Ltd. v. Commissioner of Income Tax [2018] 89 taxmann.com 54 (Bombay).

  • The Commissioner (Appeals) has powers to grant stay of recovery of demand –
    1. ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 (SC).
    2. CITY and Industrial Development Corporation of Maharashtra Ltd v. ACIT [2012] 343 ITR 102 (Bom.).
  • Even without making an application U/s. 220 (6), the assessee may move CIT (A) for stay of demand – Kesav Cashew v. DCIT [1994] 210 ITR 1014 (KER.).
  • Full stay where issue is covered – ICICI Prudential Life Ins. Co. Ltd. 272 CTR 82 (Bom.).
  • Where assessee has moved an application for rectification and the same was pending, recovery proceedings cannot be taken. Sultan Leather Finishers Pvt. Ltd v. ACIT [1991] 191 ITR 179 (ALL.).
  • High Court granted stay on demand till disposal of Appeal by CIT as assessment order passed by Assessing Officer (AO) was an ex parte order. GMV Projects & Systems v. ACIT [2017] 249 Taxman 468 (Madras).
  • The Hon’ble Andhra Pradesh 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. Also refer 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.
  • Principles laid down by Bom. H.C. in KEC International Ltd. v. B.R. Balakrishnan

[2001] 251 ITR 158 (Bom.) –

  1. While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.
  2. In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in Appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order.
  3. In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.
  4. The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statute to go in Appeal. However, if the authority concerned comes to the conclusion that the assessee is likely to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order.
  5. We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No. 2 herein need not once again give reasoned order. The above parameters are not exhaustive. They are only recommendatory in nature. It has been held that where the case has been decided in the assessee’s favour in the earlier years by Court/Tribunal, then stay should be granted. Gujarat State Fertilizers & Chemicals 226 ITR 270 (Guj.) r/w. Circular No. 530.
  • Application for stay cannot be rejected without considering assessee’s submissions. – Balaji Universal Tradelinks P.Lts. 25 Taxmann.com 256 (Bom.).
  • Rejection of stay application without considering that the issue decided in assessee favour in earlier year by Ld. CIT (A) unjustified. – Bhubaneswar Stock Exchange v.

UOI [2006] 283 ITR 562 (Orissa).

Appellate Tribunal has power to stay the recovery proceedings beyond the period of 365 days – Qualcomm Incorporated v. ADIT [2012] 150 TTJ 661 (Delhi).

The Supreme Court, in the case of Asst CCE v. Dunlop (154 ITR 172) has held that the discretionary power granted to the AO to stay the demand, are required to be exercised judiciously and reasonably, on relevant grounds such as: prima facie case; balance of convenience; possibility of irreparable injury; and safeguarding public interest. This article portrays the present legal position and calls for CBDT’s intervention by issuing suitable clarifications on certain points raised herein. Assessing Officer (AO) who may be while passing assessment order under Income Tax Act’ 1961 may disallow/add back certain items of expenses or reduce deduction claimed in the returned Income on one reason or the other.

  • In Soul v. Dy. CIT (2008) 220 CTR (Del) 211, the Delhi High 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 Para2 of the CBDT instruction No. 96, dated 21st, 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 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. The foregoing discussion clearly brings out the gravity of the situation and the chaos and the confusion that is prevailing in the matter of decision making on stay applications. A consolidated view should be taken of the existing

Instructions/Circulars on the subject of stay of demand and a master circular on the subject should be issued by the CBDT covering all relevant aspects indicating the actions to be taken where deviation is made from such guidelines without justification.

  • In the case of LG Electronics that the administrative Circular (31/07/2017) will not operate as a fetter on the Commissioner since it is a quasi-judicial authority and rejected the SLP of PCIT to go ahead with the lesser 20% deposit. In the case LG Electronics then approached the Delhi High Court. In an order on 8 August 2017, the HC set aside the order passed by the PCIT and directed the PCIT to hear the matter again without referring to the 31 July 2017 circular. The PCIT, however, decided to approach the Supreme Court. In its judgment, the apex court (CIVIL APPEAL NO. 6850 OF 2018) clarified that irrespective of the OMs from CBDT, the tax authorities, depending on facts of individual cases, can grant deposit orders for an amount less than 20% of the tax demand.
  • In the case of Kannammal vs Income Tax Officer , Ward 1(1) Tirupur WP No. 3849 of 2019 and WMP No 4278 of 2019 , the Honourable High Court has described the stay circulars in detail and ordered the AO to pass on the speaking order on the merits of the case after considering all the circulars in the matter .
  • Pradeep Ratanshi vs. Asst. CIT (1996) 221 ITR 502 (Ker.)- The stay of demands clearly shows that the two circulars are only in addition to Instruction No 96 and not in supersession 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 assessee, has to be stayed until the disposal of appeals by the CIT (A). The recovery proceedings initiated against the assessee shall remain stayed till the disposal of stay petition filed by him.

ITO v. MK Mohammad Kunhi (1969) 71 ITR 815 (SC)- CIT(A) is empowered to stay the demand during the pendency of appeal before him.

Hon’ble Madras High Court in the case of Jayanthi Seeman v. Pr. CIT, W.P. No.30094 of 2018, judgement dated 21.02.2019. In the facts of above case also the substantial high demand was raised by the Assessing Officer. In pursuant to stay application the Assessing Officer had insisted for payment of 20% of demand. On application filed before Pr. Commissioner also he rejected the said application by passing an order as under:-

“Petition is rejected. AO to collect 20% as per Board’s Circular ASAP.”

The Hon’ble High Court following its earlier judgement dated 13.02.2019 decided the writ petition observing as under:-

“13. In the light the above, I am inclined to set aside the impugned order dated 11.10.2018, as being mechanical and passed without application of mind. Equally mechanical is the stay petition filed by the assessee, which simply relies upon the circulars issued without reference to the existence of a prima facie case, financial stringency and balance of convenience.”

  • Hon’ble Delhi High Court in the case of Turner General Entertainment Networks

India Pvt. Ltd. v. ITO, New Delhi, W.P.(C) 682/2019, judgement dated 22.01.2019. In the facts of above case, the Assessing Officer had disposed of the said application in the same manner as in the case referred to hereinabove, before Madras High Court and since the assessee could not make payment of 20% of disputed demand since the amount of demand was very large i.e. Rs.11,79,69,539/-, the Assessing Officer rejected the said application stating as under:-

“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. Therefore, your application for stay of demand of Rs. 11,79,69,539/- is hereby rejected as you have failed to comply with the conditions laid down in CBDT OM dated 31.07.2017.”

  • High Court of Delhi in the case of LG Electronics India Pvt. Ltd. v. CIT & Ors.,

W.P.(C) No. 6778 of 2017 judgement dated 08.08.2017. In the facts of above case demand of Rs.32 crores was raised. In response to stay application during pendency of appeal before CIT(A), the Assessing Officer directed the assessee vide his order dated 20.07.2017 to deposit 15% of total tax demand as per the Office Memorandum dated 29.02.2016. The assessee approached the Pr. Commissioner. It was contended by the assessee that demand has arisen as a result of levy of penalty u/s 271(1) (c) of the Act and since the limitation period for passing the order of penalty had already expired in terms of section 275(1)(a) of the Act demand should be fully stayed. Pr. Commissioner without considering the merits of the case directed the assessee to make payment of 20% of the demand for the reason that by that time Instructions dated 31.07.2017 had come in force, by making following order sheet:-

“Present Sh. Vishal Rastogi, AGM of LG requested to make payment of 20% of the tax demand of 32Cr. Amounting to 6.4 Cr. By 11.08.2017 to get stay of demand upto 15.12.2017.”

The assessee filed W.P. before the Hon’ble High Court against the order of Pr. Commissioner. Hon’ble High Court passed the order holding as under:-

“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.

  1. For the above reasons, the impugned order is set aside and a direction is issuedthat 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 twoweeks from the date of receipt of this order.
  2. The CIT(A) shall also consider the request of the Petitioner for an expeditiousdisposal of the appeal.” The department was not satisfied with the aforesaid order and direction of Hon’ble Delhi High Court. SLP was filed by the department before the Hon’ble Supreme Court against the order. Hon’ble Supreme Court (Civil Appeal No. 6850 of 2018, judgement dated 20.07.2018) held as under:-

“Having heard Shri Vikramjit Banerjee, learned ASG appearing on behalf of the appellant, and giving credence to the fact that he has argued before us that the administrative Circular will not operate as a fetter on the Commissioner since it is a quasi judicial authority, we only need to clarify that in all cases like the present, it

 

will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal.”

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.

  • Madras High Court in the case of Dinakaran v. The Registrar, ITAT and Ors.,

W.P. No. 1392 of 2019 judgement dated 21.01.2019 :-

“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.

  1. In any event, we are of the considered view that if the entire balance outstanding is directed to be paid, it may render the appeal petitions themselves as infructuous. Therefore, while granting a reprieve to the assessee, we also intend to protect the interests of the Revenue by slightly modifying the order passed by the Tribunal.”
  • Hon’ble Rajasthan High Court in the case of Maheshwari Agro Industries v. Union of India (2012) 346 ITR 375 (Raj):-

“The tendency of making high pitched assessments by the Assessing Officers is not unknown and it may result in serious prejudice to the assessee and miscarriage of justice & sometimes may even result into insolvency or closure of the business if such power was to be exercised only in a pro revenue manner. It may be like execution of death sentence, whereas the accused may get even acquittal from higher appellate forums or courts. Therefore, this Court is of the opinion that such powers under subSection (6) of Section 220 of the Act also have to be exercised in accordance with the letter and spirit of Instruction No. 95 dated 21.08.1969, which even now holds the field and its spirit survives in all subsequent CBDT Circulars quoted above, and undoubtedly the same is binding on all the assessing authorities created under the Act.”

  • Allahabad High Court in the case of Smita Agrawal (HUF) v. CIT (2010) 230 CTR

173 (All) as regards the plight of the assesses:-

“Before parting we may observe herein that off late, we have experienced a flood of such writ petitions, where the petitioner having filed appeal along with the stay application before the authority concerned have waited for some time but the appellate authority has failed to pass any order whatsoever on the stay application and in the meantime the assessing authority had proceeded to make recovery which causes in filing of a number of writ petitions before this Court. This can be avoided by the authorities concerned showing more concern to their duties and by disposing of such stay applications expeditiously and in any case within a reasonable time. For inaction of the authorities, this Court is being flooded with avoidable litigation which is causing more harm to public at large who is awaiting for dispensation of justice within a reasonable time from the highest Constitutional Court in the State.”

  • Hon’ble Bombay High Court, in the case of UTI Mutual Fund Vs ITO [2012] 345 ITR 71 (Bom). –

Administrative directions for fulfilling recovery targets for the collection of revenue should not be atthe expense of foreclosing remedies which are available to assesses for challenging the correctness of a demand. The sanctity of the rule of law must be preserved. The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers and appellate authorities perform quasi-judicial functions under the Income-Tax Act, 1961. Application for stay requires judicial consideration.Rejecting such applications without hearing the assessee, considering the submissions and indicating at least brief reasons is impermissible.

  • Prem Prakash Tripathi Vs CIT [1994] 208 ITR 461 (All) – The same legal position would follow in the case of the CIT(A), who is also an appellate authority like the Tribunal. Hence the CIT(A) must be held to have the power to grant stay, which is incidental or ancillary to its appellate jurisdiction.

Conclusion:

Thus, under Tax Law demand is a right and the stay from which can be granted only for the convenience of contesting the case by depositing certain percentage of amount for proving that the Assessee is genuine in filing Income Tax and no suppression or undisclosed income is with the Assessee. Hence, unlike other cases Income Tax cases cannot be kept pending for a long period with an absolute stay, if so, the whole object of enacting Income Tax Law and also recovery of tax practically would get futile.

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