Stay applications can provide relief to taxpayers who have been served a tax demand. This demand has to be paid within 30 days, after which the Department can take coercive action to recover that demand. Now, either you can pay the amount or you can appeal against the notice and during the pendency of the appeal, you can file a stay application on the tax demand.
If you can get a stay on the demand, the Revenue cannot take any action on recovering the tax demand and you will also avoid incurring interest and penalties on the tax demand during the lifetime of the appeal.
We used data for the Income Tax Appellate Tribunal, Mumbai for a quick analysis on stay applications and found the topics to be the subject-matter of most income tax appeals. While looking for these stay applications, we found that the majority of them could be split into two broad categories – those concerning computation of income of the assessee and those concerning penalties (Chapter XXI) on the tax demand. Within computation, the stay applications can be further divided into the following issues:
- Computation of income (Chapter IV)
- Deduction from income (Chapter VI-A and Chapter VI-B)
- Exclusion from income (Chapter III)
- Aggregation of income (Chapter VI)
ITAT Mumbai has around 2100 stay applications, of which 1600 orders were available on the ITAT website, and about 900 of them referred to a section in the Income Tax Act, the analysis that follows is based on these 900 cases and the sections referred in them.
Decisive on deductions
We calculated the average duration for disposal for these legal issues with respect to the stay applications, and plotted them on a line graph. As shown below, the average time taken, where the issue relates to deduction is significantly less compared to the overall average disposal duration for all stay applications.
The interesting thing is that not only is the Tribunal quick in deciding applications in matters of deduction in income, the outcomes are usually in favour of the assessee. Out of all the applications filed where deduction claimed by the assessee was under challenge, in only 4% (which is 2 applications only) cases was the stay not granted. In contrast, the overall outcome distribution shows that in 17% of the cases, the application is rejected.
Comparatively, the average duration for the other frequently litigated issues is similar to the overall trend with the slight exception of applications seeking stay on penalties.
Penalty on penalties
Provisions relating to penalties are not standalone in nature, and are applied along with substantive sections like computation, deduction etc. Nonetheless, they play an important role in the universe of stay applications, as they add up to the tax demand, increasing the financial burden of the assessee – an important (although not mandatory) requirement while deciding the result of the application.
While the ITAT has been deciding applications involving penalties quickly, it takes a sterner view with respect to its outcome. In 42% of the applications involving penalties, stay was not granted which is 23% more than the overall trend.
While computation comprises of the largest number of stay applications, its treatment conforms to the overall trend. The same is not true for application of deduction and penalties. Both of them are decided expeditiously, applications in cases of deductions are mostly granted, however in cases of penalties, the applications had a much higher tendency to be rejected, in comparison to the overall trend.
(Written by Ankit Sinha, Product Counsel and Rutuja Udyawar, VP Analytics on behalf of Riverus)