Section 220(6)
of the Act gives discretionary power to the Assessing Officer to stay the
demand and reads as under:
“Where an assessee has presented an appeal
under section 246A of the Income Tax Act, 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 of.”
The said
provision was inserted by the Finance Act, 2000; w.e.f. 01.06.2000.There is no
time limit within which Stay application is to be made under section 220(6). A
petition can be filed for this purpose within 30 days of the receipt of demand
notice, setting out the grounds for staying the demand. Assessing Officer will
be able to treat the assessee as assessee in default only after the expiry of
30 days. Further, the Assessing Officer can consider an Application for Stay of
demand even if it is filed beyond 30 days from the date of receipt of the
notice.
When
can a stay be granted by Assessing Officer
As per the
provisions of section 220(6) of the Act, stay of demand can be granted by the
Assessing Officer, only when the assessee has preferred an appeal before the
CIT(A). The Assessing Officer’s power and discretion to keep the demand in
abeyance till the disposal of the appeal are exercisable only until the appeal
is disposed of by the CIT(A). The powers are generally terminated once the
CIT(A) disposes of the appeal.
Responsibility
(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.
Treat the assessee as not being in default in respect of the
amount in dispute in the appeal [Section 220(6)]
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.
Recovery proceedings under the Act can be started against a
person only when he is in default or deemed to be in default in making payment
of taxes. The assessee who is in default or is deemed to be in default in
making payment of taxes may make an application, requesting the Assessing
Officer not to treat him as the assessee in default in respect of the amount in
dispute in the appeal preferred by the assessee. The Assessing Officer may in
his discretion and with or without imposing any conditions pass an order, not
treating the assessee as an assessee in default in respect of such disputed
amount till the appeal is pending.
It may be noted that mere filing of an appeal does not suo
motu stay the proceedings of recovery of the tax in demand. Therefore, it is
necessary that as soon as an order raising the demand is received, assessee
must make an application to stay and keep the demand in abeyance.
While filing Stay application before the Assessing Officer,
the assessee will have to give the brief facts as under:
(i)
The assessment history of the
assessee,
(ii)
His conduct and co-operation with
the department,
(iii)
Points raised in the appeal,
(iv)
The chances of recovery in case the
appeal is dismissed and
(v)
The hardship that would be caused to
the assessee by persistent demand of the tax by the department.
The Central Board of Direct taxes in its Circular No.
530 dated 06.03.1989 and Circular No. 589 dated 16.01.1991 has laid down
the guidelines for the Assessing Officer to exercise his jurisdiction under
section 220(6) of the Act where an assessee has preferred an appeal. The CBDT in its
Circular No. 530, dated 06.03.1989 directed that where the demand in dispute
relates to issues that have been decided in favour of an assessee, in an
earlier order by the appellate authority or Court in the assessee's own case,
the assessee should not be treated as an assesee in default. These instructions
were re-iterated by the CBDT in Circular No. 589, dated 16.01.1991 and followed
by the Orissa High Court in the case of Bhubaneshwar Stock Exchange v. Union of
India 137 Taxmann 318.
CBDT Circular : No. 589, dated
16.01.1991.
Subject
: Whether Assessing Officer can
exercise discretion under section 220(6) to treat assessee as not being in
default in respect of amounts disputed in first appeal pending before Deputy
Commissioner (Appeals)/Commissioner (Appeals)
1. Reference is invited to Board’s Circular No. 530 [F.
No. 404/82/88-ITCC], dated March 6, 1989 regarding the above-mentioned subject.
2. According to paragraph 2 of the said Circular, the
Assessing Officer is, in the two situations referred to in that paragraph,
bound to treat the assessee as not in default in respect of the amount in
dispute in appeal. In respect of other cases, the Circular stated in paragraph
4—
“In respect of other cases, not covered by para 2
above, Assessing Officer will take into account all the relevant factors and
communicate his decision to the assessee in the form of a speaking order. While
exercising discretion under this provision, the financial capacity of the
assessee to pay the demand will not be relevant.”
3. Representations have been received by the Board that
the exclusion of financial capacity of the assessee to pay the demand, from the
factors relevant for exercise of Assessing Officer’s discretion under section
220(6) of the Income-tax Act, is prejudicial to those assessees who are
not financially sound.
4. The matter has been reconsidered by the Board. It
has been decided to substitute paragraph 4 of Circular No. 530 by the following
paragraph :
“In respect of other cases not covered by paragraph 2 above,
the Assessing Officer, while considering the situation for treating the
assessees 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.”
CBDT Circular No. 530, dated
06.03.1989
Subject
: Whether Assessing Officer can exercise discretion under section 220(6) to
treat assessee as not being in default in respect of amounts disputed in first
appeal pending before Deputy Commissioner (Appeals)/Commissioner (Appeals)
1. Under section 220(6) of the Income
Tax Act, 1961 where an assessee has presented an appeal under section 246 of
the Act before the Deputy Commissioner (Appeals) or the Commissioner
(Appeals), 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 undisposed of.
2. Having regard to the proper and
efficient management of the work of collection of revenue, the Board has
considered it necessary and expedient to order that on an application being
filed by the assessee in this behalf, 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 to treat the assessee as not 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 issue that have been decided in favour of
the assessee in an earlier order by an appellate authority or Court in assessee’s
own case.
3. It is
clarified that in the situations mentioned in para 2 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 in para 2 about, the Assessing officer will no longer be
bound by the instructions and will excercise his disertion independently.
4. In respect of other cases, not
covered by para 2 above, the Assessing Officer will take into account all the
relevant factors and communicate his decision to the assessee in the form of a
speaking order. While exercising discrtion under the provision, the financial
capacity of the assessee to pay demand will not be relevant.
The discretionary power conferred by section 220(6) upon the
Assessing Officer is coupled with a duty and if he does not exercise it when
the occasion calls for it or if he exercise it in such a manner that it is no
exercise of discretion at all, he can be compelled to discharge his duty by an
order of the court. - [Ladhuram Taparia
v. B. K. Bagchi, (1951) 20 ITR 51 (Cal.), Shivangi Steels (P) Ltd. v. ACIT (1997)
226 ITR 62 (All)]
Penalty
under section 221 cannot be imposed before disposing off of the stay petition
Till the time stay
application is disposed off by the Assessing Officer, the demand remains stayed
and hence assessee is not considered in default. Thus until the time stay
application is being disposed off, no penalty under section 221 can be imposed
for non-payment of demand because assessee will not be considered as assessee
in default till the disposing off of stay application.
It
was held that Assessing Officer should have decided the stay applications filed
by the assessee before levy of penalty under section 221. In this case High
Court held that the assessing officer should have decided the stay applications
filed by the assessee before taking any steps prejudicial to the interests of
the assessee. – [CIT v. DLF Universal
Ltd. (2008) 297 ITR 342 (Del.)]
Assessee
cannot be treated in default until stay application is disposed off
It should be noted
also that until application for stay of demand is disposed off by a speaking
order assessee cannot be considered as assessee in default. Moreover demand
remains stayed until the disposal of the application for stay. “Where an
application for stay of demand in pending for disposal under section 220(6),
the demand should be stayed until the application is considered and an order is
passed” – [Satpal v. ITAT & Ors.
(1996) 217 ITR 317 : 133 CTR 96
(P&H); Bongaigaon Refinery and Petro
Chemicals Ltd. v. CIT (2002) 256 ITR 698 (Gau.); Debasish Moulik v. DCIT (1998) 231 ITR 737 (Cal.)]
When
a rectification application under section 154 of the Act is pending before the
Assessing Officer, the Assessing Officer can not recover the tax in dispute
If an application
under section 154 or a revision petition under section 264 is made, the
Assessing Officer cannot act under section 220(6) of the Act and grant a stay.
The Allahabad High
Court in case of Sultan Leather Finishers (P) Ltd. v. ACIT has taken a view
that no recovery proceedings are possible during the pendency of rectification
application filed under section 154 of the Act. – [Sultan Leather Finishers (P) Ltd. v. ACIT (1991) 191 ITR 179 (All)]
Stay
should be granted if grounds of appeal are not frivolous
Normally, once the
officer is satisfied that an appeal has been filed (and the grounds are not
frivolous), he has to treat the assessee as not in default to the extent of the
portion of tax disputed in the appeal. Though section 220(6) does not indicate in
what cases denial of discretion shall be justified, the fact that the assessee
is financially sound and is in a position to pay is not in itself a ground for
refusing to exercise the discretion in granting the stay. – [R. P. David v. Ag. ITO (1972) 86 ITR 699
(Mad.)]
Time
Limit for disposal of 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. [CBDT Instruction No.
1914, dated 02.12.1993]
Remedy
where discretion is not exercised judiciously
Where the Assessing
Officer refuses to exercise his discretion or exercises it in a capricious or
arbitrary manner or by taking into consideration irrelevant or extraneous
considerations, the option before an assessee is to file a writ petition under
Article 226 before the jurisdictional High Court.
CBDT Instruction
- F. No. 404/72/93-ITCC, dated 31.07.2017
CBDT has provided that during
pendency of appeal before CIT(A), the Assessing Officer shall grant stay of
demand till disposal of first appeal on payment of 20% of disputed demand. The
Assessing Officer was also given discretion to direct for payment of higher or
lower amount in deserving cases with the approval of Pr. Commissioner /
Commissioner.
OFFICE
MEMORANDUM
Subject:
Partial modification of Instruction No.
1914 dated 21.03.1996 to provide for guidelines for stay of demand at the first
appeal stage.
Reference:
Board’s O.M. of even number dated 29.02.2016
Instruction No. 1914
dated 21.03.1996 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 29.02.2016 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.
2. 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 29.02.2016 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 29.02.2016 hereby stand modified to 20% of
the disputed demand. Other guidelines contained in the O.M. dated 29.02.2016
shall remain unchanged.
These modifications
may be immediately brought to the notice of all officers working in your
jurisdiction for proper compliance.
Stay
of demand – Assessing Officer cannot impose precondition 20% without applying
his mind to the application made by the assessee [CBDT circular dated :
29.02.2016 and dated 31.07.2017]
In this case, the
assessee-petitioner’s grievance was that its request for stay of demand made
for Assessment Year 2011-12 has not been considered on merits at all and that
the concerned Assessing Officer has required the deposit of 20% of the demand
as a pre-condition, for consideration of the application for exemption/stay of
demand. The assessee approached the Hon’ble High Court by way of a Writ
Petition challenging such an order of the Assessing Officer. It was held by the
Hon’ble High Court that the Assessing Officer 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 Assessing Officer could not have imposed a
precondition of first depositing 20% of the demand before dealing with the stay
application. Consequently, the impugned order was set aside and the Assessing
Officer was directed to reconsider the application for stay of demand made by
the assessee and pass necessary and appropriate orders, and exercise his
discretion having regard to the facts and circumstances of the case, within
three weeks time. - [Turner General
Entertainment Networks India (P) Ltd. v. ITO -
Date of
Judgement : 22.01.2019 (Del)]
The powers of the Assessing
Officer to stay the demand are valid only upto the disposal of appeal by Ld.
CIT(A). – [Maruti Suzuki India Ltd v.
DCIT (2012) 347 ITR 43 (Delhi)]
Discretion
of the Assessing Officer
Assessing
Officer 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.
Though
the power of the assessing officer under section 220(6) is discretionary power,
the Hon’ble Supreme Court in Aeltemes Rein v. Union of India, 1988 AIR 1768 has
been held that every discretionary power vested
in the Executive should be exercised in a just, reasonable and fair way.
After rejecting stay
application Assessing Officer must give reasonable time before taking steps for
coercive recovery
Having said that this is a case in which technically no
fault could be found with the assessing officer, we feel that there was there
was an element of impropriety in his action in issuing the garnishee order
under section 226(3) on 17.02.2014, the very day on which he rejected the stay
application filed by the petitioner under section 220(3). It is expected of
him, having rejected the stay application, to wait for a reasonable period
before he takes coercive steps to recover the amounts since the petitioner,
faced with an order rejecting the stay application, may need some time to make
arrangements to pay the entire tax demand or come up with proposals for paying
the same in instalments. That opportunity was not afforded by the assessing
officer in the present cases. The assessing officer is a prospector of the
revenue and he is no doubt expected to protect the interests of the revenue
zealously, but such zeal has to be tempered with the rules of fair play and an
anxiety to ensure that a opportunity is not lost to the assessee to make
alternative arrangements for clearing the tax dues, once the stay applications
filed under section 220(3) are rejected. Taking away the amount of Rs. 43.87
crores from the bank account of the petitioner may perhaps not be legally
faulted, but taking into account the haste with which the assessing officer
acted in the present case it seems to us that there was an element of
arbitrariness in the action of the assessing officer. In our opinion, since the
stay applications filed by the petitioners are pending before the Tribunal, the
more appropriate course would be to issue the following directions. – [Sony India (P) Ltd v. Addl. CIT - Date of
Judgement : 24.02.2014 (Del)]
“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 sub-Section (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.” – [Maheshwari
Agro Industries v. Union of India (2012) 346 ITR 375 (Raj)]
“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.” – [Smita
Agrawal (HUF) v. CIT (2010) 230 CTR 173 (All)]
It
was held that, no coercive action should be taken till the expiry of the appeal
period against the said order is over. Therefore, the Assessing Officer is duty
bound to wait for the expiry of time period of appeal before proceeding to
recover the tax due. Contempt of court proceedings initiated against Assessing
Officer and Jt. CIT. – [Mahindra and
Mahindra Ltd. v. Assessing Officer (2007) 295 ITR 43 (Bom)]
Valid
service of Notice under section 156 is
mandatory, failure to serve notice recovery proceedings not valid
It was held that valid service is
mandatory; in case of failure to serve the notice, recovery proceedings are
held to be not valid. Service of demand notice constitutes foundation for
subsequent proceedings. Demand Notice not received by assessee, recovery
proceeding held to be not valid. – [Mohan
Wahi v. CIT (2001) 248 ITR 799(SC)]
Where assessee has moved an
application for rectification and the same was pending, recovery proceedings
cannot be taken. – [Sultan Leather
Finishers (P) Ltd. v. ACIT (1991) 191 ITR 179 (All.)]
In
India Foils Ltd. v. IAC, the Calcutta High Court dismissed the writ petition
because application for stay of tax was rejected by the Assessing Officer by
giving proper reasons and there was no perversity in the order. – [India Foils Ltd. v. IAC (1990) 186 ITR 429
(Cal.)]
The
Instruction No. 1362 states that in granting the stay, the Assessing officer
may impose conditions like offer of security to safeguard the interests of the
Revenue, payment towards the disputed taxes a reasonable amount in lumpsum or
in instalments and requiring an undertaking from the assessee that he will
cooperate in early disposal of the appeal failing which the stay order will be
cancelled. Further, it gave direction to the Assessing Officer to look into, interalia,
the following aspects in exercising the discretion -
(a)
Whether the points in dispute relate to facts.
(b)
Whether they arise from different interpretations of law.
(c)
Whether the additions have been made as a result of detailed investigation.
(d)
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. – [Dunlop India Ltd. v. ACIT (1990) 183 ITR
532 (Cal.)]
“In exercising his power, the
Income-tax Officer should not act as a mere tax gatherer but as a
quasi-judicial authority vested with the power of mitigating hardships to the
assessee.” Further, the Hon’ble Court also observed that “Administrative
directions for fulfilling recovery targets for the collection of revenue should
not be at the 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 Act. Applications for stay require judicial
consideration. Rejecting such applications without hearing the assessee,
considering submissions and indicating at least brief reasons is
impermissible.” – [N. Rajan Nair v. ITO
(1987) 165 ITR 650 (Karn)]
It
was held that, it is mandatory that notice must be served only in the manner
provided in section 282 of the Income Tax Act, hence notice by telegram could
not be said to be a substitute for notice by post. At the relevant time only
service by post or by way of summons issued by court under CPC were available.
However, now even Electronic mail or electronic mail message is prescribed
under section 282(2) as acceptable mode of communication of notice. – [CIT v. Sattandas Mohandas Sidhi (1982) 230
ITR 591 (MP)]
Assessing
Officer’s power to curtail the period of payment of 30 days [Proviso to Section
220(1)]
Though proviso to
section 220(1) empowers Assessing Officer to grant period shorter than 30 days
in Notice of Demand for making payment, Assessing Officer cannot curtail the
period of 30 days without valid reasons recorded in writing – [M. Redanna v. Revenue Divisional Officer
(1980) 46 STC (232) (FB) (AP)]
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