IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.02.2019 CORAM HON'BLE Dr. JUSTICE ANITA SUMANTH W.P.No.3849 of 2019 and W.M.P.No.4278 of 2019 Mrs.Kannammal ....Petitioner --Vs-- Income Tax Officer O/o Income Tax Officer Ward 1(1) Tirupur ...Respondent PRAYER in WPs: Writ Petitions filed under Article 226 of Constitution of India praying for writ of Certiorarified Mandamus to call for records of respondent in his proceedings leading to passing of order vide AHXPK7701Q/AY2016-17/W1(1)TRP/2018-19 dated 25.01.2019 and quash same and direct respondent to stay recovery of tax demand until disposal of appeal by Commissioner of Income Tax(Appeals). For Petitioner: Mr.S.Sathiyanarayanan For Respondent: Mr.Jayapratap ORDER Mr.Jayapratap, learned counsel for respondent takes notice on behalf of respondent. By consent of both learned counsels, writ petition is taken up for final disposal at stage of admission. 2. challenge in present writ petition is to order dated 25.01.2019 passed by respondent dismissing application for stay filed by petitioner on 19.01.2019 and calling upon her to pay disputed demand http://www.judis.nic.in immediately. 2 3. petitioner is assessee who has suffered order of income tax assessment dated 24.12.2018 in relation to assessment year 2016-17 under provisions of Income Tax Act, 1961 (in short 'Act'). statutory appeal has been filed before Commissioner of Income Tax (Appeals) on 22.01.2019 which is still to be taken up for hearing. 4. Parallelly, petitioner had filed application for stay of recovery of demand under Section 220(6) of Act on 19.01.2019 before respondent. application for grant of stay was filed on sole ground that assessee had preferred appeal against order of assessment which is pending before first Appellate Authority. petition for stay came to be disposed of by Respondent by order dated 25.01.2019. 5. Mr.S.Sathiyanarayanan, learned counsel for petitioner would submit that petitioner is housewife and has challenged assessment before Appellate Authority on various grounds. According to him, Instruction No.96[F.No.1/6/69/-ITCC] dated 21.08.1969 issued by Central Board of Direct Taxes states that no recovery should be effected of disputed demand where determination of tax in assessment is substantially higher than returned income. Instruction is binding on all Income Tax Authorities under section 119 of Act. aforesaid circular has been consistently followed in several decisions by High Courts including jurisdictional High Court viz., i)N.Jegatheesan V. Deputy Commissioner of Income-tax, Madurai [[2015] 64 taxmann.com 339 (Madras) and ii) Taneja Developers & Infrastructure Ltd. V. Assistant Commissioner of Income-tax [[2009] 222 CTR 521 (Delhi). 6. In present case, return of income admitted taxable income of Rs.6,23,770/- claiming exemption in respect of amount of http://www.judis.nic.in 3 Rs.10,19,74,341/-. exemption had been denied by Assessing Officer, who brings same to tax. Thus income has been computed at sum of Rs.10,26,01,710/-, which is several times in excess of income returned. Since this assessment is 'high pitched assessment' he would state that complete stay of recovery ought to have been granted in such case. 7. parameters to be taken into account in considering grant of stay of disputed demand are well settled existence of prima facie case, financial stringency and balance of convenience. Financial stringency would include within its ambit question of 'irreparable injury' and undue hardship as well. It is only upon application of three factors as aforesaid that assessing officer can exercise discretion for grant or rejection, wholly or in part, of request for stay of disputed demand. 8. In addition, periodic Instructions/Circulars in regard to manner of adjudication of stay petitions are issued by Central Board of Direct Taxes (CBDT) for guidance of Departmental authorities. one oft-quoted by assessee is Office Memorandum F.No.1/6/69/-ITCC, dated 21.08.1969 that states as follows: '1. One of points that came up for consideration in 8th Meeting of Informal Consultative Committee was that income-tax assessments were often arbitrarily pitched at higher figures and that collection of disputed demand as result thereof was also not stayed in spite of specific provision in matter in s. 220(6) of IT Act, 1961. 2. then Deputy Prime Minister had observed as under : ".........Where income determined on assessment was substantially higher than returned income, say twice latter amount or more, collection of tax in dispute should be held in abeyance till decision on appeal provided there were no lapses on part of assessees." 3. Board desire that above observations may be brought to notice of all Income-tax Officers working under you and powers of stay of recovery in such cases up to stage of first appeal may be http://www.judis.nic.in exercised by Inspecting Assistant Commissioner/Commissioner of Income-tax.' 4 9. Thereafter, Instruction No.1914 was issued by CBDT on 21.03.1996 and states as follows: 1. Recovery of outstanding tax demands [Instruction No. 1914 F. No. 404/72/93 ITCC dated 2-12-1993 from CBDT] Board has felt need for comprehensive instruction on subject of recovery of tax demand in order to streamline recovery procedures. This instruction is accordingly being issued in supersession of all earlier instructions on subject and reiterates existing Circulars on subject. 2. Board is of view that, as matter of principle, every demand should be recovered as soon as it becomes due. Demand may be kept in abeyance for valid reasons only in accordance with guidelines given below : A. Responsibility: i. It shall be responsibility of Assessing Officer and TRO to collect every demand that has been raised, except following: (a) Demand which has not fallen due;(b) Demand which has been stayed by Court or ITAT or Settlement Commission;(c) Demand for which proper proposal for write-off has been submitted;(d) Demand stayed in accordance with paras B & C below. ii. Where demand in respect of which recovery certificate has been issued or statement has been drawn, primary responsibility for collection of tax shall rest with TRO. iii. It would be responsibility of supervisory authorities to ensure that Assessing Officers and TROs take all such measures as are necessary to collect demand. It must be understood that mere issue of 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 Assessing Officers must be disposed of within two weeks of filing of petition by tax- payer. assessee must be intimated of decision without delay. ii. Where stay petitions are made to authorities higher than Assessing Officer (DC/CIT/CC), it is responsibility of higher authorities to dispose of petitions without any delay, and in any event within two weeks of receipt of petition. Such decision should be communicated to assessee and Assessing Officer immediately. iii. decision in matter of stay of demand should normally be taken by Assessing Officer/TRO and his immediate superior. higher superior authority should interfere with decision of AO/TRO only in exceptional circumstances; e.g., where assessment order appears to be unreasonably high-pitched or http://www.judis.nic.in where genuine hardship is likely to be caused to assessee. higher authorities should discourage assessee from filing 5 review petitions before them as matter of routine or in frivolous manner to gain time for withholding payment of taxes. C. Guidelines for staying demand: i. demand will be stayed only if there are valid reasons for doing so. Mere filing appeal against assessment order will not be sufficient reason to stay recovery of demand. few illustrative situations where stay could be granted are: It is clarified that in these situations also, stay may be granted only in respect of amount attributable to such disputed points. Further where it is subsequently found that assessee has not co-operated in early disposal of appeal or where subsequent pronouncement by higher appellate authority or court alters above situation, stay order may be reviewed and modified. above illustrations are, of course, not exhaustive. ii. In granting stay, Assessing Officer may impose such conditions as he may think fit. Thus he may a. require assessee to offer suitable security to safeguard interest of revenue; b. require assessee to pay towards disputed taxes reasonable amount in lump sum or in instalments; c. require undertaking from assessee that he will co-operate in early disposal of appeal failing which stay order will be cancelled. d. reserve right to review order passed after expiry of reasonable period, say up to 6 months, or if assessee has not co-operated in early disposal of appeal, or where subsequent pronouncement by higher appellate authority or court alters above situations; e. reserve right to adjust refunds arising, if any, against demand. iii. Payment by instalments may be liberally allowed so as to collect entire demand within reasonable period not exceeding 18 months. iv. Since phrase stay of demand does not occur in section 220(6) of Income-tax Act, Assessing Officer should always use in any order passed under section 220(6) [or under section 220(3) or section 220(7)], expression that occurs in section viz., that he agrees to treat assessee as not being default in respect of amount specified, subject to such conditions as he deems fit to impose. v. While considering application under section 220(6), Assessing Officer should consider all relevant factors having bearing on demand raised and communicate his decision in form of speaking order. D. Miscellaneous: i. Even where recovery of demand has been stayed, Assessing Officer will continue to review situation to ensure that conditions imposed are fulfilled by assessee failing which stay order would need to be withdrawn. ii. Where assessee seeks stay of demand from Tribunal, it should be strongly opposed. If assessee presses his application, CIT should direct departmental representative http://www.judis.nic.in to request that appeal be posted within month so that Tribunal s order on appeal can be known within two months. 6 iii. Appeal effects will have to be given within 2 weeks from receipt of appellate order. Similarly, rectification application should be decided within 2 weeks of receipt t hereof. Instances where there is undue delay in giving effect to appellate orders, or in deciding rectification applications, should be dealt with very strictly by CCITs/CITs. 3. Board desires that appropriate action is taken in matter of recovery in accordance with above procedure. Assessing Officer or TRO, as case may be, and his immediate superior officer shall be held responsible for ensuring compliance with these instructions. 4. This procedure would apply mutatis mutandis to demands created under other Direct Taxes enactments also.' 10. Instruction 1914 was partially modified by Office Memorandum dated 29.02.2016 taking into account fact that Assessing Officers insisted on payment of significant portions of disputed demand prior to grant of stay resulting in extreme hardship for tax payers. Thus, in order to streamline grant of stay and standardize procedure, modified guidelines were issued which are as follows: '....... (A) In case where outstanding demand is disputed before CIT (A), assessing officer shall grant stay of demand till disposal of first appeal on payment of 15% of disputed demand, unless case falls in category discussed in pars (B) hereunder. (B) In situation where, (a) assessing officer is of view that nature of addition resulting in disputed demand is such that payment of lump sum amount higher than 15% is warranted (e.g. in case where addition on same issue has been confirmed by appellate authorities in earlier years or decision of Supreme Court /or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in search or survey operation, etc.) or, (b) assessing officer is of view that nature of addition resulting in disputed demand is such that payment of lump sum amount lower than 15% is warranted (e.g. in case where addition on same issue has been deleted by appellate authorities in earlier years or decision of Supreme Court or jurisdictional High http://www.judis.nic.in Court is in favour of assessee, etc.), assessing 7 officer shall refer matter to administrative Pr. CIT/ CIT, who after considering all relevant facts shall decide quantum/ proportion of demand to be paid by assessee as lump sum payment for granting stay of balance demand.' 11. Instruction 1914 was further modified by Office Memorandum bearing number F.No.404/72/93 ITCC dated 31.07 2017 as follows: 'OFFICE MEMORANDUM F. No. 404/72/93-ITCC dated 31.07.2017 Subject: Partial modification of Instruction No. 1914 dated 21.3.1996 to provide for guidelines for stay of demand at 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 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 case where outstanding demand is disputed before CIT(A), Assessing Officer shall grant stay of demand till disposal of first appeal on payment of 15% of disputed demand unless case falls in category discussed in para (B) thereunder. Similar references to standard rate of 15% have also been made in succeeding paragraphs therein. 2. matter has been reviewed by Board in light of feedback received from field authorities. In view of Board s efforts to contain over pitched assessments through several measures resulting in fairer and more reasonable assessment orders, standard rate of 15% of disputed demand is found to be on lower side. Accordingly. it has been decided that standard rate prescribed in O.M. dated 29.2.2016 be revised to 20% of disputed demand, where demand is contested before CIT(A). Thus all references to 15% of disputed demand in aforesaid O.M dated 29.2.2016 hereby stand modified to 20% of disputed demand. Other guidelines contained in O.M. dated 29.2.2016 shall remain unchanged. These modifications may be immediately brought to notice of all officers working in your jurisdiction for proper compliance.' 12. Circulars and Instructions as extracted above are in nature of guidelines issued to assist assessing authorities in matter of grant of stay and cannot substitute or override basic tenets to be followed in consideration and disposal of stay petitions. existence of prima facie case for which some illustrations have been provided in Circulars themselves, http://www.judis.nic.in 8 financial stringency faced by assessee and balance of convenience in matter constitute trinity , so to say, and are indispensable in consideration of stay petition by authority. Board has, while stating generally that assessee shall be called upon to remit 20% of disputed demand, granted ample discretion to authority to either increase or decrease quantum demanded based on three vital factors to be taken into consideration. 13. In present case, assessing officer has merely rejected petition by way of non-speaking order reading as follows: 'Kindly refer to above. This is to inform you that mere filing of appeal against said order is not ground for stay of demand. Hence your request for stay of demand is rejected and you are requested to pay demand immediately. Notice u/s.221(1) of Income Tax Act, 1961 is enclosed herewith.' 14. disposal of request for stay by petitioner leaves much to be desired. I am of categoric view that Assessing Officer ought to have taken note of conditions precedent for grant of stay as well as Circulars issued by CBDT and passed speaking order. Of course petition seeking stay filed by petitioner is itself cryptic. However, as noted by Supreme Court in case of Commissioner of Income tax vs Mahindra Mills, ((2008) 296 ITR 85 (Mad)) in context of grant of depreciation, Circular of Central Board of Revenue (No. 14 (SL- 35) of 1955 dated April 11, 1955) requires officers of department to assist taxpayer in every reasonable way, particularly in matter of claiming and securing reliefs. .... Although, therefore, responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other...... . Thus, notwithstanding that http://www.judis.nic.in 9 assessee may not have specifically invoked three parameters for grant of stay, it is incumbent upon assessing officer to examine existence of prima facie case as well as call upon assessee to demonstrate financial stringency, if any and arrive at balance of convenience in matter. 15. I thus set aside impugned order dated 25.01.2019. Assessing Officer is directed to pass orders de novo on stay application filed by petitioner in light of discussion as aforesaid, after hearing petitioner, within period of four weeks from date of receipt of copy of this Order. I have, for aforesaid reason, consciously and deliberately refrained from referring to or making any observation on merits of assessment. 16. With these directions, writ petition stands disposed of and consequently, connected miscellaneous petition is closed. There shall be no order as to costs. 13.02.2019 Speaking order/Non speaking order Index: Yes/No Internet: Yes/No ska/sl Note: Issue Order Copy on 19.02.2019. http://www.judis.nic.in 10 DR.ANITA SUMANTH. J, ska/sl To Income Tax Officer, O/o Income Tax Officer Ward 1(1), Tirupur W.P.No.3849 of 2019 and W.M.P.No.4278 of 2019 13.02.2019 http://www.judis.nic.in Kannammal v. Income-tax Officer, Ward 1(1), Tirupur