Draft Letter for Stay of Demand by the Income Tax Officer
The moment the demand is raised in assessment or other proceeding; income tax authorities starts the recovery proceeding within 30 days of raising the demand.
The first & easy steps in the recovery proceeding would be to recover the amount from the bank account. The second steps that is followed by the department is adjustment of subsequent years refund against the demand of earlier years.
If the demand is raised and the stay is not granted, then the amount could be recovered by above two steps by the department. The action by way of above two modes can be taken by the AO at any point of time. Mostly, during the period of tax shortfall in the Government Treasury, the strong recovery action is initiated by the department.
At this juncture, it is important to know that the CBDT has issued a Instruction No. 1914 dated 21.3.1996 followed by O.M. N0.404/72/93-ITCC dated 29.2.2016 which provides that the AO is duty bound to grant the stay of demand if 20% of the demand is paid by the Assessee. But this stay is not automatic and the Assessee has to apply for this. If assessee don’t apply for stay of demands its subsequent refunds may get blocked till the demand is nullified by whatsoever means.
So, taxpayer must apply for the stay of demand immediately after 20% of the tax payment to the AO. Earlier, the limit was 15% which has been enhanced to 20% by office memo dated 29/02/2016.
It may be noted that AO is duty bound to dispose of the Stay petitions filed within two weeks of the filing of petition by the tax- payer. AO has to be intimated of the decision without delay as well. It may be noted that there is a CBDT guidelines for recovery of the amount which is also produced hereunder for the benefit of the readers.
For ease of reference, the copy of the draft letter for stay of demand, CBDT Guidelines, & CBDT Instructions / office memo on this issue is produced hereunder:
DRAFT LETTER FOR STAY OF DEMAND BY INCOME TAX AUTHORITIES
The Income Tax Officer
City – Pin Code
Assessee : *************
PAN : *************
Status : *************
A.Y. : *************
Subject: Request for grnating of stay against demand of Rs. *************
Reference: – Your order Dated
With reference to the above captioned reference & subject and in continuation of our earlier submission, we hereby beg to submit as under:
That I was assessed u/s **************** and a demand of Rs. ************* was raised on me against which I have filed an appeal with the CIT (A) on *************.
That I have paid Rs. 1*************n 11/02/2020 against the above demand. The amount paid is more than 20% of the tax amount. The copy of the Challan is enclosed herewith as Annexure-I.
That I request you to kindly grant the stay of demand in view of the CBDT Instruction No. 1914 dated 21.3.1996 followed by O.M. N0.404/72/93-ITCC dated 29.2.2016 which provides for stay of demand mandatorily if more than 20% of the tax is paid. For your reference, the copy of the said letter is enclosed herewith as Annexure-II.
CBDT Guidelines on Tax Recovery:
Recovery of outstanding tax demands: CBDT Instructions & Guidelines
[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.
The Board is of the view that, as a matter of principle, every demand should be recovered as soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with the guidelines given below :
i. It shall be the responsibility of the Assessing Officer and the TRO to collect every demand that has been raised, except the following: (a) Demand which has not fallen due;(b) Demand which has been stayed by a Court or ITAT or Settlement Commission;(c) Demand for which a proper proposal for write-off has been submitted;(d) Demand stayed in accordance with paras B & C below.
ii. Where demand in respect of which a recovery certificate has been issued or a statement has been drawn, the primary responsibility for the collection of tax shall rest with the TRO.
iii. It would be the responsibility of the supervisory authorities to ensure that the Assessing Officers and the TROs take all such measures as are necessary to collect the demand. It must be understood that mere issue of a show cause notice with no follow-up is not to be regarded as adequate effort to recover taxes.
B. Stay Petitions:
i. Stay petitions filed with the Assessing Officers must be disposed of within two weeks of the filing of petition by the tax- payer. The assessee must be intimated of the decision without delay.
ii. Where stay petitions are made to the authorities higher than the Assessing Officer (DC/CIT/CC), it is the responsibility of the higher authorities to dispose of the petitions without any delay, and in any event within two weeks of the receipt of the petition. Such a decision should be communicated to the assessee and the Assessing Officer immediately.
iii. The decision in the matter of stay of demand should normally be taken by Assessing Officer/TRO and his immediate superior. A higher superior authority should interfere with the decision of the AO/TRO only in exceptional circumstances; e.g., where the assessment order appears to be unreasonably high-pitched or where genuine hardship is likely to be caused to the assessee. The higher authorities should discourage the assessee from filing review petitions before them as a matter of routine or in a frivolous manner to gain time for withholding payment of taxes.
C. Guidelines for staying demand:
i. A demand will be stayed only if there are valid reasons for doing so. Mere filing an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand. A few illustrative situations where stay could be granted are:
It is clarified that in these situations also, stay may be granted only in respect of the amount attributable to such disputed points. Further where it is subsequently found that the assessee has not co-operated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or court alters the above situation, the stay order may be reviewed and modified. The above illustrations are, of course, not exhaustive.
ii. In granting stay, the Assessing Officer may impose such conditions as he may think fit. Thus he may — a. require the assessee to offer suitable security to safeguard the interest of 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.
iii. Payment by instalments may be liberally allowed so as to collect the entire demand within a reasonable period not exceeding 18 months.
iv. Since the phrase “stay of demand” does not occur in section 220(6) of the Income-tax Act, the Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) or section 220(7)], the expression that occurs in the section viz., that he agrees to treat the assessee as not being default in respect of the amount specified, subject to such conditions as he deems fit to impose.
v. While considering an application under section 220(6), the Assessing Officer should consider all relevant factors having a bearing on the demand raised and communicate his decision in the form of a speaking order.
i. Even where recovery of demand has been stayed, the Assessing Officer will continue to review the situation to ensure that the conditions imposed are fulfilled by the assessee failing which the stay order would need to be withdrawn.
ii. Where the assessee seeks stay of demand from the Tribunal, it should be strongly opposed. If the assessee presses his application, the CIT should direct the departmental representative to request that the appeal be posted within a month so that Tribunal’s order on the appeal can be known within two months.
iii. Appeal effects will have to be given within 2 weeks from the receipt of the appellate order. Similarly, rectification application should be decided within 2 weeks of the receipt 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.
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.
This procedure would apply mutatis mutandis to demands created under other Direct Taxes enactments also.
2. Part payment of outstanding demand — Clarification regarding adjustment thereof
[Instruction No. 1936 – F. No. 404/62/95-ITCC dated 21-3-1996 from CBDT]
A question has been referred to the Board seeking clarification that :
“If the tax paid by the assessee is not sufficient to cover the total demand then should it first be adjusted against the interest.”
The Board have been informed that the Assessing Officers are not following any uniform procedure in this regard. While one set of Assessing Officers are first adjusting the part payment received from the assessee against the tax due, the others are adjusting the part payments towards the outstanding interest due under section 220(2). The matter was referred to the Ministry of Law for their opinion and they have also observed that both the views are possible.
For the sake of uniformity the Board have decided that part payment received from assessee should first be adjusted towards the tax due and not the interest calculated under section 220(2) of the Income-tax Act.
The aforesaid instruction may be brought to the notice all officers working under your charge.
3.Clarification regarding charging of interest u/ss. 201(1A) and 220(2) of Income-tax Act
[Instruction No. 1944 — F. No. 275/14/97-IT(B) dated 27-8-1997 issued by CBDT]
The Central Board of Direct Taxes have received several representations seeking clarification about the simultaneous charging of interest u/s. 201(1A) and u/s. 220(2) of the Income-tax Act, 1961.
After due consideration, it is hereby clarified that for non-deduction of tax at source or failure to pay the tax after deducting the same, interest u/s. 201(1A) is chargeable. If the tax and/or interest is not paid within the stipulated time, then interest u/s. 220(2) also becomes chargeable.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, 31st July, 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) there under. Similar references to the standard rate of 15% have also been made in succeeding paragraphs therein.
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.
All Pr. Chief Commissioners/Pr. Directors General of Income Tax/Chief Commissioners/ Director General of Income Tax
Chairman and all Members of CBDT.
All Joint Secretaries and Commissioners in CBDT
Pr. DGIT(Systems), Pr. DGIT(NADT) and Pr. DGIT(Admn.).
Additional Directors General (Recovery) and (PR, P&P).
Web Managers of irsofficersonline.gov.in and incometaxindia.gov.in for placing on the respective portals.
Office of Comptroller & Auditor General of India (30 copies).