Why Taxpayer should apply for Stay of Demand immediately after filing Income Tax Appeal?
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.
For ease of reference, the copy of the said CBDT office memo as well as copy of the draft letter for stay of demand is produced hereunder:
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F.No. 404/72/93-ITCC
(FTS:284146)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, 31st July, 2017
OFFICE MEMORANDUM
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.
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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.
(A.K. Sinha)
Director (ITCC)
23092939
All Pr. Chief Commissioners/Pr. Directors General of Income Tax/Chief Commissioners/ Director General of Income Tax
Copy to:
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Chairman and all Members of CBDT.
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All Joint Secretaries and Commissioners in CBDT
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Pr. DGIT(Systems), Pr. DGIT(NADT) and Pr. DGIT(Admn.).
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Additional Directors General (Recovery) and (PR, P&P).
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Web Managers of irsofficersonline.gov.in and incometaxindia.gov.in for placing on the respective portals.
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Office of Comptroller & Auditor General of India (30 copies).
DRAFT LETTER FOR STAY OF DEMAND BY INCOME TAX AUTHORITIES
To,
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
Respected Sir/Madam,
With reference to the above captioned reference & subject and in continuation of our earlier submission, we hereby beg to submit as under:
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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 *************.
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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.
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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.
