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 11710 The DCIT did not accept the return and enhanced the income by making several additions and determined the tax at Rs 3304450 ie 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 ldquohellipit 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 circumstanceshelliprdquo

Karnataka decision The Karnataka High Court in the case of M Shivanna and Anr v DCIT (2008) 218 CTR (Kar) 279 referring to CBDTrsquos Circular No 530 and other circulars has observed that the respondent [ie DCIT] being a statutory authority has to pass an order exercising the power as envisaged under the statute [ie under IT Assessments ndash 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 lsquohigh-pitchedrsquo ndash 74 times of returned income The Court therefore observed that demand raised needs to be stayed in view of the CBDTrsquos circular no 96 dated 21st August1961 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 caseUnder 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 IVR ConstructionsLtd 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 2222009) 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 issuesCBDTiacuteS INSTRUCTIONSCIRCULARS CONCERNINGSTAY OF DEMAND PETITIONSConsiderable confusion exists in the matter of instructions issuedby the CBDT in regard to stay of demand and the CBDT has notbothered to clarify the issues There is no inter-connectionbetween different instructions and circulars issued by the CBDTas could be seen from the following discussionInstruction No 96 dated 21081969In this instruction which has been made public the CBDT hasstated that the demand has to be stayed till the decision of thefirst appeal Such assurance was given by the then Deputy PrimeMinister and Finance Minister to the Informal ConsultativeCommittee of Parliament and therefore has to be followed in thematter of grant of request for stay ndash the decision of the FMconveyed through an instruction being binding on the fieldofficers For ready reference the above mentioned instruction isreproduced below-ldquo1 One of the points that came up for consideration in the 8th meetingof the Informal Consultative Committee was that income-taxassessment were arbitrarily pitched at high figures and that thecollection of disputed demands as a result thereof was also notstayed inspite of the specific provision in the matter in section220(6)2 The then Deputy Prime Minister had observed asunder-ldquohellipwhere the income determined an assessment was substantiallyhigher than the returned income say twice the latter amount ormore the collection of the tax in dispute should be held in abeyancetill the decision on the appeals provided there were no lapse on thepart of the assesseerdquo3 The Board desires that the above observations may be brought tothe notice of all the ITOs working under you and the powers ofstay of recovery in such cases upto the stage of first appeal may beexercised by the IACCITrdquo

The instruction has not been overruled or withdrawn specificallyby any instruction or circular from the CBDT The Counsel forthe IT Department in the case of Soul v Dy CIT (supra) mentionedbefore the Court that this instruction has been superseded byInstruction No 1914 of 1993 This statement does not seem to becorrect Circular No 96 has been relied upon by the Courts forgranting stay of demand on writ petitions coming up beforeCourts even after the issue of this instruction No 1914 Fewinstances are(a) The Allahabad High Court in its decision in the case ofMrs R Mani Goyal has said that the instruction No 96 is inconsonance with the spirit of the provisions contained insection 220(6)(b) Instruction No96 bas been held to be binding on theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles ArticlesDepartment in the cases covered by it [See Maharana ShriBhagwat Singhji of Mewar v ITAT (1997) 223 ITR 192 199200-01(Raj)](c) Valvoline Cummins Ltdrsquos 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 andstated ldquoThe instructions indicate the departmental thinking onthe subject which is also relevant in the context of exercising thediscretion under section 220(6)rdquo(e) Obviously this Instruction cannot be superseded by theCBDT by itself as the same is based on the statement madeby the then Dy PM and FM before the ConsultativeCommittee of the Parliament and before it is rescinded itwill have to have the approval of the FM and the saidCommitteeYet the Income-tax Department is claiming that this instructionhas been superseded by Instruction No 1914 dated 2121993Departmental Counsel ndash claimed so first before the Delhi HighCourt in case of Soul v Dy CIT (supra) and again in TanejaDevelopersrsquo case (Supra)It may be mentioned in this context that Instruction No 1914 isnot an instruction which has been publically issued as full text ofit is not available in any published literature Obviously such anunpublished instruction for departmental use cannot takeprecedence over public instruction No 96 (supra) and can notsupersede itCircular No 1914 was made available by the Counsel for the ITDepartment to the Delhi High Court in the case of lsquoSoulrsquo and the

court observed thusldquoHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No 1914of 1993 specifically stated that it is in supersession of all earlierinstructions the position obtaining after the decision of this Court inValvoline Cummins Ltd (supra ) is not altered at all This is sobecause para No 2(A) which speaks of responsibility specificallyindicates that it shall be the responsibility of the AO and the TRO tocollect every demand that has been raised ldquoexcept the followingrdquowhich includes ldquo(d) demand stayed in accordance with the paras Band C belowrdquo Para B relates to stay petitions As extracted abovesub-cl (iii) of para B clearly indicates that a highersuperior authoritycould interfere with the decision of the AOTRO only in exceptionalcircumstances The exceptional circumstances have been indicatedas ndash ldquowhere the assessment order appears to be unreasonably highpitched or where genuine hardship is likely to be caused to theassesseerdquo The very question as to what would constitute theassessment order as being unreasonably high pitched in considerationunder the said Instruction No 96 and there it has been noted byway of illustration that assessment at twice the amount of the returnedincome could amount to being substantially higher or high pitchedIn the case before this Court in Valvoline Cummins Ltd (supra) theassesseersquos income was about eight (8) times the returned incomeThis Court was of the view that was high pitched In the present casethe assessed income is approximately 74 times the returned incomeand obviously this would fall within the expression ldquounreasonablyhigh pitchedrdquordquoThese observations show that despite instruction No 1914 sayingthat it is being issued in supersession of all previous instructionsInstruction No 96 is still valid in the matter of grant of stay ofdisputed demands That Instruction No 96 has not beensuperseded by Instruction No 1914 has again been reiterated bythe Delhi High Court in the case of Taneja Developers (Supra) Forready reference the relevant observations of the High Court arereproduced hereinafterldquoLearned counsel for the respondent seeks to plead that the aforesaidcircular does not reflect the current procedure being followed byrespondent in view of a subsequent Instruction No 1914 Howeverthis very instruction as pointed out by learned senior counsel for thepetitioner has once again been considered by the Division bench ofthis Court in Soul v Dy CIT (2008) 220 CTR (Del) 211 (2008) 173Taxman 468(Del)The judgement in Soul (supra) has considered the impact ofCircular No 1914 of 1993 vis-a-vis a judgement in ValvolineCummins Ltd (Supra) and thus a similar submission as is sought

to be advanced by the learned counsel for the respondent beforeus was advanced before that CourtThe Division Bench dealt with it in the following manner lsquo6 The issue that has been raised for the present by the petitioneris with regard to the de-sealing of the bank accounts on account ofthe fact that returned income was approximately Rs 1016 lacswhereas the assessed income is very high pitched in the sense thatit is approximately 74 times of the returned income The learnedcounsel for the petitioner submitted that in view of this fact alonethe petitioner would be entitled to a stay and therefore the impugnednotices ought to be quashed The learned counsel for the petitionerplaced reliance on a decision of this Court in case of ValvolineCummins Ltd v Dy CIT (2008) 217 CTR (Del) 292 This Courtin that case considered Instruction No 96 dt 21st Aug 1969issued by the CBDT The said instruction dealt with the framing ofan assessment which is substantially higher than the returnedincome In the said instruction it was noticed that one of the pointsthat came up for consideration in the eighth meeting of the InformalConsultative Committee was that the income assessments werearbitrarily pitched at high figures and that the collection of disputeddemands as a result thereof was also not stayed in spite of thespecific provision in the matter in Section 220(6) of the said ActThe observations of the then Dy Prime Minister were noted Theobservations were to the effect that where the income determinedon assessment was substantially higher than the returned incomesay twice the latter amount or more the collection of the tax indispute should be held in abeyance till the decision on the appealsprovided there were no lapse on the part of the assessee The CBDTby virtue of the said Instruction No 96 desired that the aboveobservations of the then Dy Prime Minister be brought to thenotice of all the ITOs and that the power of stay on recovery in suchIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlescases be exercised upto the stage of first appeal by the IACCITNoting the above instruction this court observed as underrsquo41 A perusal of para 2 of the aforesaid extract would show thatwhere the income determined is substantially higher than thereturned income that is twice the latter amount or more thenthe collection of tax in dispute should be held in abeyance till thedecision of the appeal is taken In this case as we have noted abovethe assessment is almost 8 times the returned income Clearly theabove extract from instruction No 96 dt 21st Aug 1969 wouldbe applicable to the facts of the casehellip43 Under the circumstances we are of the view that the assessee

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

521 (judgement pronounced on 2222009) 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 issuesCBDTiacuteS INSTRUCTIONSCIRCULARS CONCERNINGSTAY OF DEMAND PETITIONSConsiderable confusion exists in the matter of instructions issuedby the CBDT in regard to stay of demand and the CBDT has notbothered to clarify the issues There is no inter-connectionbetween different instructions and circulars issued by the CBDTas could be seen from the following discussionInstruction No 96 dated 21081969In this instruction which has been made public the CBDT hasstated that the demand has to be stayed till the decision of thefirst appeal Such assurance was given by the then Deputy PrimeMinister and Finance Minister to the Informal ConsultativeCommittee of Parliament and therefore has to be followed in thematter of grant of request for stay ndash the decision of the FMconveyed through an instruction being binding on the fieldofficers For ready reference the above mentioned instruction isreproduced below-ldquo1 One of the points that came up for consideration in the 8th meetingof the Informal Consultative Committee was that income-taxassessment were arbitrarily pitched at high figures and that thecollection of disputed demands as a result thereof was also notstayed inspite of the specific provision in the matter in section220(6)2 The then Deputy Prime Minister had observed asunder-ldquohellipwhere the income determined an assessment was substantiallyhigher than the returned income say twice the latter amount ormore the collection of the tax in dispute should be held in abeyancetill the decision on the appeals provided there were no lapse on thepart of the assesseerdquo3 The Board desires that the above observations may be brought tothe notice of all the ITOs working under you and the powers ofstay of recovery in such cases upto the stage of first appeal may beexercised by the IACCITrdquo

The instruction has not been overruled or withdrawn specificallyby any instruction or circular from the CBDT The Counsel forthe IT Department in the case of Soul v Dy CIT (supra) mentionedbefore the Court that this instruction has been superseded byInstruction No 1914 of 1993 This statement does not seem to becorrect Circular No 96 has been relied upon by the Courts forgranting stay of demand on writ petitions coming up beforeCourts even after the issue of this instruction No 1914 Fewinstances are(a) The Allahabad High Court in its decision in the case ofMrs R Mani Goyal has said that the instruction No 96 is inconsonance with the spirit of the provisions contained insection 220(6)(b) Instruction No96 bas been held to be binding on theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles ArticlesDepartment in the cases covered by it [See Maharana ShriBhagwat Singhji of Mewar v ITAT (1997) 223 ITR 192 199200-01(Raj)](c) Valvoline Cummins Ltdrsquos 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 andstated ldquoThe instructions indicate the departmental thinking onthe subject which is also relevant in the context of exercising thediscretion under section 220(6)rdquo(e) Obviously this Instruction cannot be superseded by theCBDT by itself as the same is based on the statement madeby the then Dy PM and FM before the ConsultativeCommittee of the Parliament and before it is rescinded itwill have to have the approval of the FM and the saidCommitteeYet the Income-tax Department is claiming that this instructionhas been superseded by Instruction No 1914 dated 2121993Departmental Counsel ndash claimed so first before the Delhi HighCourt in case of Soul v Dy CIT (supra) and again in TanejaDevelopersrsquo case (Supra)It may be mentioned in this context that Instruction No 1914 isnot an instruction which has been publically issued as full text ofit is not available in any published literature Obviously such anunpublished instruction for departmental use cannot takeprecedence over public instruction No 96 (supra) and can notsupersede itCircular No 1914 was made available by the Counsel for the ITDepartment to the Delhi High Court in the case of lsquoSoulrsquo and the

court observed thusldquoHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No 1914of 1993 specifically stated that it is in supersession of all earlierinstructions the position obtaining after the decision of this Court inValvoline Cummins Ltd (supra ) is not altered at all This is sobecause para No 2(A) which speaks of responsibility specificallyindicates that it shall be the responsibility of the AO and the TRO tocollect every demand that has been raised ldquoexcept the followingrdquowhich includes ldquo(d) demand stayed in accordance with the paras Band C belowrdquo Para B relates to stay petitions As extracted abovesub-cl (iii) of para B clearly indicates that a highersuperior authoritycould interfere with the decision of the AOTRO only in exceptionalcircumstances The exceptional circumstances have been indicatedas ndash ldquowhere the assessment order appears to be unreasonably highpitched or where genuine hardship is likely to be caused to theassesseerdquo The very question as to what would constitute theassessment order as being unreasonably high pitched in considerationunder the said Instruction No 96 and there it has been noted byway of illustration that assessment at twice the amount of the returnedincome could amount to being substantially higher or high pitchedIn the case before this Court in Valvoline Cummins Ltd (supra) theassesseersquos income was about eight (8) times the returned incomeThis Court was of the view that was high pitched In the present casethe assessed income is approximately 74 times the returned incomeand obviously this would fall within the expression ldquounreasonablyhigh pitchedrdquordquoThese observations show that despite instruction No 1914 sayingthat it is being issued in supersession of all previous instructionsInstruction No 96 is still valid in the matter of grant of stay ofdisputed demands That Instruction No 96 has not beensuperseded by Instruction No 1914 has again been reiterated bythe Delhi High Court in the case of Taneja Developers (Supra) Forready reference the relevant observations of the High Court arereproduced hereinafterldquoLearned counsel for the respondent seeks to plead that the aforesaidcircular does not reflect the current procedure being followed byrespondent in view of a subsequent Instruction No 1914 Howeverthis very instruction as pointed out by learned senior counsel for thepetitioner has once again been considered by the Division bench ofthis Court in Soul v Dy CIT (2008) 220 CTR (Del) 211 (2008) 173Taxman 468(Del)The judgement in Soul (supra) has considered the impact ofCircular No 1914 of 1993 vis-a-vis a judgement in ValvolineCummins Ltd (Supra) and thus a similar submission as is sought

to be advanced by the learned counsel for the respondent beforeus was advanced before that CourtThe Division Bench dealt with it in the following manner lsquo6 The issue that has been raised for the present by the petitioneris with regard to the de-sealing of the bank accounts on account ofthe fact that returned income was approximately Rs 1016 lacswhereas the assessed income is very high pitched in the sense thatit is approximately 74 times of the returned income The learnedcounsel for the petitioner submitted that in view of this fact alonethe petitioner would be entitled to a stay and therefore the impugnednotices ought to be quashed The learned counsel for the petitionerplaced reliance on a decision of this Court in case of ValvolineCummins Ltd v Dy CIT (2008) 217 CTR (Del) 292 This Courtin that case considered Instruction No 96 dt 21st Aug 1969issued by the CBDT The said instruction dealt with the framing ofan assessment which is substantially higher than the returnedincome In the said instruction it was noticed that one of the pointsthat came up for consideration in the eighth meeting of the InformalConsultative Committee was that the income assessments werearbitrarily pitched at high figures and that the collection of disputeddemands as a result thereof was also not stayed in spite of thespecific provision in the matter in Section 220(6) of the said ActThe observations of the then Dy Prime Minister were noted Theobservations were to the effect that where the income determinedon assessment was substantially higher than the returned incomesay twice the latter amount or more the collection of the tax indispute should be held in abeyance till the decision on the appealsprovided there were no lapse on the part of the assessee The CBDTby virtue of the said Instruction No 96 desired that the aboveobservations of the then Dy Prime Minister be brought to thenotice of all the ITOs and that the power of stay on recovery in suchIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlescases be exercised upto the stage of first appeal by the IACCITNoting the above instruction this court observed as underrsquo41 A perusal of para 2 of the aforesaid extract would show thatwhere the income determined is substantially higher than thereturned income that is twice the latter amount or more thenthe collection of tax in dispute should be held in abeyance till thedecision of the appeal is taken In this case as we have noted abovethe assessment is almost 8 times the returned income Clearly theabove extract from instruction No 96 dt 21st Aug 1969 wouldbe applicable to the facts of the casehellip43 Under the circumstances we are of the view that the assessee

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

The instruction has not been overruled or withdrawn specificallyby any instruction or circular from the CBDT The Counsel forthe IT Department in the case of Soul v Dy CIT (supra) mentionedbefore the Court that this instruction has been superseded byInstruction No 1914 of 1993 This statement does not seem to becorrect Circular No 96 has been relied upon by the Courts forgranting stay of demand on writ petitions coming up beforeCourts even after the issue of this instruction No 1914 Fewinstances are(a) The Allahabad High Court in its decision in the case ofMrs R Mani Goyal has said that the instruction No 96 is inconsonance with the spirit of the provisions contained insection 220(6)(b) Instruction No96 bas been held to be binding on theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles ArticlesDepartment in the cases covered by it [See Maharana ShriBhagwat Singhji of Mewar v ITAT (1997) 223 ITR 192 199200-01(Raj)](c) Valvoline Cummins Ltdrsquos 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 andstated ldquoThe instructions indicate the departmental thinking onthe subject which is also relevant in the context of exercising thediscretion under section 220(6)rdquo(e) Obviously this Instruction cannot be superseded by theCBDT by itself as the same is based on the statement madeby the then Dy PM and FM before the ConsultativeCommittee of the Parliament and before it is rescinded itwill have to have the approval of the FM and the saidCommitteeYet the Income-tax Department is claiming that this instructionhas been superseded by Instruction No 1914 dated 2121993Departmental Counsel ndash claimed so first before the Delhi HighCourt in case of Soul v Dy CIT (supra) and again in TanejaDevelopersrsquo case (Supra)It may be mentioned in this context that Instruction No 1914 isnot an instruction which has been publically issued as full text ofit is not available in any published literature Obviously such anunpublished instruction for departmental use cannot takeprecedence over public instruction No 96 (supra) and can notsupersede itCircular No 1914 was made available by the Counsel for the ITDepartment to the Delhi High Court in the case of lsquoSoulrsquo and the

court observed thusldquoHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No 1914of 1993 specifically stated that it is in supersession of all earlierinstructions the position obtaining after the decision of this Court inValvoline Cummins Ltd (supra ) is not altered at all This is sobecause para No 2(A) which speaks of responsibility specificallyindicates that it shall be the responsibility of the AO and the TRO tocollect every demand that has been raised ldquoexcept the followingrdquowhich includes ldquo(d) demand stayed in accordance with the paras Band C belowrdquo Para B relates to stay petitions As extracted abovesub-cl (iii) of para B clearly indicates that a highersuperior authoritycould interfere with the decision of the AOTRO only in exceptionalcircumstances The exceptional circumstances have been indicatedas ndash ldquowhere the assessment order appears to be unreasonably highpitched or where genuine hardship is likely to be caused to theassesseerdquo The very question as to what would constitute theassessment order as being unreasonably high pitched in considerationunder the said Instruction No 96 and there it has been noted byway of illustration that assessment at twice the amount of the returnedincome could amount to being substantially higher or high pitchedIn the case before this Court in Valvoline Cummins Ltd (supra) theassesseersquos income was about eight (8) times the returned incomeThis Court was of the view that was high pitched In the present casethe assessed income is approximately 74 times the returned incomeand obviously this would fall within the expression ldquounreasonablyhigh pitchedrdquordquoThese observations show that despite instruction No 1914 sayingthat it is being issued in supersession of all previous instructionsInstruction No 96 is still valid in the matter of grant of stay ofdisputed demands That Instruction No 96 has not beensuperseded by Instruction No 1914 has again been reiterated bythe Delhi High Court in the case of Taneja Developers (Supra) Forready reference the relevant observations of the High Court arereproduced hereinafterldquoLearned counsel for the respondent seeks to plead that the aforesaidcircular does not reflect the current procedure being followed byrespondent in view of a subsequent Instruction No 1914 Howeverthis very instruction as pointed out by learned senior counsel for thepetitioner has once again been considered by the Division bench ofthis Court in Soul v Dy CIT (2008) 220 CTR (Del) 211 (2008) 173Taxman 468(Del)The judgement in Soul (supra) has considered the impact ofCircular No 1914 of 1993 vis-a-vis a judgement in ValvolineCummins Ltd (Supra) and thus a similar submission as is sought

to be advanced by the learned counsel for the respondent beforeus was advanced before that CourtThe Division Bench dealt with it in the following manner lsquo6 The issue that has been raised for the present by the petitioneris with regard to the de-sealing of the bank accounts on account ofthe fact that returned income was approximately Rs 1016 lacswhereas the assessed income is very high pitched in the sense thatit is approximately 74 times of the returned income The learnedcounsel for the petitioner submitted that in view of this fact alonethe petitioner would be entitled to a stay and therefore the impugnednotices ought to be quashed The learned counsel for the petitionerplaced reliance on a decision of this Court in case of ValvolineCummins Ltd v Dy CIT (2008) 217 CTR (Del) 292 This Courtin that case considered Instruction No 96 dt 21st Aug 1969issued by the CBDT The said instruction dealt with the framing ofan assessment which is substantially higher than the returnedincome In the said instruction it was noticed that one of the pointsthat came up for consideration in the eighth meeting of the InformalConsultative Committee was that the income assessments werearbitrarily pitched at high figures and that the collection of disputeddemands as a result thereof was also not stayed in spite of thespecific provision in the matter in Section 220(6) of the said ActThe observations of the then Dy Prime Minister were noted Theobservations were to the effect that where the income determinedon assessment was substantially higher than the returned incomesay twice the latter amount or more the collection of the tax indispute should be held in abeyance till the decision on the appealsprovided there were no lapse on the part of the assessee The CBDTby virtue of the said Instruction No 96 desired that the aboveobservations of the then Dy Prime Minister be brought to thenotice of all the ITOs and that the power of stay on recovery in suchIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlescases be exercised upto the stage of first appeal by the IACCITNoting the above instruction this court observed as underrsquo41 A perusal of para 2 of the aforesaid extract would show thatwhere the income determined is substantially higher than thereturned income that is twice the latter amount or more thenthe collection of tax in dispute should be held in abeyance till thedecision of the appeal is taken In this case as we have noted abovethe assessment is almost 8 times the returned income Clearly theabove extract from instruction No 96 dt 21st Aug 1969 wouldbe applicable to the facts of the casehellip43 Under the circumstances we are of the view that the assessee

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

court observed thusldquoHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No 1914of 1993 specifically stated that it is in supersession of all earlierinstructions the position obtaining after the decision of this Court inValvoline Cummins Ltd (supra ) is not altered at all This is sobecause para No 2(A) which speaks of responsibility specificallyindicates that it shall be the responsibility of the AO and the TRO tocollect every demand that has been raised ldquoexcept the followingrdquowhich includes ldquo(d) demand stayed in accordance with the paras Band C belowrdquo Para B relates to stay petitions As extracted abovesub-cl (iii) of para B clearly indicates that a highersuperior authoritycould interfere with the decision of the AOTRO only in exceptionalcircumstances The exceptional circumstances have been indicatedas ndash ldquowhere the assessment order appears to be unreasonably highpitched or where genuine hardship is likely to be caused to theassesseerdquo The very question as to what would constitute theassessment order as being unreasonably high pitched in considerationunder the said Instruction No 96 and there it has been noted byway of illustration that assessment at twice the amount of the returnedincome could amount to being substantially higher or high pitchedIn the case before this Court in Valvoline Cummins Ltd (supra) theassesseersquos income was about eight (8) times the returned incomeThis Court was of the view that was high pitched In the present casethe assessed income is approximately 74 times the returned incomeand obviously this would fall within the expression ldquounreasonablyhigh pitchedrdquordquoThese observations show that despite instruction No 1914 sayingthat it is being issued in supersession of all previous instructionsInstruction No 96 is still valid in the matter of grant of stay ofdisputed demands That Instruction No 96 has not beensuperseded by Instruction No 1914 has again been reiterated bythe Delhi High Court in the case of Taneja Developers (Supra) Forready reference the relevant observations of the High Court arereproduced hereinafterldquoLearned counsel for the respondent seeks to plead that the aforesaidcircular does not reflect the current procedure being followed byrespondent in view of a subsequent Instruction No 1914 Howeverthis very instruction as pointed out by learned senior counsel for thepetitioner has once again been considered by the Division bench ofthis Court in Soul v Dy CIT (2008) 220 CTR (Del) 211 (2008) 173Taxman 468(Del)The judgement in Soul (supra) has considered the impact ofCircular No 1914 of 1993 vis-a-vis a judgement in ValvolineCummins Ltd (Supra) and thus a similar submission as is sought

to be advanced by the learned counsel for the respondent beforeus was advanced before that CourtThe Division Bench dealt with it in the following manner lsquo6 The issue that has been raised for the present by the petitioneris with regard to the de-sealing of the bank accounts on account ofthe fact that returned income was approximately Rs 1016 lacswhereas the assessed income is very high pitched in the sense thatit is approximately 74 times of the returned income The learnedcounsel for the petitioner submitted that in view of this fact alonethe petitioner would be entitled to a stay and therefore the impugnednotices ought to be quashed The learned counsel for the petitionerplaced reliance on a decision of this Court in case of ValvolineCummins Ltd v Dy CIT (2008) 217 CTR (Del) 292 This Courtin that case considered Instruction No 96 dt 21st Aug 1969issued by the CBDT The said instruction dealt with the framing ofan assessment which is substantially higher than the returnedincome In the said instruction it was noticed that one of the pointsthat came up for consideration in the eighth meeting of the InformalConsultative Committee was that the income assessments werearbitrarily pitched at high figures and that the collection of disputeddemands as a result thereof was also not stayed in spite of thespecific provision in the matter in Section 220(6) of the said ActThe observations of the then Dy Prime Minister were noted Theobservations were to the effect that where the income determinedon assessment was substantially higher than the returned incomesay twice the latter amount or more the collection of the tax indispute should be held in abeyance till the decision on the appealsprovided there were no lapse on the part of the assessee The CBDTby virtue of the said Instruction No 96 desired that the aboveobservations of the then Dy Prime Minister be brought to thenotice of all the ITOs and that the power of stay on recovery in suchIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlescases be exercised upto the stage of first appeal by the IACCITNoting the above instruction this court observed as underrsquo41 A perusal of para 2 of the aforesaid extract would show thatwhere the income determined is substantially higher than thereturned income that is twice the latter amount or more thenthe collection of tax in dispute should be held in abeyance till thedecision of the appeal is taken In this case as we have noted abovethe assessment is almost 8 times the returned income Clearly theabove extract from instruction No 96 dt 21st Aug 1969 wouldbe applicable to the facts of the casehellip43 Under the circumstances we are of the view that the assessee

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

to be advanced by the learned counsel for the respondent beforeus was advanced before that CourtThe Division Bench dealt with it in the following manner lsquo6 The issue that has been raised for the present by the petitioneris with regard to the de-sealing of the bank accounts on account ofthe fact that returned income was approximately Rs 1016 lacswhereas the assessed income is very high pitched in the sense thatit is approximately 74 times of the returned income The learnedcounsel for the petitioner submitted that in view of this fact alonethe petitioner would be entitled to a stay and therefore the impugnednotices ought to be quashed The learned counsel for the petitionerplaced reliance on a decision of this Court in case of ValvolineCummins Ltd v Dy CIT (2008) 217 CTR (Del) 292 This Courtin that case considered Instruction No 96 dt 21st Aug 1969issued by the CBDT The said instruction dealt with the framing ofan assessment which is substantially higher than the returnedincome In the said instruction it was noticed that one of the pointsthat came up for consideration in the eighth meeting of the InformalConsultative Committee was that the income assessments werearbitrarily pitched at high figures and that the collection of disputeddemands as a result thereof was also not stayed in spite of thespecific provision in the matter in Section 220(6) of the said ActThe observations of the then Dy Prime Minister were noted Theobservations were to the effect that where the income determinedon assessment was substantially higher than the returned incomesay twice the latter amount or more the collection of the tax indispute should be held in abeyance till the decision on the appealsprovided there were no lapse on the part of the assessee The CBDTby virtue of the said Instruction No 96 desired that the aboveobservations of the then Dy Prime Minister be brought to thenotice of all the ITOs and that the power of stay on recovery in suchIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlescases be exercised upto the stage of first appeal by the IACCITNoting the above instruction this court observed as underrsquo41 A perusal of para 2 of the aforesaid extract would show thatwhere the income determined is substantially higher than thereturned income that is twice the latter amount or more thenthe collection of tax in dispute should be held in abeyance till thedecision of the appeal is taken In this case as we have noted abovethe assessment is almost 8 times the returned income Clearly theabove extract from instruction No 96 dt 21st Aug 1969 wouldbe applicable to the facts of the casehellip43 Under the circumstances we are of the view that the assessee

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

would in normal course be entitled to an absolute stay of thedemand on the basis of the above instructionrsquordquoMr Jolly who appeared on behalf of the respondent submitsthat Instruction No 96 which formed the basis of the decision ofthis Court in Valvoline Cummins Ltdrsquos case now standssuperseded by Instruction No 1914 of 1993 dt 2nd Dec 1993 MrJolly handed over a copy of the said instruction The relevantportion of the said instruction reads as underA Responsibility(i) It shall be the responsibility of the AOs and the TRO to collectevery demand that has been raised except the following1048708 Demand which has not fallen due1048708 Demand which has been stayed by a Court or Tribunal orSettlement Commission1048708 Demand for which a proper proposal for write off has beensubmitted1048708 Demand stayed in accordance with paras B and C below(ii) Where demand in respect of which a recovery certificate has beenissued or a statement has been drawn the primary responsibilityfor the collection of tax shall rest with the TRO(iii) It would be the responsibility of the supervisory authorities toensure that the AOs and the TROs take all such measures as arenecessary to collect the demand It must be understood that mereissue of a show-cause notice with no follow up is not to be regardedas adequate effort to recover taxesB Stay petitions(i) Stay petitions filed with the AOs must be disposed of within twoweeks of the filing of petition by the taxpayer The assessee mustbe intimated of the decision without delay(ii) Where stay petitions are made to the authorities higher than theAO (Dy CITCITChief CIT) it is the responsibility of the higherauthorities to dispose of the petitions without any delay and inany event within two weeks of the receipt of the petition Such adecision should be communicated to the assessee and the AOimmediately(iii) The decision in the matter of stay of demand should normally betaken by AOTRO and his immediate superior A higher superiorauthority should interfere with the decision of the AOTRO onlyin exceptional circumstances eg where the assessment orderappears to be unreasonably high-pitched or where genuinehardship is likely to be caused to the assessee The higher authoritiesshould discourage the assessee from filing review petitions beforethem as a matter of routine or in a frivolous manner to gain timefor withholding payment of taxesC Guidelines for staying demand

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

(i) A demand will be stayed only if there are valid reasons for doingso Mere filing an appeal against the assessment order will not bea sufficient reason to stay the recovery of demand A few illustrativesituations where stay could be granted arehellipRelying upon the said Instruction No 1914 of 1993 Mr Jollysubmitted that all previous instructions stood superseded whichincluded the supersession of said Instruction No 96 He furthersubmitted that para No 2(C) which deals with guidelines forstaying demand specifically requires that a demand be stayedonly if there are valid reasons for doing so and that a mere filing ofan appeal against the assessment order will not be a sufficientreason for staying recovery of a demandHaving considered the arguments advanced by the learned counselfor the parties we are of the view that although Instruction No1914 of 1993 specifically states that it is in supersession of allearlier instructions the position obtaining after the decision ofthis Court in Valvoline Cummins Ltd (supra) is not altered at allThis is so because para No 2(A) which speaks of responsibilityspecifically indicates that it shall be the responsibility of the AOand the TRO to collect every demand that has been raised lsquoexceptthe followingrsquo which includes (d) demand stayed in accordancewith the paras B and C herein aboversquo Para B relates to stay petitionsAs extracted above sub-cl(iii) of para B clearly indicates that ahighersuperior authority could interfere with the decision of theAOTRO only in exceptional circumstances The exceptionalcircumstances have been indicated as lsquowhere the assessment orderappears to be unreasonably high pitched or where genuine hardshipis likely to be caused to the assesseersquo The very question as to whatwould constitute the assessment order as being reasonably highpitched in consideration under the said Instruction No 96 andthere it has been noted by way of illustration that assessment attwice the amount of the returned income would amount to beingsubstantially higher or high pitched In the case before this Courtin Valvoline Cummins Ltd (supra) the assesseersquos income wasabout eight (8) times the returned income This Court was of theview that was high pitched In the present case the assessedincome is approximately 74 times the returned income andobviously this would fall within the expression lsquounreasonablyhigh pitchedThe aforesaid issue is thus no more res integra and thus theimpugned order is not sustainable A figure of 8 times and 74times has been classified as lsquounreasonably high pitchedrdquo In thepresent case it is 350 times and so falls under the samenomenclatureConsequently the operation of the impugned order is stayed till

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

the disposal of the writ petition The natural consequence wouldIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articlesbe that any attachment order issued in pursuance of the impugnedorder would not have any effectrdquoThere is one more aspect concerning Instruction No 96 This wasissued on the orders of the Dy PM and PM on the basis ofstatement made by the Dy PM and FM before the InformalConsultative Committee The CBDT has not come out with anydeclaration that FMrsquos approval has been taken by it forsuperseding this Instruction No 96 Without saying so it is wrongto say that this Instruction gets superseded merely by saying inInstruction No 1914 that it is issued in supersession of all previousCircularsInstructionsThus the AOs in rejecting the requests for stay of demand areunjustifiably refusing to follow Instruction No 96 which cannotbe said to have been superseded by Instruction No 1914 (supra)It is regrettable that their stand is being supported by the StandingCounsel of the IT Department at the Delhi High Court The CBDTrsquosinstructions are quite specific regarding the stay of demandconcerning disputed additions The disputed demand needs tobe stayed till the disposal of first appeal where the demand ismuch more than on the income returned ie on twice on thereturned income The case is stronger as per the Courtrsquos decisionwhen the assessed income is 8 times 74 times ndash anything uptodouble or more But unfortunately the CBDTrsquos instructions arebeing ignored blatantly with no accountability and the assesseesare made to run from one authority to the other without anysuccess because of rigid attitudes The CBDT has to ponder whethersuch situation should continue when there is emphasis on goodtaxpayer-tax collector relationshipOTHER CIRCULARS OF THE CBDT ON STAYOF DEMANDCBDTiacutes Circular No 530 Dated 06031989This circular directs that the AO may exercise his discretion undersection 220(6) and treat the assessee not being in default in regardto demand payable in the following circumstances(a) The demand in dispute has arisen because the AO hasadopted an interpretation of law on which there areconflicting decisions from the High Courts or thejurisdictional High Court has adopted an interpretationwhich has not been accepted by the IT Department(b) The demand in dispute relates to issues that have beendecided 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 allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

(c) In respect of cases which are not covered by (a) and (b)above the AO has been advised to take into account allthe relevant facts and communicate his decision to theassessee by a speaking order It has been said in thisCircular also that while exercising discretion under thisprovision the financial capacity of the assessee to pay thedemand will not be relevant But applications are beingrejected on the basis that the financial condition of theassessees is soundEXERCISE OF DISCRETION BY THE AOsIN DECIDING STAY OF DEMANDAPPLICATIONSection 220(6) gives discretionary power to the AO in the matterof grant of stay of demand But such a discretion cannot beexercised in an autocratic manner as is being done Courts haveheld that discretion is to be exercised in a just and fairway InShivnarayana Laduram v Assistant Commissioner of Commercial Taxes(1967) 19 STC 50 the AP High Court has said that the discretionhas to be exercised properly and with judicious care and notarbitrarily or capriciously The officer is bound to consider allthe circumstances of the case and come to a conclusion whether itis a fit case where in exercise of his discretion he would stay thepayment of the disputed tax pending the appeal It is his duty toapply his mind to the facts and circumstances alleged in comingto a conclusionIn L Hirday Narain v ITO (1970) 78 ITR 26 (SC) the apex court hassaid that if a statute invests a public officer with authority to do an act ina specified set of circumstances it is imperative on him to exercise hisauthority in a manner appropriate to the case when a party interestedand having a right to apply moves in that behalf and the circumstancesfor exercise of authority are shown to exist Even if the words in thestatute be prima facie enabling the courts will readily infer a duty toexercise power which is invested in aid of enforcement of right- public orprivate- of a citizen Similar view has been expressed by the GujaratHigh Court in Madhukar Manilal Modi v CWT (1978) 113 ITR 318(Guj)The Courts have held that it is wrong to assume that the exerciseof discretion is only a naked arbitrary power to reject theapplication for stay of recovery of disputed amount of tax pendingthe appeal The statute has conferred upon the Assessing Officerthe power to grant stay and it is his duty to examine andscrutinize the grounds on which the stay is asked for [See EKrishnappa Naicker v Dy CTO (1963) 14 STC 162 (Mad) B BMoidin Kunhi v State of Mysore (1971) 27 STC 154 (Mys)]In Chesebrough Pondrsquos Inc v AAC (1973) 32 STC 464 (Mad) the

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

Madras High Court has observed that a discretion having beenby law vested in the authority concerned the power is for exerciseand not for a laconic refusal to exercise it If the authority refusedto grant stay the order should ex facie disclose why he declined togrant stayExperience shows that such avowed principles laid down by thejudiciary are violated with impunity by tax authorities in dealingwith stay petitions without any accountability of any kind at anylevel and the assessees are made to run from one authority to theother seeking relief without success of any nature ndash their petitionsgetting rejected by cryptic non-speaking orders many a timesleading to severe jolts and losses to their businesses It is thus nowonder that Courts are getting flooded with writ petitions insuch matters The Delhi High Court in a period of one year (supra)has passed three orders on such matters giving relief to theIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesassessees The CBDT needs to ponder whether such a state ofaffairs should continueSOME OTHER ASPECTS CONCERNING STAYOF DEMAND PETITIONSFinancial capacity considerationMany applications for stay of demand are being rejected on theground that the financial condition of the assessee is sound Inone case nearly Rs 250 crores demand has been collected bycoercive measures with the approval of CIT and CIT(A) (whohad to deal with stay application on Allahabad High Courtrsquosdirections) on the ground that the assesseersquos financial position isvery sound despite the fact that the demand raised is highlydisputable This is being done in a blatant manner disregardingCBDTrsquos instructions and the Court decisions as could be seenfrom the latter discussion(a) In CBDTrsquos Circular No 530 (supra) it has been clearly saidthat while exercising discretion under section 220(6) ldquothefinancial capacity of the assessee to pay the demand willnot be relevantrdquo(b) In Court decisions also similar observations have beenmade In R P David v Ag ITO (1972) 86 ITR 699 (Mad) theCourt has observed that though section 220(6) does notindicate in what cases denial of discretion shall be justifiedthe fact that the assessee is financially sound and in aposition to pay is not in itself a ground for refusing toexercise the discretion in granting the stayHowever the field authorities are least bothered by the

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

CBDTrsquos instruction (which are binding on them) and Courtdecisions which deserve respect in terms of ConstitutionalSchemeNO HEARING IS BEING GIVEN BEFOREREJECTING APPLICATION FOR STAYAs the exercise of discretion by the AO under section 220(6) isquasi-judicial function and he has to exercise his power fairlyand reasonably and not arbitrarily or capriciously the AOshould give reasons for dismissing an application made by anassessee for involving his discretion and should also hear theassessee [Cf Seth Gopaldas Paliwal v WTO [1983] 139 ITR 900(MP)] Moreover the order should be a speaking order ndash[Teletube Electronics Ltd v CIT [1998] 230 ITR 705 7-7 (Del) Chesebrough Pondrsquos Inv v AAC (CT) [1973] 32 STC 464 (Mad)]Yet stay applications are being rejected unilaterally withoutgiving any opportunity to the assessees contrary to the principleof natural justiceVIOLATION OF THE PRINCIPLES OFNATURAL JUSTICEWhere an assessee files an application under section 220(6) itis necessary that he or it should be given an opportunity ofbeing heard But in most cases this is not done Judicial noticeof such situations has been taken in a number of cases egAggarwal Rice and General Mills v CIT (1993) 204 ITR 480 (PandH) In Security and Detective Bureau Ltd v CIT (1993) 44 ITD452(Mad-Trib) it was held that when an application is madeto the Commissioner for instructions to the ITO or the TRO itis expected that the Commissioner would follow the rules ofnatural justice give an adequate opportunity of being heardto the assessee and make a speaking order particularly whenhis application is rejected so that he knows why his requesthas not been acceded to Revenuersquos contention that since theCommissioner was exercising only an administrative powerhe was not bound to follow the rules of natural justice or tomake a speaking order could not be accepted Even though theCommissioner may be exercising an administrative functionas long as he is interfering with the judicial discretion of theITO or TRO he is bound to follow the principles of naturaljusticeCoercive steps for recovery of demand are started even when theapplication for stay is pending Judicial propriety demands thatwhere an application for stay of demand for disposal undersection 220(6) is pending the demand should be stayed until theapplication is considered and an order is passed ndash [Sat Pal v ITAT217 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 Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

v CIT 256 ITR 698 (Gau) Debasish Moulik v DCIT 231 ITR 737(Cal)]Passing of speaking order is necessary in cases of rejection Thisaspect is generally neglected and cryptic orders sometimes evenwith one word lsquoRejectedrsquo are being passed ignoring the CBDTrsquoscircular No 530 where it has been clearly said that lsquospeakingordersrsquo should be passed on stay of demand applications In thecase of KEC International Ltd v BR Balakrishnan and Others [2001]251 ITR 158 (Bom) on an application for stay of demand of Rs1293 crores for the asst year 1988-89 pending disposal of anappeal against the assessment the AO and the CIT on theadministrative side rejected the stay application without givingany reasons Thereupon the AO issued a garnishee notice to theassesseersquos banker On a writ petition by the assessee the Courtset aside the order and the garnishee notice and laid down thefollowing parameters to be complied with by the authoritieswhile passing orders on stay applications filed pending appealsto the first appellate authority1048708 The authority has to at least set out the case of assesseebriefly1048708 If the assessed income is higher than the returned incomethe authority has to consider whether the assessee has madeout a case for unconditional stay If not whether looking tothe questions involved in appeal a part of the amountshould be ordered to be deposited for which reasons shouldbe given by the authority1048708 If the authority wants the assessee to deposit the amountIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articles Articleshe can briefly indicate in his order whether the assessee isfinancially sound and viable to deposit the amount1048708 The authority concerned will also examine whether thetime to prefer an appeal has expired Generally coercivemeasures may not be adopted during the period providedby the statute to go in appeal However if the authorityconcerned comes to the conclusion that the assessee islikely to defeat the demand it may have recourse tocoercive action for which brief reasons may be indicated inthe orderThe Court clarified that the above parameters were onlyrecommendatory and not exhaustiveCourts have gone to the extent of stating that if the AO has givenno reasons at all for rejection of an application for stay he can bedirected by the Court to take up the application and dispose of

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

the same by giving reasons for his discretion [See Hardeo DasJagnath v ITO (1961) 43 ITR 562 (Assam) and Esthuri Aswathaiah vITO (1959) 37 ITR 518 (Mys)] But unfortunately summary ordersare being passed in such matters with impunity without any fearof accountabilitySTAY OF DEMAND WHEN THE APPEAL ISPENDING ntilde OTHER COURTS DECISIONSCourts have also held that where the assessee has gone in appealand the appeal is not frivolous it may in the circumstances of acase be the duty of the AO to refrain from enforcing paymentof the tax under the notice of demand and to grant extension oftime till the appeal is disposed of If the AO fails to dischargethis duty he may be compelled by a writ under Article 226 ofthe Constitution to stay his hands [Ladhuram Taparia v Bagchi(BK) 20 ITR 51 (Cal) Vetcha Sreeramamurthy (supra) HardeodasJagnnath v ITO 43 ITR 562 (Assam) Dwadesh Shreni (PC) and CoP Ltd v ITO 50 ITR 622(All) Hindustan Rubber Works Ltd (supra)David (RP) v Ag ITO (supra) Aluminium Corporation of India Ltdv Balakrishnan (C ) 37 ITR 267 (Cal) Yusuf Jan Sahiv v Addl ITO42 ITR 637(Ker) Seth Gopaldas Paliwal v WTO (Supra) Rajan Nair(NCAER) v ITO 165 ITR 650 (Ker)]ORDER FOR PAYMENT OF DEMAND ININSTALMENTSThe Kerala High Court has held in the case of Gajanana Agenciesv ITO (1994) 210 ITR 865 (Ker) that section 220(6) confers powerof the assessing authority to keep the recovery proceedings inabeyance till the disposal of the first appeal with or withoutconditions An order allowing the petitioner to pay the demandin a number of instalments is not an order contemplated undersection 220(6) Such an order is another mode of enforcing therecovery of tax On the facts of that case the Court directed theauthorities concerned to keep the revenue recovery proceedingspending till the disposal of the first appeal and directedexpeditious disposal of such appealDEMAND OF SECURITY FOR STAYING THEDEMANDSometimes when AOs agree to stay the demand they put onerousconditions regarding the same in the matter of making availablethe security as safeguard against the demands raised howsoeverunreasonable the same may be Mostly bank guarantees aredemanded which cause considerable financial loss which isavoidable More pragmatic approach in this regard is necessaryPersonal guarantees deposit of title deeds of immovableproperties can be better substitutes to bank guaranteesSympathetic attitude needs to be taken where taking of securities

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

is inevitableSTAY OF DEMAND DURING THE COURSE OFRECOVERY PROCEEDINGSThe AO has power to stay the demand even in cases whererecovery proceedings are initiated But this is rarely or neverdone In the case of Mrs Goyal (supra) the Allahabad High Courthas considered this issue It has observed that there cannot be aquestion of directing the assessee to deposit any such security orbank guarantee As regards the other form of security the judgefelt that the capital assets comprising land building plant andmachinery installed at the factory of the appellant are sufficientto cover the likely amount of income-tax if any payable by theappellantInvariably the Admn Commissioners insist that the assesseemust first approach the AO for stay of demand and only whenhe rejects the prayers the higher echelons can be approachedThis invariably delays matters as the applications for stay keepon lying with the AOs there being no time limit for theirdisposal It has been decided by the Allahabad High Court inTin Mfg Co of India v CIT (1995) 212 ITR 451 (All) that it is notnecessary that before invoking the powers of the first appellateauthority to stay recovery of demand an assessee shouldapproach the AO under section 220(6) or that the AO must rejectthe assesseersquos prayer for the stay of demand This requirementunnecessarily prolongs taxpayersrsquo agonies Hence thisprocedure need not be insisted upon The Commissioners cancall for the report on such applications from the AOs wherethey consider it necessary if applications made to him directlyThis can be ensured by appropriate instruction under section119 of the Act by the CBDTSUMMING UPThe foregoing discussion shows an alarming state of affairsconcerning stay of disputed demands which matter affects thetaxpayers most vitally Tax authorities at different levels aredeciding such applications in the way in the manner and withinthe time limit they like without any accountability at any levelThe taxpayers are left aghast with no alternative but to approachthe High Court by writ petitions All taxpayers cannot afford toIT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)Articlesdo so Hence majority of them have to suffer because of unjustifiedattitudes of the tax authorities in many cases As mentioned inthe earlier discussion it is forgotten that the power conferred ona 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 exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

does not exercise it when the occasion called for it or if he exercisesit in such a manner that it is no exercise of discretion at all he canbe compelled to discharge his duties This was so ruled inLadhuram Taparia v B K Bagchi (1951) 20 ITR 51 (Cal) and inmany cases thereafter Further in MLMMahalingam Chettiar vITO (supra) the decision is that a request for the exercise of thepower under section 220(6) cannot be merely summarily rejectedon the basis that the power is there with the officer but that he isnot bound to exercise it Unfortunately these judicial verdictshave not brought any relief to the harassed taxpayers because oflack of judicial and administrative activism in this area Forexample even the Allahabad High Court in Mrs Goyalrsquos case(supra) has not said firmly that the IT Department should strictlyfollow the CBDTrsquos instructions ie Instruction No 96 of 210869Observations like ldquohellip If the assessing authorities or the appellateauthorities are not in a mood to stay recovery proceedings even contraryto the circular of the CBDTrdquo give a tool to the lower authorities toact arbitrarily in such matters The CBDTrsquos instructions arebinding on the field officers under section 119 and the questionof their lsquomoodrsquo in such matters is hardly relevant The solution tothe problem lies in the firm implementation of the legalprovisions and administrative decisions More important in theexisting situation is the vigilance of the taxpayers and their legaladvisors in insisting on getting their legal rights on this matterimplemented The taxpayers have right to get their demands indisputed cases stayed till the disposal of first appeal and they getit only if they exercise such a right forcefully Unfortunatelyspineless advocacy is one factor that it is responsible for theexisting state of affairs In one case where the CIT did not mentionthe forceful arguments favouring stay of demand in the orderrejecting stay application and the matter was taken to the HighCourt by a writ petition the Counsel for the assessee expressedhis inability to say on affidavit that the arguments written andoral justifying stay before the CIT have not even been referredby the CIT and hence order is one sided on the ground that hecannot afford to annoy the CIT by filing such an affidavit beforethe High Court as he has to appear before him quite often inconnection with his practice What a fall in standards of a nobleprofessionThe CBDT needs to consider that many decisions of the AOs arereversed by the appellate forums Therefore to press for thedemands presuming that the assessments made by the AOs areinfallible when the assessees may have strong grounds in theirfavour would be highly unfair It can lead to ruination oftaxpayersrsquo business Questions of fact and of law are open for

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

decision before the two appellate authorities both of whompossess plenary powers In exercising his power the AssessingOfficer has not to act as a mere tax-gatherer but as a quasijudicialauthority vested with the power of mitigating hardshipto the assessee [N Rajan Nair v ITO (supra)] Also see HallacarryEstate v AGITO (1985) 155 ITR 411 (Mad) It is also to beremembered that the exercise of discretion is not a nakedarbitrary power to reject the application for stay of recovery ofdisputed amount of tax pending the appeal The statute hasconferred upon the Assessing Officer the power to grant stayand it is his duty to examine and scrutinize the grounds onwhich the stay is asked for [E Krishappa Naicker v Dy CTO (1963)14 STC 162 (Mad) BB Moidin Kunhi v State of Mysore (1971) 27STC 154 (Mys)WHAT NEEDS TO BE DONEThe foregoing discussion clearly brings out the gravity of thesituation and the chaos and the confusion that is prevailing in thematter of decision making on stay applications The free for allsituations with confusing instructions and without anyaccountability existing presently needs to be regulated by someconsidered guidelines on the subject Some suggestions forimproving the situations are mentioned hereinafter 1048708 The AOs generally do not grant stay against their ownorders Hence section 220(6) can be amended to providethat petitions for stay need to be filed only before theAdministrative Commissioners with a copy to the AOThrough administration instructions it can be providedthat the AOs will give their comments to CIT suo-motu onsuch petitions within 8 days of the receipt of the sameThose who fail to do so should be made administrativelyaccountable1048708 The administrative CIT will dispose of such petitionswithin 15 days of its receipt after giving an opportunity ofbeing heard to the assessees If such an order is not passedwithin this time limit then the stay could be deemed tohave been allowed The practice of disposal within theprescribed time limit has been accepted by the IT Act insection 12AA(2)1048708 In granting stay bank guarantee should be insistedupon only in cases where for reasons to be recorded inwriting it is considered inevitable ndash not as a routinecondition1048708 A consolidated view should be taken of the existingInstructionsCirculars on the subject of stay of demandand a master circular on the subject should be issued by the

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)

CBDT covering all relevant aspects indicating the actionsto be taken where deviation is made from such guidelineswithout justification1048708 The CBDT needs to examine the situation as to why theCommissioners (Appeals) as a prevalent practice are notexercising power to stay the demand in cases where appealsare pending before them It would look most inappropriateif they are doing so on the basis of some instructions fromthe CBDT If there are any such instruction the same needsto be withdrawn 1048708IT Assessments ndash Stay of Demand during Pendency of Appeal before the Commissioner (Appeals)