Allahabad Decision : In Mrs. Mani Goyal v. CIT and Anr. (1996) 217ITR 641 (All.).

The facts
were that the petitioner had submitted a return declaring a total income of Rs. 11,710. The
DCIT did not accept the return and enhanced the income by making several additions and
determined the tax at Rs. 33,04,450 i.e. several times more than the tax on the income
returned. The petitioner filed first appeal before the CIT(A) in respect of the assessment
made, determining huge income-tax liability. Before the disposal of the appeal, the
assessing authority initiated recovery proceedings for the said amount. The stay application
against recovery proceedings filed by the appellant-petitioner before the CIT(A) was
rejected. Till the matter came up before the High Court by a writ petition, the appeal had
not been fixed for hearing by the CIT(A). On these facts the Court was constrained to make
the following observations: “…..it is opposed to the principles of good conscience and fair
play that the disputed amount of tax is sought to be recovered even though the appeal is
pending. It adds to the hardship of the appellant in such circumstances….”

Karnataka decision The Karnataka High Court in the case of M. Shivanna and Anr. v. DCIT
(2008) 218 CTR (Kar.) 279, referring to CBDT’s Circular No. 530 and other circulars has
observed that the respondent [i.e., DCIT], being a statutory authority, has to pass an order
exercising the power as envisaged under the statute [i.e. under IT Assessments – Stay of
Demand during Pendency of Appeal before the Commissioner (Appeals) Articles section
220(6)] and in strict compliance with relevant provisions of the Act and the Rules and after
affording reasonable opportunity to the assessee. The Court has also observed that quasi-
judicial authorities, discharging their duties under the statute, have to proceed strictly in
compliance with the principles of natural justice and to pass speaking order.

Delhi decisions In Soul v. Dy. CIT (2008) 220 CTR (Del) 211, the court found that the
assessment was ‘high-pitched’ – 74 times of returned income. The Court therefore observed
that demand raised needs to be stayed in view of the CBDT’s circular no. 96 dated 21st
August,1961 and Instruction No. 1914 dated 2nd December, 1993. Hence garnishee order
passed under Section 226(3) was ordered to be kept in abeyance by the HIGH COURT
.Earlier, the same High Court in the case of Valvoline Cummins Ltd. v. CIT and Ors. (2008)
217 CTR (Del) 292 had granted an absolute stay of demand because the assessment made
was eight times of the returned income saying that a perusal of para 2 of the CBDT
instruction No. 96, dated 21st Aug., 1969 would show that where the income determined is
substantially higher than the returned income, that is, twice the latter amount or more,
then the collection of tax in dispute should be held in abeyance till the decision on the
appeal is taken. In this case, the assessment is almost 8 times the returned income.
Clearly, Instruction No. 96, dt. 21st Aug., 1969 would be applicable to the facts of the case.
Under the circumstances, the assessee would, in normal course, be entitled to an absolute
stay of the demand on the basis of the above instruction. [N. Rajan Nair v. ITO and Anr.
(1987) 63 ITR (Ker) 33 ; (1987) 165 ITR 650 (Ker.), Mrs. R. Mani Goyal v. CIT (1996)
131 CTR (all) 274 : (1996) 217 ITR 641 (All) and I.V.R. Constructions
Ltd. v. Asstt. CIT (1988) 150 CTR (AP) 252 : (1998) 231 ITR 519 (AP)
Relied on].
The Delhi High Court has considered the issue relating to stay of disputed demands once
again in Taneja Developers and Infrastructure Ltd. v. Asstt. CIT (Del) (2009) 222 CTR (Del)
521 (judgement pronounced on 22.2.2009) and has decided that assessment at a figure
350 times the returned income is unreasonably highpitched. Hence recovery needs to be
stayed in view of CBDT Instruction No. 96 dated 21st August, 1969. Gujarat decision In the
case of Gujarat Maritime Board v. Asstt. Commissioner of Income-tax (2008) 220 ITR (Guj.)
390, the stay related to a situation where the appeal was pending with the ITAT. In this
case, stay was granted to the assessee till the disposal of appeal by the Tribunal on the
condition of furnishing of adequate security by the assessee. The foregoing discussions
clearly indicate the judicial views on the issue of stay of demands. Yet, these have failed to
make the IT Department take a reasonable and considerate view and invariably decisions
are taken against the taxpayers rejecting requests for stay of demands which are highly
disputed raising arguable issues.
CBDTíS INSTRUCTIONS/CIRCULARS CONCERNING
STAY OF DEMAND PETITIONS
Considerable confusion exists in the matter of instructions issued
by the CBDT in regard to stay of demand and the CBDT has not
bothered to clarify the issues. There is no inter-connection
between different instructions and circulars issued by the CBDT
as could be seen from the following discussion.
Instruction No. 96 dated 21.08.1969.
In this instruction, which has been made public, the CBDT has
stated that the demand has to be stayed till the decision of the
first appeal. Such assurance was given by the then Deputy Prime
Minister and Finance Minister to the Informal Consultative
Committee of Parliament and therefore has to be followed in the
matter of grant of request for stay – the decision of the F.M.,
conveyed through an instruction, being binding on the field
officers. For ready reference, the above mentioned instruction is
reproduced below-
“1. One of the points that came up for consideration in the 8th meeting
of the Informal Consultative Committee was that income-tax
assessment were arbitrarily pitched at high figures and that the
collection of disputed demands as a result thereof was also not
stayed inspite of the specific provision in the matter in section
220(6).
2. The then Deputy Prime Minister had observed as
under:-
“….where the income determined an assessment was substantially
higher than the returned income, say, twice the latter amount or
more the collection of the tax in dispute should be held in abeyance
till the decision on the appeals, provided there were no lapse on the
part of the assessee.”
3. The Board desires that the above observations may be brought to
the notice of all the ITOs working under you and the powers of
stay of recovery in such cases upto the stage of first appeal may be
exercised by the IAC/CIT.”
The instruction has not been overruled or withdrawn specifically
by any instruction or circular from the CBDT. The Counsel for
the IT Department in the case of Soul v. Dy. CIT (supra) mentioned
before the Court that this instruction has been superseded by
Instruction No. 1914 of 1993. This statement does not seem to be
correct. Circular No. 96 has been relied upon by the Courts for
granting stay of demand on writ petitions coming up before
Courts even after the issue of this instruction No. 1914. Few
instances are:
(a) The Allahabad High Court in its decision in the case of
Mrs. R. Mani Goyal has said that the instruction No. 96 is in
consonance with the spirit of the provisions contained in
section 220(6).
(b) Instruction No.96 bas been held to be binding on the
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Department in the cases covered by it [See, Maharana Shri
Bhagwat Singhji of Mewar v. ITAT, (1997) 223 ITR 192, 199,
200-01(Raj.)].
(c) Valvoline Cummins Ltd.’s case (supra)
(d) In the case of N. Rajan Nair v. ITO (1987) 165 ITR 650(Ker.),
the Kerala High Court referred to Instruction No. 96 and
stated “The instructions indicate the departmental thinking on
the subject which is also relevant in the context of exercising the
discretion under section 220(6).”
(e) Obviously, this Instruction cannot be superseded by the
CBDT by itself as the same is based on the statement made
by the then Dy. PM and FM before the Consultative
Committee of the Parliament and before it is rescinded, it
will have to have the approval of the FM and the said
Committee.
Yet, the Income-tax Department is claiming that this instruction
has been superseded by Instruction No. 1914 dated 2.12.1993.
Departmental Counsel – claimed so first before the Delhi High
Court in case of Soul v. Dy. CIT (supra) and again in Taneja
Developers’ case (Supra).
It may be mentioned in this context that Instruction No. 1914 is
not an instruction which has been publically issued as full text of
it is not available in any published literature. Obviously, such an
unpublished instruction for departmental use cannot take
precedence over public instruction No. 96 (supra) and can not
supersede it.
Circular No. 1914 was made available by the Counsel for the IT
Department to the Delhi High Court in the case of ‘Soul’, and the
court observed thus:
“Having considered the arguments advanced by the learned counsel
for the parties, we are of the view that although Instruction No. 1914
of 1993 specifically stated that it is in supersession of all earlier
instructions, the position obtaining after the decision of this Court in
Valvoline Cummins Ltd. (supra ) is not altered at all. This is so
because para No. 2(A) which speaks of responsibility specifically
indicates that it shall be the responsibility of the AO and the TRO to
collect every demand that has been raised “except the following”,
which includes “(d) demand stayed in accordance with the paras B
and C below”. Para B relates to stay petitions. As extracted above,
sub-cl. (iii) of para B clearly indicates that a higher/superior authority
could interfere with the decision of the AO/TRO only in exceptional
circumstances. The exceptional circumstances have been indicated
as – “where the assessment order appears to be unreasonably high
pitched or where genuine hardship is likely to be caused to the
assessee”. The very question as to what would constitute the
assessment order as being unreasonably high pitched in consideration
under the said Instruction No. 96 and, there, it has been noted by
way of illustration that assessment at twice the amount of the returned
income could amount to being substantially higher or high pitched.
In the case before this Court in Valvoline Cummins Ltd. (supra) the
assessee’s income was about eight (8) times the returned income.
This Court was of the view that was high pitched. In the present case,
the assessed income is approximately 74 times the returned income
and obviously, this would fall within the expression “unreasonably
high pitched”.”
These observations show that despite instruction No. 1914 saying
that it is being issued in supersession of all previous instructions,
Instruction No. 96 is still valid in the matter of grant of stay of
disputed demands. That Instruction No. 96 has not been
superseded by Instruction No. 1914 has again been reiterated by
the Delhi High Court in the case of Taneja Developers (Supra). For
ready reference, the relevant observations of the High Court are
reproduced hereinafter:
“Learned counsel for the respondent seeks to plead that the aforesaid
circular does not reflect the current procedure being followed by
respondent in view of a subsequent Instruction No. 1914. However,
this very instruction, as pointed out by learned senior counsel for the
petitioner, has once again been considered by the Division bench of
this Court in Soul v. Dy. CIT (2008) 220 CTR (Del) 211 : (2008) 173
Taxman 468(Del).
The judgement in Soul (supra) has considered the impact of
Circular No. 1914 of 1993 vis-a-vis a judgement in Valvoline
Cummins Ltd. (Supra) and thus a similar submission as is sought
to be advanced by the learned counsel for the respondent before
us was advanced before that Court.
The Division Bench dealt with it in the following manner :
‘6. The issue that has been raised for the present, by the petitioner
is with regard to the de-sealing of the bank accounts on account of
the fact that returned income was approximately Rs. 10.16 lacs
whereas the assessed income is very high pitched in the sense that
it is approximately 74 times of the returned income. The learned
counsel for the petitioner submitted that in view of this fact alone,
the petitioner would be entitled to a stay and, therefore, the impugned
notices ought to be quashed. The learned counsel for the petitioner
placed reliance on a decision of this Court in case of Valvoline
Cummins Ltd. v. Dy. CIT (2008) 217 CTR (Del) 292. This Court,
in that case, considered Instruction No. 96 dt. 21st Aug., 1969
issued by the CBDT. The said instruction dealt with the framing of
an assessment which is substantially higher than the returned
income. In the said instruction it was noticed that one of the points
that came up for consideration in the eighth meeting of the Informal
Consultative Committee was that the income assessments were
arbitrarily pitched at high figures and that the collection of disputed
demands as a result thereof was also not stayed in spite of the
specific provision in the matter in Section 220(6) of the said Act.
The observations of the then Dy. Prime Minister were noted. The
observations were to the effect that where the income determined
on assessment was substantially higher than the returned income,
say, twice the latter amount or more, the collection of the tax in
dispute should be held in abeyance till the decision on the appeals,
provided there were no lapse on the part of the assessee. The CBDT,
by virtue of the said Instruction No. 96, desired that the above
observations of the then Dy. Prime Minister be brought to the
notice of all the ITOs and that the power of stay on recovery in such
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cases be exercised, upto the stage of first appeal, by the IAC/CIT.
Noting the above instruction, this court observed as under:
’41. A perusal of para 2 of the aforesaid extract would show that
where the income determined is substantially higher than the
returned income, that is, twice the latter amount or more, then
the collection of tax in dispute should be held in abeyance till the
decision of the appeal is taken. In this case, as we have noted above,
the assessment is almost 8 times the returned income. Clearly, the
above extract from instruction No. 96 dt. 21st Aug., 1969 would
be applicable to the facts of the case…
43. Under the circumstances, we are of the view that the assessee
would, in normal course, be entitled to an absolute stay of the
demand on the basis of the above instruction.’”
Mr. Jolly, who appeared on behalf of the respondent, submits
that Instruction No. 96 which formed the basis of the decision of
this Court in Valvoline Cummins Ltd’s case now stands
superseded by Instruction No. 1914 of 1993 dt. 2nd Dec., 1993. Mr.
Jolly handed over a copy of the said instruction. The relevant
portion of the said instruction reads as under:
A. Responsibility
(i) It shall be the responsibility of the AOs and the TRO to collect
every demand that has been raised, except the following:
􀂄 Demand which has not fallen due;
􀂄 Demand which has been stayed by a Court or Tribunal or
Settlement Commission;
􀂄 Demand for which a proper proposal for write off has been
submitted;
􀂄 Demand stayed in accordance with paras B and 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 AOs 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 AOs must be disposed of within two
weeks of the filing of petition by the taxpayer. The assessee must
be intimated of the decision without delay.
(ii) Where stay petitions are made to the authorities higher than the
AO (Dy. CIT/CIT/Chief CIT), 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 AO
immediately.
(iii) The decision in the matter of stay of demand should normally be
taken by AO/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….
Relying upon the said Instruction No. 1914 of 1993, Mr. Jolly
submitted that all previous instructions stood superseded which
included the supersession of said Instruction No. 96. He further
submitted that para No. 2(C), which deals with guidelines for
staying demand, specifically requires that a demand be stayed
only if there are valid reasons for doing so and that a mere filing of
an appeal against the assessment order will not be a sufficient
reason for staying recovery of a demand.
Having considered the arguments advanced by the learned counsel
for the parties, we are of the view that although Instruction No.
1914 of 1993 specifically states that it is in supersession of all
earlier instructions, the position obtaining after the decision of
this Court in Valvoline Cummins Ltd. (supra) is not altered at all.
This is so because para No. 2(A) which speaks of responsibility
specifically indicates that it shall be the responsibility of the AO
and the TRO to collect every demand that has been raised ‘except
the following’, which includes (d) demand stayed in accordance
with the paras B and C herein above’. Para B relates to stay petitions.
As extracted above, sub-cl.(iii) of para B clearly indicates that a
higher/superior authority could interfere with the decision of the
AO/TRO only in exceptional circumstances. The exceptional
circumstances have been indicated as ‘where the assessment order
appears to be unreasonably high pitched or where genuine hardship
is likely to be caused to the assessee’. The very question as to what
would constitute the assessment order as being reasonably high
pitched in consideration under the said Instruction No. 96 and,
there it has been noted by way of illustration that assessment at
twice the amount of the returned income would amount to being
substantially higher or high pitched. In the case before this Court
in Valvoline Cummins Ltd. (supra) the assessee’s income was
about eight (8) times the returned income. This Court was of the
view that was high pitched. In the present case, the assessed
income is approximately 74 times the returned income and
obviously, this would fall within the expression ‘unreasonably
high pitched.
The aforesaid issue is thus no more res integra and thus the
impugned order is not sustainable. A figure of 8 times and 74
times has been classified as ‘unreasonably high pitched”. In the
present case it is 350 times and so falls under the same
nomenclature.
Consequently, the operation of the impugned order is stayed till
the disposal of the writ petition. The natural consequence would
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be that any attachment order issued in pursuance of the impugned
order would not have any effect.”
There is one more aspect concerning Instruction No. 96. This was
issued on the orders of the Dy. P.M. and PM on the basis of
statement made by the Dy. PM and FM before the Informal
Consultative Committee. The CBDT has not come out with any
declaration that FM’s approval has been taken by it for
superseding this Instruction No. 96. Without saying so, it is wrong
to say that this Instruction gets superseded merely by saying in
Instruction No. 1914 that it is issued in supersession of all previous
Circulars/Instructions.
Thus the AOs in rejecting the requests for stay of demand are
unjustifiably refusing to follow Instruction No. 96 which cannot
be said to have been superseded by Instruction No. 1914 (supra).
It is regrettable that their stand is being supported by the Standing
Counsel of the IT Department at the Delhi High Court. The CBDT’s
instructions are quite specific regarding the stay of demand
concerning disputed additions. The disputed demand needs to
be stayed till the disposal of first appeal where the demand is
much more than on the income returned i.e. on twice on the
returned income. The case is stronger as per the Court’s decision
when the assessed income is 8 times, 74 times – anything upto
double or more. But unfortunately, the CBDT’s instructions are
being ignored blatantly with no accountability and the assessees
are made to run from one authority to the other without any
success because of rigid attitudes. The CBDT has to ponder whether
such situation should continue when there is emphasis on good
taxpayer-tax collector relationship?
OTHER CIRCULARS OF THE CBDT ON STAY
OF DEMAND
CBDTís Circular No. 530 Dated 06.03.1989
This circular directs that the AO may exercise his discretion under
section 220(6) and treat the assessee not being in default in regard
to demand payable in the following circumstances:
(a) The demand in dispute has arisen because the AO has
adopted an interpretation of law on which there are
conflicting decisions from the High Courts or the
jurisdictional High Court has adopted an interpretation,
which has not been accepted by the IT Department.
(b) The demand in dispute relates to issues that have been
decided in favour of the assessee in the past.
(c) In respect of cases, which are not covered by (a) and (b)
above, the AO has been advised to take into account all
the relevant facts and communicate his decision to the
assessee by a speaking order. It has been said in this
Circular also that while exercising discretion under this
provision, the financial capacity of the assessee to pay the
demand will not be relevant. But applications are being
rejected on the basis that the financial condition of the
assessees is sound!
EXERCISE OF DISCRETION BY THE AOs
IN DECIDING STAY OF DEMAND
APPLICATION
Section 220(6) gives discretionary power to the AO in the matter
of grant of stay of demand. But such a discretion cannot be
exercised in an autocratic manner as is being done. Courts have
held that discretion is to be exercised in a just and fairway. In
Shivnarayana Laduram v. Assistant Commissioner of Commercial Taxes,
(1967) 19 STC 50, the AP High Court has said that the discretion
has to be exercised properly and with judicious care and not
arbitrarily or capriciously. The officer is bound to consider all
the circumstances of the case and come to a conclusion whether it
is a fit case where in exercise of his discretion he would stay the
payment of the disputed tax pending the appeal. It is his duty to
apply his mind to the facts and circumstances alleged in coming
to a conclusion.
In L. Hirday Narain v. ITO (1970) 78 ITR 26 (SC), the apex court has
said that if a statute invests a public officer with authority to do an act in
a specified set of circumstances, it is imperative on him to exercise his
authority in a manner appropriate to the case when a party interested
and having a right to apply moves in that behalf and the circumstances
for exercise of authority are shown to exist. Even if the words in the
statute be prima facie enabling, the courts will readily infer a duty to
exercise power which is invested in aid of enforcement of right- public or
private- of a citizen. Similar view has been expressed by the Gujarat
High Court in Madhukar Manilal Modi v. CWT (1978) 113 ITR 318
(Guj.).
The Courts have held that it is wrong to assume that the exercise
of discretion is only a naked arbitrary power to reject the
application for stay of recovery of disputed amount of tax pending
the appeal. The statute has conferred upon the Assessing Officer
the power to grant stay, and it is his duty to examine and
scrutinize the grounds on which the stay is asked for [See E.
Krishnappa Naicker v. Dy. CTO, (1963) 14 STC 162 (Mad.) ; B. B.
Moidin Kunhi v. State of Mysore, (1971) 27 STC 154 (Mys)].
In Chesebrough Pond’s Inc. v. AAC (1973) 32 STC 464 (Mad.), the
Madras High Court has observed that a discretion having been
by law vested in the authority concerned, the power is for exercise
and not for a laconic refusal to exercise it. If the authority refused
to grant stay, the order should ex facie disclose why he declined to
grant stay.
Experience shows that such avowed principles laid down by the
judiciary are violated with impunity by tax authorities in dealing
with stay petitions without any accountability of any kind at any
level and the assessees are made to run from one authority to the
other seeking relief without success of any nature – their petitions
getting rejected by cryptic non-speaking orders many a times
leading to severe jolts and losses to their businesses! It is thus no
wonder that Courts are getting flooded with writ petitions in
such matters. The Delhi High Court in a period of one year (supra)
has passed three orders on such matters giving relief to the
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assessees! The CBDT needs to ponder whether such a state of
affairs should continue?
SOME OTHER ASPECTS CONCERNING STAY
OF DEMAND PETITIONS
Financial capacity consideration
Many applications for stay of demand are being rejected on the
ground that the financial condition of the assessee is sound. In
one case nearly Rs. 2.50 crores demand has been collected by
coercive measures with the approval of CIT and CIT(A) (who
had to deal with stay application on Allahabad High Court’s
directions) on the ground that the assessee’s financial position is
very sound despite the fact that the demand raised is highly
disputable. This is being done in a blatant manner disregarding
CBDT’s instructions and the Court decisions as could be seen
from the latter discussion.
(a) In CBDT’s Circular No. 530 (supra), it has been clearly said
that while exercising discretion under section 220(6), “the
financial capacity of the assessee to pay the demand will
not be relevant”.
(b) In Court decisions also, similar observations have been
made. In R. P. David v. Ag. ITO (1972) 86 ITR 699 (Mad.), the
Court has observed that though section 220(6) does not
indicate in what cases denial of discretion shall be justified,
the fact that the assessee is financially sound and in a
position to pay is not in itself a ground for refusing to
exercise the discretion in granting the stay.
However, the field authorities are least bothered by the
CBDT’s instruction (which are binding on them) and Court
decisions which deserve respect in terms of Constitutional
Scheme.
NO HEARING IS BEING GIVEN BEFORE
REJECTING APPLICATION FOR STAY
As the exercise of discretion by the AO under section 220(6) is
quasi-judicial function and he has to exercise his power fairly
and reasonably and not arbitrarily or capriciously, the AO
should give reasons for dismissing an application made by an
assessee for involving his discretion and should also hear the
assessee [Cf. Seth Gopaldas Paliwal v. WTO [1983] 139 ITR 900
(MP)]. Moreover, the order should be a speaking order –
[Teletube Electronics Ltd. v. CIT [1998] 230 ITR 705, 7-7 (Del) ;
Chesebrough Pond’s Inv. v. A.A.C. (C.T.), [1973] 32 STC 464 (Mad.)].
Yet stay applications are being rejected unilaterally without
giving any opportunity to the assessees contrary to the principle
of natural justice.
VIOLATION OF THE PRINCIPLES OF
NATURAL JUSTICE
Where an assessee files an application under section 220(6), it
is necessary that he or it should be given an opportunity of
being heard. But in most cases, this is not done. Judicial notice
of such situations has been taken in a number of cases e.g.
Aggarwal Rice and General Mills. v. CIT (1993) 204 ITR 480 (Pand
H). In Security and Detective Bureau Ltd. v. CIT (1993) 44 ITD
452(Mad-Trib.), it was held that when an application is made
to the Commissioner for instructions to the ITO or the TRO, it
is expected that the Commissioner would follow the rules of
natural justice, give an adequate opportunity of being heard
to the assessee and make a speaking order particularly when
his application is rejected so that he knows why his request
has not been acceded to. Revenue’s contention that since the
Commissioner was exercising only an administrative power,
he was not bound to follow the rules of natural justice or to
make a speaking order could not be accepted. Even though the
Commissioner may be exercising an administrative function,
as long as he is interfering with the judicial discretion of the
ITO or TRO, he is bound to follow the principles of natural
justice.
Coercive steps for recovery of demand are started even when the
application for stay is pending. Judicial propriety demands that
where an application for stay of demand for disposal under
section 220(6) is pending, the demand should be stayed until the
application is considered and an order is passed – [Sat Pal v. ITAT
217 ITR 317 (Pand H); Bongaigaon Refinery and Petro Chemicals Ltd.
v. CIT 256 ITR 698 (Gau.); Debasish Moulik v. DCIT 231 ITR 737
(Cal)].
Passing of speaking order is necessary in cases of rejection. This
aspect is generally neglected and cryptic orders, sometimes even
with one word ‘Rejected’ are being passed ignoring the CBDT’s
circular No. 530 where it has been clearly said that ‘speaking
orders’ should be passed on stay of demand applications. In the
case of KEC International Ltd. v. B.R. Balakrishnan and Others [2001]
251 ITR 158 (Bom.), on an application for stay of demand of Rs.
12.93 crores for the asst. year 1988-89, pending disposal of an
appeal against the assessment, the AO and the CIT on the
administrative side rejected the stay application without giving
any reasons. Thereupon the AO issued a garnishee notice to the
assessee’s banker. On a writ petition by the assessee, the Court
set aside the order and the garnishee notice and laid down the
following parameters, to be complied with by the authorities
while passing orders on stay applications filed, pending appeals
to the first appellate authority:
􀂄 The authority has to at least set out the case of assessee
briefly.
􀂄 If the assessed income is higher than the returned income
the authority has to consider whether the assessee has made
out a case for unconditional stay. If not whether looking to
the questions involved in appeal, a part of the amount
should be ordered to be deposited, for which reasons should
be given by the authority.
􀂄 If the authority wants the assessee to deposit the amount
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he can briefly indicate in his order whether the assessee is
financially sound and viable to deposit the amount.
􀂄 The authority concerned will also examine whether the
time to prefer an appeal has expired. Generally, coercive
measures may not be adopted during the period provided
by the statute to go in appeal. However, if the authority
concerned comes to the conclusion, that the assessee is
likely to defeat the demand, it may have recourse to
coercive action for which brief reasons may be indicated in
the order.
The Court clarified that the above parameters were only
recommendatory and not exhaustive.
Courts have gone to the extent of stating that if the AO has given
no reasons at all for rejection of an application for stay, he can be
directed by the Court to take up the application and dispose of
the same by giving reasons for his discretion [See Hardeo Das
Jagnath v. ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah v.
ITO (1959) 37 ITR 518 (Mys.)]. But, unfortunately, summary orders
are being passed in such matters with impunity without any fear
of accountability.
STAY OF DEMAND WHEN THE APPEAL IS
PENDING ñ OTHER COURTS DECISIONS
Courts have also held that where the assessee has gone in appeal
and the appeal is not frivolous, it may in the circumstances of a
case, be the duty of the AO to refrain from enforcing payment
of the tax under the notice of demand and to grant extension of
time till the appeal is disposed of. If the AO fails to discharge
this duty, he may be compelled by a writ under Article 226 of
the Constitution to stay his hands [Ladhuram Taparia v. Bagchi
(B.K.) 20 ITR 51 (Cal.), Vetcha Sreeramamurthy (supra), Hardeodas
Jagnnath v. ITO 43 ITR 562 (Assam), Dwadesh Shreni (P.C.) and Co.
P. Ltd. v. ITO 50 ITR 622(All), Hindustan Rubber Works Ltd. (supra);
David (R.P.) v. Ag. ITO (supra), Aluminium Corporation of India Ltd.
v. Balakrishnan (C ), 37 ITR 267 (Cal.) ; Yusuf Jan Sahiv v. Addl. ITO
42 ITR 637(Ker.) ; Seth Gopaldas Paliwal v. WTO (Supra), Rajan Nair
(NCAER) v. ITO 165 ITR 650 (Ker.)]
ORDER FOR PAYMENT OF DEMAND IN
INSTALMENTS
The Kerala High Court has held in the case of Gajanana Agencies
v. ITO (1994) 210 ITR 865 (Ker.) that section 220(6) confers power
of the assessing authority to keep the recovery proceedings in
abeyance till the disposal of the first appeal with or without
conditions. An order allowing the petitioner to pay the demand
in a number of instalments is not an order contemplated under
section 220(6). Such an order is another mode of enforcing the
recovery of tax. On the facts of that case, the Court directed the
authorities concerned to keep the revenue recovery proceedings
pending till the disposal of the first appeal and directed
expeditious disposal of such appeal.
DEMAND OF SECURITY FOR STAYING THE
DEMAND
Sometimes when AOs agree to stay the demand, they put onerous
conditions regarding the same in the matter of making available
the security as safeguard against the demands raised howsoever
unreasonable the same may be. Mostly, bank guarantees are
demanded which cause considerable financial loss which is
avoidable. More pragmatic approach in this regard is necessary.
Personal guarantees, deposit of title deeds of immovable
properties can be better substitutes to bank guarantees.
Sympathetic attitude needs to be taken where taking of securities
is inevitable.
STAY OF DEMAND DURING THE COURSE OF
RECOVERY PROCEEDINGS
The AO has power to stay the demand even in cases where
recovery proceedings are initiated. But this is rarely or never
done. In the case of Mrs. Goyal (supra) the Allahabad High Court
has considered this issue. It has observed that there cannot be a
question of directing the assessee to deposit any such security or
bank guarantee. As regards the other form of security, the judge
felt that the capital assets comprising land, building, plant and
machinery installed at the factory of the appellant are sufficient
to cover the likely amount of income-tax, if any, payable by the
appellant.
Invariably, the Admn. Commissioners insist that the assessee
must first approach the AO for stay of demand and only when
he rejects the prayers, the higher echelons can be approached.
This invariably delays matters as the applications for stay keep
on lying with the AOs, there being no time limit for their
disposal. It has been decided by the Allahabad High Court in
Tin. Mfg. Co. of India v. CIT (1995) 212 ITR 451 (All.) that it is not
necessary that before invoking the powers of the first appellate
authority to stay recovery of demand, an assessee should
approach the AO, under section 220(6) or that the AO must reject
the assessee’s prayer for the stay of demand. This requirement
unnecessarily prolongs taxpayers’ agonies. Hence, this
procedure need not be insisted upon. The Commissioners can
call for the report on such applications from the AOs, where
they consider it necessary if applications made to him directly.
This can be ensured by appropriate instruction under section
119 of the Act by the CBDT.
SUMMING UP
The foregoing discussion shows an alarming state of affairs
concerning stay of disputed demands which matter affects the
taxpayers most vitally. Tax authorities at different levels are
deciding such applications in the way, in the manner and within
the time limit they like without any accountability at any level.
The taxpayers are left aghast with no alternative but to approach
the High Court by writ petitions. All taxpayers cannot afford to
IT Assessments – Stay of Demand during Pendency of Appeal before the Commissioner
(Appeals)
Articles
do so. Hence majority of them have to suffer because of unjustified
attitudes of the tax authorities in many cases. As mentioned in
the earlier discussion, it is forgotten that the power conferred on
a tax authority under section 220(6) is coupled with duty and if he
does not exercise it when the occasion called for it or if he exercises
it in such a manner that it is no exercise of discretion at all, he can
be compelled to discharge his duties. This was so ruled in
Ladhuram Taparia v. B. K. Bagchi (1951) 20 ITR 51 (Cal.), and in
many cases thereafter. Further, in M.L.M.Mahalingam Chettiar v.
ITO (supra), the decision is that a request for the exercise of the
power under section 220(6) cannot be merely summarily rejected
on the basis that the power is there with the officer but that he is
not bound to exercise it. Unfortunately, these judicial verdicts
have not brought any relief to the harassed taxpayers because of
lack of judicial and administrative activism in this area. For
example, even the Allahabad High Court in Mrs. Goyal’s case
(supra) has not said firmly that the IT Department should strictly
follow the CBDT’s instructions i.e Instruction No. 96 of 21.08.69.
Observations like “…. If the assessing authorities or the appellate
authorities are not in a mood to stay recovery proceedings, even contrary
to the circular of the CBDT”, give a tool to the lower authorities to
act arbitrarily in such matters. The CBDT’s instructions are
binding on the field officers under section 119 and the question
of their ‘mood’ in such matters is hardly relevant. The solution to
the problem lies in the firm implementation of the legal
provisions and administrative decisions. More important in the
existing situation is the vigilance of the taxpayers and their legal
advisors in insisting on getting their legal rights on this matter
implemented. The taxpayers have right to get their demands in
disputed cases stayed till the disposal of first appeal and they get
it only if they exercise such a right forcefully. Unfortunately
spineless advocacy is one factor that it is responsible for the
existing state of affairs. In one case, where the CIT did not mention
the forceful arguments favouring stay of demand in the order
rejecting stay application and the matter was taken to the High
Court by a writ petition, the Counsel for the assessee expressed
his inability to say on affidavit that the arguments written and
oral justifying stay before the CIT have not even been referred
by the CIT and hence order is one sided on the ground that he
cannot afford to annoy the CIT by filing such an affidavit before
the High Court as he has to appear before him quite often in
connection with his practice! What a fall in standards of a noble
profession!!
The CBDT needs to consider that many decisions of the AOs are
reversed by the appellate forums. Therefore, to press for the
demands, presuming that the assessments made by the AOs are
infallible, when the assessees may have strong grounds in their
favour, would be highly unfair. It can lead to ruination of
taxpayers’ business. Questions of fact and of law are open for
decision before the two appellate authorities both of whom
possess plenary powers. In exercising his power, the Assessing
Officer has not to act as a mere tax-gatherer but as a quasijudicial
authority vested with the power of mitigating hardship
to the assessee [N. Rajan Nair v. ITO (supra)]. Also see, Hallacarry
Estate v. AGITO, (1985) 155 ITR 411 (Mad.). It is also to be
remembered that the exercise of discretion is not a naked
arbitrary power to reject the application for stay of recovery of
disputed amount of tax pending the appeal. The statute has
conferred upon the Assessing Officer the power to grant stay,
and it is his duty to examine and scrutinize the grounds on
which the stay is asked for [E. Krishappa Naicker v. Dy. CTO (1963)
14 STC 162 (Mad) ; B.B. Moidin Kunhi v. State of Mysore (1971) 27
STC 154 (Mys).
WHAT NEEDS TO BE DONE
The foregoing discussion clearly brings out the gravity of the
situation and the chaos and the confusion that is prevailing in the
matter of decision making on stay applications. The free for all
situations with confusing instructions and without any
accountability existing presently needs to be regulated by some
considered guidelines on the subject. Some suggestions for
improving the situations are mentioned hereinafter :
􀂄 The AOs generally do not grant stay against their own
orders. Hence, section 220(6) can be amended to provide
that petitions for stay need to be filed only before the
Administrative Commissioners with a copy to the AO.
Through administration instructions, it can be provided
that the AOs will give their comments to CIT, suo-motu on
such petitions within 8 days of the receipt of the same.
Those, who fail to do so, should be made administratively
accountable.
􀂄 The administrative CIT will dispose of such petitions
within 15 days of its receipt after giving an opportunity of
being heard to the assessees. If such an order is not passed
within this time limit, then the stay could be deemed to
have been allowed. The practice of disposal within the
prescribed time limit has been accepted by the IT Act in
section 12AA(2).
􀂄 In granting stay, bank guarantee should be insisted
upon only in cases, where, for reasons to be recorded in
writing, it is considered inevitable – not as a routine
condition.
􀂄 A consolidated view should be taken of the existing
Instructions/Circulars on the subject of stay of demand
and a master circular on the subject should be issued by the
CBDT covering all relevant aspects indicating the actions
to be taken where deviation is made from such guidelines
without justification.
􀂄 The CBDT needs to examine the situation as to why the
Commissioners (Appeals), as a prevalent practice are not
exercising power to stay the demand in cases where appeals
are pending before them. It would look most inappropriate
if they are doing so on the basis of some instructions from
the CBDT. If there are any such instruction the same needs
to be withdrawn. 􀂉
IT Assessments – Stay of Demand during Pendency of Appeal before the Commissioner
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