In respect of the demands raised by the department and problems faced by professionals in obtaining stay against those demands I would like to share a write up which should be helpful in obtaining stay against demands
It is becoming a common practice to make high pitched demands by framing assessments at a substantial higher amount than the returned income. The Department in the current financial year is hotly pursuing the demands thus raised as there is a huge shortfall in the collections.
As per estimated figures the total direct tax collected is appx Rs 3.62 Lakh crores up to 20th Feburary 2012 as against budget estimates of Rs 5.32 i.e. a shortfall of Rs 1.70 Lakh crores and it is estimated that the total tax collections will fall short by atleast .40 lakh crores.
It is thus in the current financial year the department is hotly pursuing the demands of the current assessments completed on 31st Dec 2011 and of the preceding years. The Assessing Officers are therefore by a summary order rejects the request of the stay of demand made by the assessee’s. It is therefore important for the taxpayers to know their rights and remedies under the law to prevent unjustified demand liabilities.
When an appeal against the Assessing Officer’s order has been filed under section 226 by the assessee and is pending before the Commissioner (Appeals). An assessee can make an application to the Assessing Officer, requesting he not to be treated as an assessee in default in respect of the disputed amount which is in appeal, until disposal of the appeal by the Commissioner (Appeals) under section 220(6) of the Income Tax Act 1961.
Instruction No 96 dated August 21, 1969 Income determined on assessment was substantially higher than returned income - Whether collection of tax in dispute is to be held in abeyance till decision on appeal
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 arbitrarily pitched at high figures and that the collection of disputed demands as a result thereof was also not stayed in spite of the specific provision in the matter in section 220(6).
2. 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 appeals, provided there were no lapse on the part of the assessee.”
3. The Board desire that the above observations may be brought to the notice of all the Income-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.
It is therefore evident that the cases where there was an assessment were high pitched the department was under an instruction to grant stay of demand.
Circular : No. 530, dated 6-3-1989 read with Circular : No. 589, dated 16-1-1991. Exercise of discretion by Assessing Officer u/s 220(6) - On an application being filed by the assessee, the Assessing Officer will exercise his discretion under section 220(6) of the Act (subject to such conditions as he may think fit to impose) so as not to treat the assessee as being in default in respect of the amount in dispute in the appeal in the following situations :
(i) the demand in dispute has arisen because the Assessing Officer had adopted an interpretation of law in respect of which, there exist conflicting decisions of one or more High Courts or, the High Court of jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment, or
(ii) the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or Court in assessee’s own case.
In the situations mentioned above, the assessee will be treated as not in default 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 situation referred to above, the Assessing Officer will no longer be bound by these instructions and will exercise his discretion independently. In respect of other cases, not covered above, the Assessing Officer, while considering the situation for treating the assessee to be not in default, would consider all relevant factors having a bearing on the demand raised and communicate his decision to the assessee in the form of a speaking order.
Recovery of Outstanding Demands (Instruction no 1914 dated 02.12.1993)
1. Recovery of outstanding tax demands
[Instruction No. 1914 F. No. 404/72/93 ITCC dated 2-12-1993 from CBDT]
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 :
- 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.
- 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.
B. Stay Petitions:
- 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.
- 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 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:
- 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.
- 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 revenue;b. require the assessee to pay towards the disputed taxes a reasonable amount in lump sum or in instalments;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.
- Payment by instalments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
- 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.
- 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.
- 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.
- 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.
- 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 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.
Recent Judicial Pronouncements
Valvoline Cummins Limited Vs DCIT W.P.(C) 2511/2008 and CM No. 4729/2008 (Stay) Delhi HC
It was held that instruction 96 is applicable and assessee would in the normal course would be entitled to absolute stay of demand. It imposed a cost of Rs 15,000/- on DCIT for not granting the stay of demand.
Soul Vs DCIT Delhi HC 173 Taxman 468 Del Dated 07th Aug 2008
It was held that though instruction no 1914 dated 02nd Dec 1993 super cedes instruction no 96 dated 21st August 1969, it clearly provides that demand should be stayed 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. A case where assesseed income is several times the returned income falls within the expression “unreasonably high pitched’ and stay on recovery of demand must therefore be granted to the assessee
Taneja Developers and Infrastructure Limited Vs ACIT W.P.(C) 6956/2009 Dated 24.02.2009 Delhi HC
It was held that although instruction no 1914 dated 2nd Dec 1993 has superceded the instruction no 96 the very question that what would constitute the assessment order as being reasonably high pitched could be taken from the instruction no 96.
What was originally said by instruction no 96 framed by the informal consultative committee of parliament is being diluted issuing circulars and instruction by the board. The ways and means of collecting the demands by attaching the bank accounts of the assesee’s (and now from the debtors of the assessee) is very harsh. The effort has been made to explain the position of law which may be in the interest of members having regard to the current environment
Hope this information proves to be beneficial
With Warm Regards
B Com (Hons), FCA, LLB, DISA
Alumni Hans Raj College
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