Income Tax, Issue Update

Stay of demand on payment of an amount lesser than prescribed percent of disputed tax demand: Jurisdiction of tax authorities to grant stay

Case: Smt.Saroja vs. The Income Tax officerMadras HC

Outcome: Assessee

Facts

  • The Assessee had suffered an order of assessment for Assessment Year 2017-18 passed in terms of the provisions of the Income Tax Act, 1961, which was pending in appeal.
  • In the meanwhile, the Assessee sought a stay of recovery of tax pending appeal by way of a detailed stay application, wherein specifically an opportunity of hearing was sought for. The Assessee also appeared to have canvassed the existence of prima facie case and financial hardship.
  • However, the Assessing Authority without even offering an opportunity of hearing had passed the order requiring the Assessee to pay atleast 20% of the disputed demand based on the Circular.

Key Points

  • The Circulars and Instructions are in the nature of guidelines issued to assist the assessing authorities in the matter of grant of stay and cannot substitute or override the basic tenets to be followed in the consideration and disposal of stay petitions. The existence of a prima facie case for which some illustrations have been provided in the Circulars themselves, the financial stringency faced by an assessee and the balance of convenience in the matter constitute the ‘trinity’, so to say, and are indispensable in consideration of a stay petition by the authority. The Board has, while stating generally that the assessee shall be called upon to remit 20% of the disputed demand, granted ample discretion to the authority to either increase or decrease the quantum demanded based on the three vital factors to be taken into consideration.
  • In the present facts of the case, the Assessing Officer had merely rejected the petition by way of a non-speaking order. Instead, the Assessing Officer ought to have taken note of the conditions precedent for the grant of stay as well as Circulars issued by CBDT and passed a speaking order.
  • Further, of course the petition seeking stay filed by the Assessee was itself cryptic. However, as noted by the Supreme Court in the case of Commissioner of Income tax Vs Mahindra Mills held that the Assessee may not have specifically invoked the required parameters for the grant of stay, it was incumbent upon the Assessing Officer to examine the existence of a prima facie case as well as call upon the Assessee to demonstrate financial stringency, if any and arrive at the balance of convenience in the matter.
  • In the light of the same, it was equally applicable to the case of Assessee. Therefore, it was concluded that the Assessee was to be given an opportunity of being heard and accordingly, stay order shall be passed.
  • Till such time, no recovery proceedings could be initiated.

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