CBDT has issued a benevolent circular dated 29/02/2016 under which a new guideline has been issued under which if the assessee pays at least 15% of tax due , the A.O is bound to stay of demand . Under this new circular , if A.O desires to fix more or lss than 15% , the Commissioner of Income Tax is an authrity to hear and dispose off his proposal.Practically , there may be an exceptional CIT who will not ask the assessee to pay for at least 15 % citing the Circular as binding on him/her. So .what an assessee can do if he/she/it is suffering on account of high pitched assessment and has no money to pay for even 15 % of such tax demand ? This post is explaining that despite the newest circular dt 29th Feburary 2016, the CIT has power and duty to stay the demand if teh assessee is facing genuine hardship .
Only Part C of Earlier Instruction Modified !
The CIT has been empowered to stay of demand as per newest circular dated 29-2-2016 that modified the earlier instruction 1914 dated 21.3.1996 . The modification is only of part C of instruction 1914 . Here is the excerpt of the newest circular :
Instruction No. 1914 dated 21-3-1996 contains guidelines issued by the Board regarding procedure to be followed for recovery of outstanding demand, including procedure for grant of stay of demand.
2. In part ‘C’ of the Instruction, it has been prescribed that a demand will be stayed only if there are valid reasons for doing so and that mere filing of an appeal against the assessment order will not be a sufficient reason to stay the recovery of demand. It has been further prescribed that while granting stay, the field officers may require the assessee to offer a suitable security (bank guarantee, etc.) and/ or require the assessee to pay a reasonable amount in lump sum or in instalments.
4. In order to streamline the process of grant of stay and standardize the quantum of lump sum payment required to be made by the assessee as a pre-condition for stay of demand disputed before CIT (A), the following modified guidelines are being issued in partial modification of Instruction No. 1914:
In other words Part A, Part B and other contents of instruction no 1914 is valid as on the day as far as dealing with stay petition is concentred.
Financial Hardship a Criteria under Part B of Instruction 1914
Let us see what the Part B of the Instructions provides guideline for the tax authorities while dealing with the issue of stay petition.
Instruction No 1914
B. STAY PETITIONS
(iii) The decision in the matter of stay of demand should normally be taken by Assessing Officer/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 highpitched 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.
Availability of money is first requirement for payment of tax , even if it is 15 % of the total demand. If the stay petition is disposed off with payment instruction of 15 % to an assesse who has no liquidity or money to pay such tax, it will create a genuine hardship to such an assesse.
One can think of wisdom on part of CBDT that the it empowered High Authorities under Board Instruction no 1914 to stay the demand in such genuine hardship cases.
So, CIT can grant stay under Part B of Instruction no 1914 which has not been modified by circular dt 29/2/2016
Financial Difficulty Criteria as per Mumbai High Court
Courts have, however, time to time, through various order has set the financial difficulty as one of the reason for stay of demand. For example, Mumbai High Court in case of KEC International Limited v. B.R Balakrishnan (2001) 251ITR 158 (Bom)(High Court) included financial hardship as one of the five parameters for stay of demand
(a) While considering the stay application, the authority concerned will at least briefly set out the case of the assessee.
(b) In cases where the assessed income under the impugned order far exceeds returned income, the authority will 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 purpose, some short prima facie reasons could be given by the authority in its order.
(c) In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sound and viable to deposit the amount if the authority wants the assessee to so deposit.
(d) 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 take recourse to coercive action for which brief reasons may be indicated in the order.
(e) We clarify that if the authority concerned complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent No. 2 herein need not once again give reasoned order.
So , the financial hardship can be a criteria for the stay of demand as it may be one of the circumstances which requires that the tax demand is kept in abeyance till disposal of appeal.
What to Do ?
You need to convince Commissioner that
(i) The New circular dt 29/02/2016 only modifies Part C of instruction 1914.
(ii) The Part B of instruction no 1914 speaks of grant of stay on the basis of genuine hardship.
(iii) That the assesse is not having money to pay even 15 % and as far as liquid fund is concerned, it has genuine hardship in arranging fund for payment even to the extent of 15 %
(iv) Explain in detail how the assessment is a high pitched assessment or totally illegal or based on surmises and conjectures. This will add value to your stay petition.