![\"\"](\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Advocate-VP-Gupta.jpg\")
<\/p>\n<\/p>\n
Advocate V. P. Gupta has systematically analyzed the statutory provisions and Instructions issued by the CBDT on the issue of stay of demand and explained how the Courts have interpreted the same. He also clearly spelt out the rights and obligations of the taxpayers and the Department with regard to coercive steps to recover taxes<\/strong><\/p>\n 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. <\/p>\n <\/p>\n 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. <\/p>\n 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<\/em> or breach of duty of the director. <\/p>\n 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). <\/p>\n Though, as per the decision of Hon’ble Supreme Court in the case of ITO v. MK Mohammad Kunhi (1969) 71 ITR 815 (SC)<\/strong> 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. <\/p>\n 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. <\/p>\n 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. <\/p>\n 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. <\/p>\n 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.<\/p>\n Instructions of CBDT in regard to stay of demand<\/u><\/strong><\/p>\n 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. <\/p>\n 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. <\/p>\n 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.”<\/em> 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. <\/p>\n 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. <\/p>\n 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. <\/p>\n 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”.<\/em> 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. <\/p>\n 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<\/a> 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. <\/p>\n 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. <\/p>\n These Instructions were, however, revised after a short period vide Instructions dated 31.07.2017<\/a>. 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.<\/p>\n Judicial rulings in regard to the matter<\/u><\/strong><\/p>\n In regard to the matter discussion can be started by referring to latest decision of the Hon’ble Madras High Court in the case of Mrs. Kannammal v. ITO<\/a>, W.P. No. 3849 of 2019,<\/strong> judgement dated 13.02.2019.<\/strong> In the facts of above case, the returned income was of Rs.6,23,770\/-. The Assessing Officer made the assessment at the income of Rs.10,26,01,710\/-. The assessee filed appeal before CIT(A) and also filed application for stay of demand before the Assessing Officer. The Assessing Officer without considering and discussing the merits of the case rejected the application by way of a non speaking order stating as under:-<\/p>\n “’Kindly refer to the above. This is to inform you that mere filing of appeal against the said order is not a ground for stay of the demand. Hence your request for stay of demand is rejected and you are requested to pay the demand immediately. Notice u\/s.221(1) of the Income Tax Act, 1961 is enclosed herewith.”<\/em><\/p>\n The assessee filed Writ Petition before the Hon’ble High Court. The High Court after referring to the Circulars \/ Instructions of the Board observed as under:-<\/p>\n “12. The Circulars and Instructions as extracted above 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 existence of a prima facie case for which some illustrations have been provided in the Circulars financial stringency faced by an assessee and the balance of convenience in the matter constitute the ‘trinity’, so to say, and are indispensable in consideration of a stay petition by the authority. 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.”<\/em><\/p>\n <\/p>\n The issue also came up before the Hon’ble Madras High Court in the case of Jayanthi Seeman v. Pr. CIT<\/a>, W.P. No. 30094 of 2018, judgement dated 21.02.2019.<\/strong> 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:-<\/p>\n <\/em><\/p>\n “Petition is rejected. AO to collect 20% as per Board’s Circular ASAP.”<\/em><\/p>\n <\/p>\n The Hon’ble High Court following its earlier judgement dated 13.02.2019 decided the writ petition observing as under:-<\/p>\n <\/em><\/p>\n “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.”<\/em><\/p>\n <\/p>\n The issue also came up recently before the Hon’ble Delhi High Court in the case of Turner General Entertainment Networks India Pvt. Ltd. v. ITO<\/a>, <\/strong>New Delhi<\/strong>, W.P.(C) 682\/2019, judgement dated 22.01.2019.<\/strong> 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:-<\/p>\n “<\/em>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. <\/em><\/p>\n <\/em><\/p>\n Therefore, your application for stay of demand of ₹ 11,79,69,539\/- is hereby rejected as you have failed to comply with the conditions laid down in CBDT <\/em>OM<\/em> dated 31.07.2017.”<\/em><\/p>\n <\/p>\n Writ Petition was filed before the Hon’ble Delhi High Court. The Hon’ble Court held as under:-<\/p>\n <\/em><\/p>\n “<\/em>7. This Court is of the opinion that the AO had to necessarily apply his\/her mind to the application for stay of demand and pass appropriate orders having regard to the extant directions and circulars including the memorandum of 29.02.2016. This in turn meant that AO could not have imposed a precondition of the kind that has been done in the impugned order. Consequently, the impugned order is hereby set aside. The AO shall consider the application for stay of demand made by the AO in its letter dated 04.05.2018 and pass necessary and appropriate orders, and exercise his discretion having regard to the facts and circumstances of the case, within three weeks from today.”<\/em><\/p>\n <\/p>\n Similar issue had been considered by the High Court of Delhi earlier in the case of LG Electronics India Pvt. Ltd. v. Pr.CIT & Ors., W.P.(C) No. 6778 of 2017 judgement dated 08.08.2017.<\/strong> 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:-<\/p>\n <\/em><\/p>\n “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.”<\/em><\/p>\n <\/p>\n 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:-<\/p>\n “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.<\/em><\/p>\n 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.<\/em><\/p>\n 9. The CIT(A) shall also consider the request of the Petitioner for an expeditious disposal of the appeal.”<\/em><\/p>\n 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:-<\/p>\n “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.”<\/em><\/p>\n 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.<\/strong> 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. <\/p>\n 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. <\/p>\n 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. <\/p>\n On behalf of the assessee further request was made to the Hon’ble Court that CIT(A) should be directed to decide the appeals for A.Yrs. 2012-13 and 2013-14 within a limited time frame and since the issue involved in A.Yrs. 2014-15 and 2015-16 is also the same these appeals can also be disposed of accordingly. The aforesaid prayer was also opposed by the counsel for the revenue. Hon’ble High Court, however, had been pleased to pass an order as under:<\/p>\n “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.<\/em><\/p>\n <\/em><\/p>\n 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.<\/em><\/p>\n <\/em><\/p>\n 22. Needless to say, appeals cannot be kept in an animated suspension over a long period of time. Keeping any appeal pending will adversely affect not only the interest of the assessee, but also adversely affects the interest of the Revenue, and, therefore, of the nation at large. Thus, it will be in the interest of justice if the appeals filed by the petitioner for the Assessment Year 2012-13, and 2013-14 were to be decided as expeditiously as possible by respondent No.3.”<\/em><\/p>\n <\/p>\n It is evident on the basis of facts of the above case that on the one side department insists on payment of demand whereas it resists early disposal of appeal. Accordingly, the attitude and action of the department are illogical and unjustified. In this regard reference can also be made to following observations of Allahabad High Court in the case of Smita Agrawal (HUF) v. CIT (2010) 230 CTR 173 (All)<\/strong> as regards the plight of the assesses:-<\/p>\n “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 <\/em>Constitutional Court<\/em> in the State.”<\/em><\/p>\n <\/p>\n 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<\/strong> judgement dated 21.01.2019.<\/strong> 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. <\/p>\n The assessee also paid further amount of Rs.7.15 crores during pendency of appeals before CIT(A). CIT(A) partly allowed the claim of the assessee. The assessee filed appeals before ITAT. On merits it was contended that CIT(A) had not appreciated the documents submitted before him. Stay application was also filed before ITAT requesting for stay of demand of Rs.9.33 crores, the amount outstanding at that stage. Bench of the Tribunal passed the order on the stay application directing the assessee to pay entire outstanding demand in installments of Rs.50 lac every month. The Hon’ble Court while considering the matter observed as under:-<\/p>\n “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. <\/em><\/p>\n <\/em><\/p>\n 10. 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.”<\/em><\/p>\n <\/p>\n Aforesaid decisions give a quite clear indication that all the authorities are deciding the issue on ad-hoc basis without considering the merits of the case. Assessments are being made on substantial higher amount of income and assesses are suffering seriously because of this attitude of the department and also of Appellate Authorities. In regard to the matter reference can also be made to the following observations of Hon’ble Rajasthan High Court in the case of Maheshwari Agro Industries v. Union of India (2012) 346 ITR 375 (Raj)<\/strong>:- <\/p>\n