Stay of demand

Introduction

If an appeal is filed by the assessee against an unfavourable assessment order before the Joint Commissioner (Appeals) or Commissioner (Appeals), the assessing officer can grant a stay of demand, subject to payment of 20% of the disputed tax demand. However, this limit can be increased in certain situations. If the assessing officer does not grant a stay of demand, the assessee can approach CIT(A) or ITAT.

1. About

Where an assessment has been made against the assessee and the assessing officer issues a demand notice based on the assessment order but the assessee fails to pay the amount specified in the notice of demand within 30 days of the service of the notice, or such shorter period as may be prescribed by the Assessing Officer with the prior approval of the Joint Commissioner, he is liable to pay interest and penalty.

If the tax demand is so huge that it may cause genuine hardship to the assessee, he may submit an application for a stay of demand before the following authorities:

(a) Assessing Officer;

(b) Joint Commissioner (Appeals) or Commissioner (Appeals); or

(c) Income-tax Appellate Tribunal.

2. Stay of demand by the Assessing Officer

2.1. Remedy with the taxpayer

If the taxpayer feels that he should not be made liable to pay the tax demand because, in his opinion, the assessment of income is unreasonably high (also termed as ‘high-pitched assessment"), he can approach the assessing officer for a stay of demand.

The Assessing Officer has the power to extend the time for payment of a tax demand or to allow payment in instalments. The Assessing Officer also has the power not to treat a taxpayer defaulter for non-payment of tax till his appeal is disposed of by the Joint Commissioner (Appeals) or Commissioner (Appeals).

2.2. Conditions for the stay of demand

The repeal and saving provision of Section 536(2)(j) provides that any circular, direction, instruction, notification, order or rule or any scheme issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been issued under the corresponding provision of this Act and shall continue in force accordingly.

Under the ITA 1961, the CBDT has issued the following guidelines for the Assessing Officer to follow while exercising the statutory powers to stay a demand.

2.2-1. Payment of 20% of the disputed demand

2.2-2. Requiring payment higher than 20%

In the following three cases, the AO can insist on a lump sum payment which is higher than 20% of the tax demand:

(a) If the taxpayer has a history of tax litigation and the tax assessment on the same issues in preceding years has been affirmed in appellate proceedings;

(b) where the Supreme Court or the jurisdictional High Court has decided the same issue in the tax department"s favour; or

(c) The tax demand is based on credible evidence collected during a search or survey operation conducted against the taxpayer.

2.2-3. Requiring payment of less than 20%

If the Assessing Officer is of the view that a payment of less than 20% of the disputed tax demand is warranted, the Assessing Officer may refer the matter to the CIT, who shall, based on the relevant facts, decide the quantum of the demand that the taxpayer should pay in a lump sum for granting a stay of the balance. The CIT may allow payment of less than 20% of the disputed tax if there is a favourable ruling in favour of the assessee either in his own case

If the Assessing Officer directs the taxpayer to pay 20% of the tax demand and the taxpayer still feels aggrieved, he can file a review petition before the CIT against such directions. Thus, it is possible to obtain a stay, subject to payment of lower than 20% of the total tax demand, if any of the above twin circumstances of past precedents exist.

3. Stay of Demand by JCIT(A) or CIT(A)

There are no provisions in the Income-tax Act conferring power to the JCIT(A) or CIT(A) to grant a stay of demand. However, the High Courts have held that the CIT (Appeals) have inherent powers to grant stay of demand in cases where appeals have been filed before such authorities. The power to grant a stay of the collection of tax is an inherent and incidental power of the appellate authorities under section 411(12) to treat the assessee as not in default, and will not deprive the first appellate authority from invoking or exercising its inherent power of stay

In other words, unless there is an exclusionary provision, the power to grant a stay will ordinarily be deemed to have been conferred on the appellate authorities. Keeping in view the propositions laid down by the Supreme Court

The power of the first appellate authority to stay the recovery of the demand of dues, which are the subject matter of appeal pending before it, is independent of the provisions of Section 411(12). It is not necessary that before invoking the power of the first appellate authority, an assessee should approach the Assessing Officer under section 411(12) or that the Assessing Officer must reject the assessee"s prayer for stay of the demand

Merely because the assessee has approached the Commissioner for a stay of recovery of the demand and has paid some instalments as per the Commissioner"s order, it cannot be estopped from filing an application for a stay of the demand before the Tribunal

4. Stay of Demand by ITAT

4.1. Stay proceedings by ITAT

If an assessee makes an application for stay of proceedings, the appellate tribunal may, after considering the merits of the application, pass an order of stay for a period not exceeding 180 days from the date of the order, and the appellate tribunal shall dispose of the proceedings within the period of stay specified in that order. However, a stay can be granted only if the assessee has deposited or furnished security to the extent of 20% of his tax liabilities, including interest, fee, penalty or any other sum payable under the provisions of this Act.

4.2. Extension of Period of Stay

Where the appellate authority has not disposed of the appeal within the original period of stay, the tribunal may, if it is satisfied that the delay is not attributable to the assessee, extend the period of stay for such further period as it thinks fit. However, ITAT can extend the period of stay only if the assessee has filed an application and deposited or furnished security to the extent of 20% of his tax liabilities, including interest, fee, penalty or any other sum payable under the provisions of the Act.

4.3. Maximum period of stay

The total period of the stay (the aggregate of the stay originally granted and the period so extended) shall not exceed 365 days, and the appellate tribunal shall dispose of the appeal within the period so extended.

4.4. Vacation of the order of stay

If the appeal is not disposed of within the period of stay allowed or extended, the order of the stay shall vacate after the expiry of such period. Such vacation shall be irrespective of whether the delay in disposing of the appeal is attributable to the assessee or not.

4.5. Procedure for filing and disposal of stay petition

Every application for stay of recovery of demand of tax, interest, penalty, fine or any other sum shall be presented by the applicant with a fee of Rs. 500. Separate applications shall be filed for stay of recovery of demands under different enactments.

Rule 35A of the Income-Tax (Appellate Tribunal) Rules, 1963 provides that every application shall be neatly typed on one side of the paper, shall be in English, and shall set forth concisely the following:

(a) Short facts regarding the demand of the tax, interest, penalty, fine or any other sum recovery which is sought to be stayed;

(b) The result of the appeal filed before the Commissioner (Appeals);

(c) The exact amount of tax, interest, penalty, fine or any other sum demanded, as the case may be, and the amount undisputed therefrom and the amount outstanding;

(d) The date of filing the appeal before the Tribunal and its number, if known;

(e) Whether any application for stay was made to the revenue authorities concerned, and if so, the result thereof; 

(f) Reasons in brief for seeking a stay;

(g) Whether the applicant is prepared to offer security, and if so, in what form;

(h) Prayers to be mentioned clearly and concisely;

(i) The contents of the application shall be supported by an affidavit sworn by the applicant or his duly authorised agent.

An application that does not conform to the above requirements is liable to be summarily rejected. Though there are no hard and fast rules regarding the grant of stay, prudence, discretion and circumspection are called for, and the stay should not be granted as a matter of course. Considerations about the balance of convenience, the question of irreparable injury and implications to public interest are to be borne in mind. The power of stay should be exercised when a strong prima facie case is made out, and the Tribunal will consider whether to stay the recovery proceedings. The stay will be granted in most deserving and appropriate cases where the Tribunal is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal

4.6. Direction by the High Court

If the reasons recorded by the Tribunal in rejecting the assessee’s application for stay of recovery proceedings are opposed to judicial canons, the High Court can direct the Tribunal to consider the merits of the application for stay in the pending appeal based on accepted judicial principles

References

Office Memorandum F. No.404/72/93-ITCC (FTS: 284146) dated 31-7-2017

Kalapet Primary Agricultural Co-Op. Credit Society Ltd. v. ITO [2016] 72 taxmann.com 166 (Mad.)

Cf. V.N. Purushothaman v. Ag ITO [1984] 149 ITR 120 (Ker). The ratio of the judgment should be applicable to JCIT(A) also.

ITO v. M.K. Mohd Kunhi [1969] 71 ITR 815 (SC). The principle laid down by Hon’ble Supreme Court should be applicable to JCIT(A) also.

Prem Prakash Tripathi v. CIT [1994] 208 ITR 461/75 Taxman 107 (All.)

Tin Mfg Co of India v. CIT [1995] 212 ITR 451/78 Taxman 249 (All.)

A.P. Kuruvilla & Co. v. CBDT [1995] 214 ITR 183 (Ker.).

Reuters India (P.) Ltd. v. CIT [2004] 3 SOT 886 (Delhi)

Honeywell Automation India Ltd. v. CIT [2012] 49 SOT 333 (Pune)/17 taxmann.com 28 (Pune - Trib.)

ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 (SC)

Shiv Shakti Rubber & Chemicals Works v. ITAT [1995] 80 Taxman 179 (All.)

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.