Whether 20% tax payment is compulsory for stay of demand under the Income Tax Act – 1961?

Income-tax department is very ridiculously making additions in the assessments which is resulting in heavy demand on the taxpayers. After demand, rigourous recovery action is taken which starts from bank account attachment. Recovery action is taken even if the appeal is filed or pending before the higher authorities.

For recovery of the taxes, department took rigid measures even if the taxpayers is already facing financial crunch. Though there are number of judgments asking assessing officer to be judicious in the approach, still coercive measure are undertaken. The time ahs come when the strong measures are needed to ensure that the stay applications are not rejected without considering the facts of the case.

Against application filed for stay of demand in terms of section 220(6) of the Act, Assessing Officers either rejects the application or ask to make payment of 20% of the demand in line with CBDT circular Dated 31.07.2017.

Its not only that coercive measures are being taken against the company but now provisions of section 179(1) of the Act are also invoked and the bank accounts and assets of the directors are also attached. It is happening despite the fact that this section specifically requires that action can be taken against the director only if recovery cannot be made from the company and there is gross negligence, misfeasance or breach of duty of the director.

Even prosecution notices u/s 276C(2) of the Act are being issued with authorization from Commissioner or Pr. Commissioner for prosecution on the premise that taxpayer is willfully attempting  to evade payment of tax.

It must be noted here that Hon’ble Apex Court in ITO v. MK Mohammad Kunhi (1969) 71 ITR 815 (SC) has concluded that CIT(A) is empowered  to stay the demand during the pendency of appeal. Still,  CIT(A)s are not exercising  their powers to stay the demand & even often threaten to dismiss the appeal in case assessee filed stay application. CIT(A)s are reluctant  to grant stay even in case the ground of appeal are strong.

In short, taxpayers faces serious problem in getting the stay of deamand.

IF anyhow the appeal is decided by CIT(A) in favour of the revenue, Tax Recovery Officer or Assessing Officer becomes all the more aggressive for recovery without even waiting for the period available to the assesses for filing the appeal before ITAT.  Needless to say, in ITAT whenever request is made for stay of demand, DR strongly resist for the stay.

An Important point here to be noted is that by grating stay, department never losses anything as the demand is always subject to interest @ 12% as against 6% payable on income tax refund.

CBDT Instructions 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.

 Let us have a look at some of the judgment on the issue.

 

1. Hon’ble Madras High Court in the case of Mrs. Kannammal v. ITO, W.P. No. 3849 of 2019, judgement dated 13.02.2019 has observed as under:
    “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.”

2. Hon’ble Madras High Court in Jayanthi Seeman v. Pr. CIT, W.P. No. 30094 of 2018, judgement dated 21.02.2019 has observed that
   

“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.”

3. Delhi High Court in Turner General Entertainment Networks India Pvt. Ltd. v. ITO, New Delhi, W.P.(C) 682/201 dated 22.01.2019 has noted the following observation by the department rejecting application for stay:
    “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.
   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 OM dated 31.07.2017.”

            Hon’ble Court held as under:-

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.”

4. 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 08.08.2017has held as under:
   
   “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.

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.

9. The CIT(A) shall also consider the request of the Petitioner for an expeditious disposal of the appeal.”

On above judgment, department filed SLP with the Hon’ble Supreme Court and Hon’ble Supreme Court (Civil Appeal No. 6850 of 2018, judgement dated 20.07.2018) has held as under:-

“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.”

5. Karnataka High Court in  Flipkart India Pvt. Ltd. v. ACIT & Ors, Writ Petition Nos. 1339-1342/2017 (T-IT) Judgement dated 23.02.2017.“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.
6. 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.

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.”

6. Allahabad High Court in the case of Smita Agrawal (HUF) v. CIT (2010) 230 CTR 173 (All) has observed as under:-

“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.”

7. Hon’ble Rajasthan High Court  in the case of Maheshwari Agro Industries v. Union of India (2012) 346 ITR 375 (Raj):-

“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.”

8. Karnataka High Court in the case of N. Rajan Nair v. ITO (1987) 165 ITR 650 (Ker) that

“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.”

 Though there are number of judgments asking assessing officer to be judicious in the approach, still coercive measure are undertaken. The payment of 20% tax is optional and not compulsory as has been held in number of cases referred above, still AO rejects the application in genuine cases as well.  The time has come when the strong measures are needed to ensure that the stay applications are not rejected without considering the facts of the case.