Stay of Demand and the 20% Recovery Rule: CBDT Instructions and Judicial Reinforcement by the Bombay High Court
The power of the Income-tax Department to recover tax demand during the pendency of appellate proceedings is statutorily traceable to section 220 of the Income-tax Act, 1961, which provides that any amount specified as payable in a notice of demand shall be paid within the stipulated time.
However, the Act itself recognises that rigid recovery during pendency of appeal may cause undue hardship Section 220(6) therefore empowers the Assessing Officer, where an appeal is filed, to treat the assessee as not being in default in respect of the disputed demand, subject to such conditions as may be imposed. This statutory discretion has, over time, been structured and disciplined by administrative instructions issued by the Central Board of Direct Taxes so as to ensure uniformity, fairness and avoidance of arbitrary recovery
The foundational administrative guidance in this regard is CBDT Instruction No. 1914 dated 21 March 1996, which laid down broad parameters for grant of stay of demand. Recognising the inconsistent practices across field formations and the increasing litigation on coercive recovery, the CBDT substantially modified this framework by Office Memorandum FNo404/72/93-ITCC dated 29 February 2016 This Office Memorandum standardised the norm that, in cases where demand is disputed before the first appellate authority, stay should ordinarily be granted on payment of 15% of the disputed demand, unless the case fell within exceptional categories warranting a higher or lower amount This was a significant policy shift, intended to balance the interests of revenue with the right of the assessee to pursue statutory remedies without financial strangulation
The policy was further refined by Office Memorandum F.No.404/72/93-ITCC dated 31 July 2017 which enhanced the standard pre-deposit requirement from 15% to 20% of the disputed demand. Importantly, the 2017 Office Memorandum clarified that 20% is the norm and not an inflexible rule. Any departure, either upwards or downwards, can be made only after recording reasons and with the approval of the jurisdictional Principal Commissioner or Commissioner of Income-tax. Thus, the administrative scheme clearly limits the authority of the Assessing Officer and mandates adherence to a structured decision-making process, thereby conferring a legitimate expectation upon the assessee that recovery during pendency of appeal will ordinarily be confined to 20% of the disputed demand
These principles came up for authoritative consideration before the Bombay High Court in Fork Media Group Private Limited v CPC Bengaluru, decided on 24 December 2025
While the department did not dispute the applicability of the CBDT Office Memorandum dated 31 July 2017, it sought to justify the excess recovery on the ground that the adjustment had been carried out by the CPC and that such over-adjustment was unintentional.
The copy of the order is as under:
